Could AI and fintech help you get a bank loan?
Here’s another possible use for artificial intelligence: helping low-income consumers qualify for loans. These consumers may not have the required paperwork, or the documentation banks require in loan applications. Could AI and fintech help?
Emily Williams, an assistant professor at Harvard Business School, wrote a pper bout this about this and discussed it at a recent Federal Reserve Bank of Boston conference. Her research focused on whether AI and fintech can help level the playing field for consumers who are left out of the traditional banking system; the unbanked. During a break in the action Williams tells me new technologies could make a difference.
“We think about fintech sort of bringing down the cost of financial services, increasing competition, expanding the pie,” she explained.
Williams says fintech apps that help you track your money and budget can also keep you safe from things like overdraft fees. Banks can use technology to broaden the pool of people they loan money to, using AI to decide whether to make a loan to someone who doesn’t have the typical data they look for – like your payment history on a mortgage or credit card. AI can help banks sift through a different trail of data — mounds of information on things like whether you paid your bills and rent on time.
“AI can be used in that and is used in that to sort of to try to understand more deeply characteristics about people by looking at their patterns, the patterns in their data, essentially,” Williams said.
But Williams says AI and fintech aren’t the end-all-be-all for people who are shut out of traditional banking. AI can be discriminatory. And lenders need to watch out for AI bias. For example…
“We might be able to understand a person’s gender from just looking at their bank account transactions,” Williams told me.
Williams says AI might make a lending decision based on gender. She says that’s illegal, but AI doesn’t know that. Also, you have to be tech savvy to use fintech. If you don’t have a smartphone and good internet access? Forget it. And Christine Parlour, a financial economist at Berkeley, says fintech probably wouldn’t help undocumented immigrants who are trying to open a bank account.
“So, if the reason why undocumented aren’t in banks is because they don’t have documentation then fintechs are not going to help,” she said.
With all of these caveats and what-ifs, Boston Fed President Susan Collins was cautious when I asked her about fintech and AI helping bring more people into the banking world.
“I think there are reasons for skepticism and concern and there are also reasons for optimism,” she said.
Cautious optimism. Collins says economists have a lot more work to do before they can deliver a verdict on fintech, AI and the consumers who are still shut out of the traditional banking system.
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