Tens of millions of Americans live outside the traditional financial system, and as as much as 11%– or about 50 million, from 2022 – can be classified as “invisible credit”. This means that they have little or no credit history; and therefore, could be denied access to credit, or otherwise be denied access to car loans, mortgages, or even business loans from financial institutions.
And many of those same Americans come from underserved communities. Since so many people are effectively excluded from the mainstream financial system, a coalition of banks and financial institutions are coming together to try to expand access to credit by sharing bank account data and other information through the project. REACh (Roundtable for Economic Access and Change), an initiative of the Office of the Comptroller of the Currency. Chase and Wells Fargo are among the participants, and Citi recently joined effort.
fast business spoke with Lisa Frison, Head of Financial Inclusion and Racial Equity of Citi U.S. Personal Banking, about credit invisibility, why it matters and how the project REACh and other new pilot programs from Citi can help address this. Frison has spent many years in the financial industry improving access to credit and financial services for underserved consumers and says recent collaboration between institutions is enabling industry players to target these consumers in new and unprecedented ways. .
The following has been edited for clarity and length:
What exactly does “credit invisibility” mean?
Simply put, credit invisibility means having no credit history with the major bureaus. There are two ways that could happen. First, you have no credit history; and if you have a limited credit history, you are not rated. And second, you may have had some activity, but too few accounts, or those accounts are too recent, or no recent credit activity.
How does the invisibility of credit affect people? Why is this a problem?
This is a big problem for two main reasons. First, credit is a utility, and being able to get credit to pay for your daily needs, like paying for a house or a car, is extremely important. The other problem is that having a credit score is almost like a lifeline to access basic services [that people need] for their daily life – this includes loans, insurance or even the possibility of obtaining a mobile phone. Having a credit score and track record is really important to get these services.
Beyond these, credit is essential for achieving other major goals, such as starting a business or buying a home. But it’s all about access.
How does the REACh project help those who are invisible to credit?
What we’re doing is designing ways for people who don’t have a case or have light cases to get a second look from our underwriting teams, to help people get into the mainstream financial.
Project REACh is an industry-wide initiative to extend credit to people with no or low credit history. Institutions meet with credit bureaus to guarantee accounts if there is no history or little information. Banks now have a way to share deposit information, so customers who may have been turned down for credit in the past can have another shot at being approved.
It’s a way for a bank to look and see if customers have relationships with other banks. If they can’t approve these customers through traditional processes and underwriting criteria, these other relationships can show or demonstrate that they can manage their money, paving the way for credit approval.
Why has credit invisibility recently become a priority for Citi?
There are 50 million people who are invisible to credit. At Citi, we try to remove barriers, provide access, and be inclusive. What’s different now is that we have industry collaboration that allows us to share like never before. We will be able to tackle a vast problem that affects millions of people. We try to ensure that as many consumers as possible can participate.
How does your experience help prepare you to lead this initiative for Citi?
I joined Citi in May to lead financial inclusion and racial equity. This is not a new initiative for Citi, as they have been working on it for many years. But it’s an opportunity to amplify our focus and provide market opportunities to help underserved communities.
Previously, I worked at another bank, working with and for various consumers from various backgrounds. I’ve spent a lot of time looking at the data regarding the challenges faced by underserved communities, which are often diverse communities, and I know that Citi has made great commitments to fostering greater financial inclusion to help people to be ready for credit.
It really is groundwork. This is the job I signed up for: using my voice and influence to help people. I want to bring more on-ramps to help people navigate the financial system. It is near and dear to my heart.