The problem of unbanked consumers — those without access to a checking or savings account — has remarkably improved, with over 95 percent of American households reporting access to basic banking services, according to FDIC data. But the same data indicates that a little under 20 percent of the population is underbanked and can’t gain access to the full suite of banking services — particularly lending and credit underwriting — because they don’t qualify. They either don’t have enough credit history, or their credit history makes them look like a bad risk by traditional metrics.
“Looking at the macroeconomic data, there’s a huge swath of the population that feel they’ve been abandoned, and that doesn’t make any sense. The state of technology is too good to let this go on,” OppFi CEO Jared Kaplan told PYMNTS in a recent conversation.
Those roughly 60 million people who lack access to systems need new digital front doors, he said, because the traditional credit scoring mechanisms used by banks simply don’t see them clearly enough to approve loans or extend credit cards.
But the problem doesn’t lie with the potential borrowers so much as with the traditional FICO scoring that is used to evaluate them. In Kaplan’s mind, it simply doesn’t capture a complete picture of the consumers, their spending, their saving and the entirety of their financial lives. OppFi, he noted, offers banks an alternative in credit risk evaluation that allows them to extend their services to more customers. Their technology product is first centered on credit decisioning that leverages artificial intelligence (AI) coupled with alternative data streams to “see through what we don’t think is a very predictive metric to determine someone’s creditworthiness,” said Kaplan.
With that clearer picture in mind, he noted, OppFi can empower banks to extend credit to consumers who have lacked access in the past, leveraging the power of AI-based and fully automated tools for consumer acquisition and onboarding. In turn, it can open up the competitive landscape when it comes to serving a class of consumers who have gone underserved. And while there has been a push to move these services away from the banks that have been historically uninterested in providing them, said Kaplan, banks do regulatory compliance and oversight better than any other player in the game — they just need an incentive to enter the space.
And he believes OppFi can create one.
“Thus far, we haven’t seen much from the traditional banks, and that’s where we come in. Now we can power banks,” Kaplan said. “The community banks and regional banks are looking for ways to compete with the much larger banks. This is a massively underserved market, and by getting into it, they can gain some market share, because they are the best-positioned to offer this product with the best structure and the best pricing.”
The Inciting Event
While there is sometimes a tendency to believe that the underbanked are credit-averse, Kaplan said that obscures the issue in some ways. The event that pushed him into the firm in its early days, he said, was a call from a customer who was able to arrange a loan via OppFi’s services that allowed her to keep her daughter in school after a tuition hike. These are life-changing events for consumers, he said, and ones that leave them grateful, loyal and more fully disposed to building a long relationship.
The underbanked are often regarded as an unprofitable sector, noted Kaplan, but when tapping their potential over a lifecycle of leveraging financial services and tools, that equation looks a lot different. OppFi’s mission is bigger than just helping consumers access personal loans — the firm helps them build the kind of credit history they need to fully take part in the “financial mainstream.”
Part of OppFi’s offering is educational modules designed to teach people how to budget and take better care of their finances. That education content must be connected to its bank products, Kaplan explained, because the goal isn’t just to help consumers access financial services one time, but over the course of their lifetimes. That’s why the company is expanding its tools for consumers with the OppFi credit card, which is planned for the second half of this year.
“It starts with access, but there is still a whole lot more to do,” said Kaplan. “[We are looking to] build out the more connected ecosystem and demonstrate our ability to graduate customers from a more esoteric product to something that is more mainstream over time, by cross-selling some traditional mobile banking services and other products that the customer deserves and needs.”
Because with tens of millions of underserved customers, there is an opportunity to do the right thing in financial services, Kaplan noted — in a way that also happens to be the smart strategy for banks looking to build out a more competitive future.