Credit Invisible to Credit Empowered: Fintech's Role in Building Credit for Financial Inclusion

Anthony Peculic, Head of BaaS & Cards, Cross River

December 1, 2023

3 min read

In a financial environment with restricted access to credit, both consumers and businesses face difficulties establishing and preserving credit. However, this obstacle offers a chance to shift focus to cutting-edge fintech solutions that support both consumers and businesses, particularly for those who lack visible credit histories.  

At this year’s CardCon Expo, I was part of a panel discussion alongside my industry peers CJ Klump, Senior Director, Consumer Credit Products, Visa and Trevor Marshall, Co-Founder, Current, where we delved into this important topic.  

Balancing growth and debt in the credit industry
Credit usage is on the rise, with credit cards gaining popularity and rewards programs flourishing. Credit lines have increased, boosting the industry, and companies like Experian are introducing credit boosting programs. One downside is the potential for increased debt among consumers and businesses. The lack of access to funds for daily expenses has opened doors to exploring other solutions beyond credit cards. Earned wage access, as an example, is emerging as a popular viable alternative, enabling employees to obtain their earned wages before the usual payday. 

The importance of financial education amid economic challenges 
As consumers and businesses increasingly rely on credit, the risks associated with high-interest debt accumulate, making financial education crucial. Specifically, end users need to understand how to manage credit, recognize predatory lending practices, and make strategic financial decisions to avoid the pitfalls of accumulating unsustainable debt. Tools and resources that provide insights into budgeting, debt management, and the nuances of different financial products can empower consumers to utilize credit effectively.  

Moreover, this shift also signals a potential change in consumer behavior and confidence. In periods of economic uncertainty, consumers may lean more on credit to manage their expenses, anticipating future income to pay off their debts. However, without adequate financial guidance, this could lead to a cycle of debt, especially if income expectations are not met or if interest rates continue to rise. 
Adaptive credit building strategies in the modern economy 
Building credit in today’s economy is not a one-size-fits-all solution. Consumers and businesses must explore diverse strategies to enhance their creditworthiness. This journey involves navigating regulatory and compliance hurdles, requiring partnership with knowledgeable financial institutions. Emerging technologies like open banking, AI and data-driven models will play a pivotal role in reshaping credit assessment, presenting solutions like Buy Now Pay Later (BNPL) or new ways like tying down rent payments for credit building. 
Collaborations for a broader financial inclusion 
Collaborations between fintech firms and financial institutions plays a crucial role in improving access to credit. This synergy merges the innovative and nimble solutions of fintech with the deep-rooted financial knowledge and regulatory experience of established banks. Compliance should be seen as a chance for collaborative innovations, leading to unprecedented solutions. Partnerships have the potential to reshape the financial landscape, creating robust solutions that will benefit a wider demographic. 

Envisioning the future of credit 
Looking ahead, the credit industry is expected to evolve towards less compartmentalization and more integrated financial relationships. This evolution will likely involve a more cohesive use of single relationship credentials, meaning a consumer or business can access multiple credit products or services through a single set of login credentials or a unified profile, thereby simplifying and streamlining access to credit.  

Despite tighter credit and high interest rates, there is optimism for improving credit scores and financial literacy across the board, paving the way for a more inclusive financial ecosystem where credit is accessible, manageable, and empowering for all.