The Role of Bank-Fintech Partnerships in Creating a More Inclusive Banking System

These partnerships have allowed banks to access more information on consumers through data aggregation, artificial intelligence/machine learning (AI/ML), and other tools. The authors explore the demographics of consumers targeted by banks that have entered into such partnerships. Specifically, the authors test whether banks are more likely to extend credit offers (by mail) and/or credit originations to consumers who would have otherwise been deemed high risk either because of low credit scores or lack of credit scores altogether. The analysis uses data on credit offers based on a survey conducted by Mintel, as well as data on credit originations based on the Federal Reserve’s Y-14M reports. Additionally, the authors analyze a unique data set of partnerships between fintech firms and banks compiled by CB Insights to identify the relevant partnerships. The results indicate that banks are more likely to offer credit cards and personal loans to the credit invisible and below-prime consumers — and are also more likely to grant larger credit limits to those consumers — after the partnership period. Similarly, the authors find that fintech partnerships result in banks being more likely to originate mortgage loans to nonprime homebuyers and that they increase the mortgage loan amounts that banks grant to nonprime buyers as well. Overall, the authors find that these partnerships could help to move us toward a more inclusive financial system.