While dedicated stimulus packages have acted as makeshift safeguards for many, it is time for the financial services industry to look toward long-term solutions. As we think about economic recovery, it is critical that all of us in the financial services industry work together to support consumers and maintain the integrity and openness of the credit market. The choices we make as an industry will help our nation navigate the crisis and, more importantly, the recovery.
By leveraging accurate data, we have a chance to lessen the impact of the current U.S. economic crisis, extend credit responsibly, and support the hardest-hit consumers as we adjust to a new world post COVID-19. To do this successfully, the financial services industry must carefully examine all aspects of consumer financial capability.
We must allow individuals who can still meet their financial obligations to have access to credit and ensure lenders can identify them. These consumers will play an important role in getting our economy back on track as they begin shopping at retail stores and investing in new ventures.
On the other hand, we want to protect those who were affected by COVID-19 due to illness, pay reductions, furloughs, or job loss. We do this by supporting reporting options for lenders who make arrangements that defer payments. When these consumers have re-established financial security, they’ll be better prepared to repay lenders.
Luckily, today, this balance between flexibility and protection is a choice. Over the last decade, technology has fundamentally changed the financial services industry. Those changes must be harnessed to protect people and businesses across the American economy.
Credit requires this balance. It is essential that the financial services industry actively manage this risk, so consumers can access appropriate and affordable credit. It is equally as irresponsible to lead consumers down dangerous, high-risk avenues; this will only deepen our financial burden and lengthen the time for economic recovery.
However, accessing safe and affordable credit is not as easy as it seems. Bain reported in March that, “nearly 70% of those earning from $50,000 to $100,000 a year have been hurt” by the impact of COVID-19. An independent UN human rights expert warned in April that without urgent steps it is possible that we won’t be able to keep “tens of millions of middle-class Americans hit by the COVID-19 pandemic from being plunged into poverty.”
It is essential that we recognize the impact COVID-19 is having on the finances of the American middle class and take the appropriate steps to protect their access to credit in all cases where appropriate. The question becomes: How does the financial services industry examine the once financially sound group that is now suffering?
The solution to many of these challenges is clear: data.
Accurate data is the foundation of effective decision-making and can help lenders understand where portfolio risk may emerge, so risk can be addressed before a problem develops. For consumers, sourcing accurate data is critical to unlocking financial opportunity, gaining access to lower-cost financial services and breaking cycles of predatory lending.
As an example, Experian introduced the Ascend Analytical Sandbox, a technology platform that allows lenders to make “surgical” decisions when managing portfolio risk. If lenders can manage risk expertly, they are in the best position to ensure that consumers continue to have access to credit.
Right after the 2008 financial crisis, America saw a massive amount of financial innovation. Companies such as Kickstarter and Square were founded. Established financial companies drew lines in the sand and reworked their entire business models to achieve more evenly balanced lending practices and credit scoring. Recovery was possible because we all banded together.
We know there is a long road ahead of us to rebuild our nation’s economy. However, we believe by empowering lenders and consumers to engage and open access to credit, we can help keep the economy flowing during the weeks and months ahead.
Craig Boundy is the chief executive officer of Experian North America.
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