Tens of millions of Americans live outside the mainstream financial system, and up to 11%—or about 50 million, by 2022—can be classified as “credit invisible.” This means they have no or little credit history. and as a result, you could be denied access to credit or otherwise be denied access to car loans, home loans, or even business loans at financial institutions.
And many of those same Americans come from underserved communities. With so many people effectively shut out of the mainstream financial system, a coalition of banks and financial institutions is coming together to try to expand access to credit by sharing bank account data and other information through Project REAch (Roundbank on Financial Access and Change). , an initiative by the Office of the Comptroller of the Currency. Chase and Wells Fargo are among the participants, and Citi recently joined the effort.
Fast Company spoke with Lisa Frison, Citi’s head of personal banking financial inclusion and racial equity in the US, about the issue of credit invisibility, why it’s important, and how Project REAch and other new Citi pilots can help solve it of. Frison has spent many years in the financial industry working to improve access to credit and financial services for underserved consumers, and says the recent collaboration between institutions allows those in the industry to target these consumers in new and unprecedented ways.
The following has been modified for clarity and length:
What exactly does “invisible credit” mean?
In the simplest terms, invisible credit means that you have no credit history with the major bureaus. There are two ways this can happen. First, you have no credit history. and if you have a limited credit history, you cannot score. And two, you may have had some activity, but very few accounts, or those accounts are very new, or no recent credit activity.
How does invisible credit affect people? Why is it 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 everyday needs, like paying for a house or a car, is incredibly important. The other issue is that having a credit score is almost like a lifeline for accessing fundamental services [that people need] for their daily lives—which includes loans, insurance, or even being able to get a cell phone. Having a credit score and history is very important to get these services.
Beyond these, credit is fundamental to achieving other important goals, such as starting a business or buying a home. But it’s all about access.
How does Project REAch help those who are invisible?
What we’re doing is designing ways for people who don’t have files or thin files to get a second look from our underwriting teams, to help people get into the financial mainstream.
Project REAch is an industry-wide initiative to provide credit to people with little or no credit history. Institutions work with credit bureaus to take over accounts if there is no history or little information. Banks now have a way to share deposit information so that customers who may have been turned down for credit in the past have another chance to get approved.
It’s a way for a bank to look and see if customers have relationships with other banks. If they cannot approve these customers through traditional underwriting processes and criteria, these other relationships can show or prove that they can manage their money, paving a path to credit approval.
Why has invisible credit recently become a focus for Citi?
There are 50 million people who are invisible. At Citi, we strive to break down barriers, provide access and be inclusive. What’s different now is that we have an industry partnership that allows us to share like never before. We will be able to address a broad issue that affects millions of people. We try to ensure that as many consumers as possible can participate.
How does your background 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 this is an opportunity to sharpen our focus and bring opportunities to market to help underserved communities.
I previously worked at another bank, working with and for different consumers from different backgrounds. I’ve spent a lot of time looking at data about the challenges facing underserved communities, which are often diverse communities, and I know that Citi has made big commitments to driving greater financial inclusion to help people be credit-ready .
This is truly seminal work. This is the project I signed up for—to use my voice and influence to help people. I want to bring more ramps to help people navigate the financial system. This is near and dear to my heart.