Sizzle Of The Week: More Inclusive And Expansive Credit Scoring

Consumers with thin credit files got something of an early Christmas present this week, care of Experian. The credit rating agency announced the launch of Experian Boost, a service that provides a dearth of data on credit reports with the aim of helping consumers begin building their scores by taking a deeper look into their finances.

The new platform allows customers to voluntarily connect digital bank accounts to Experian, such that the service can access information like utility and telecommunications payments. Once a customer’s banking and payment data is verified – and the consumer confirms they would like it added to their credit file – an updated FICO score is instantly generated.

“Globally, we are constantly innovating and leveraging technology to find new ways to help consumers gain access to quality credit, while promoting fair and responsible lending,” said Experian Global CEO Brian Cassin in a press release. “We are committed to financial inclusion, and Experian Boost is the latest example of our efforts to increase consumer awareness of credit’s impact and value, while giving them greater control.”

The program is particularly targeted at “thin” credit file consumers – a population of about 46 million people – who have fewer than five open loans or other credit accounts. Thin-file adults often have trouble securing credit when they need it, as lack of information or a short credit history both tend to depress scores. Additionally, according to Experian, there are roughly 1.5 million consumers with dormant credit reports and no score, who Experian Boost would be able to score.

The program will not track missed payments and, if consumers stop paying bills for three consecutive months, Experian will delete the account and go back to calculating the consumer’s score under the previous method.

“Limited credit activity and history are key barriers for consumers to achieve their financial goals,” said Dara Duguay, executive director of Credit Builders Alliance. “We fully support initiatives that promote financial inclusion, and think Experian Boost could play an important role in overcoming that barrier. We look forward to seeing how Experian’s new platform impacts consumers.”

But while more expansive and inclusive credit scoring was sizzling stateside this week, Sesame Credit, Ant Financial’s credit scoring tool, continues to struggle for credibility, according to reports in Financial Times this week.

When Ant first rolled out Sesame in early 2015, it did so with expectations for a big effect – the Sesame score was billed as the key to “making credit more available to millions of consumers across China.” The system was accessible via an opt-in feature of the Alipay mobile payments app. Tapping into the hundreds of data points accessible from that source, it captured things like purchases on Alibaba’s Taobao marketplace, subway fares, bill payments — and synthesized all of that information into a single trustworthiness number for each user, called a “Sesame score”.

Critics have, almost since launch, questioned whether all of those data points mashed down into a single score really created a useful metric for consumer financial trustworthiness, since there would need to be a strong correlation between hundreds of different behaviors in order for that metric to make a useful prediction. The score might use lots of data, but how much of it is actually relevant has always been an active debate.

And earlier this year, the Chinese government effectively pushed Sesame out of the market as a credit score usable for underwriting purposes when it stopped allowing independent companies to provide credit ratings, and instead required all ratings to come from a new public body called Baihang.

Since that change, Sesame has refocused on businesses, and is using its scoring tools to determine how likely a customer is to break a contract. Those corporate partners also tend to give perks to users with a high Sesame score, such as deposit-free rentals for umbrellas, bicycles or even apartments.

Ant Financial will regularly promote the discounts on the Alipay mobile payments app for users with high Sesame scores as well.

Mark Natkin, managing director of Marbridge Consulting in Beijing, said that these days, Sesame is closer to being an interesting take on a loyalty program that rewards users for buying Alibaba’s and its partners’ products, rather than a tool that can be used for predicting behavior.

“Sesame Credit should not be seen as a credit score,” he noted. The Chinese government would almost certainly agree with him.

So did new and exciting methods and models sizzle or fizzle this week? As is sometimes the case, it was a little bit of both. Under the banner of a mainstream player like Experian in a developed market like the U.S., there is a quite a bit of sizzle – in China, where it is still developing and re-aligning its model, it’s not quite a fizzle, but it is also not nearly as easy as announcing one’s intention to take on the space.

Still, given the push to build broader and more inclusive systems for credit rating and monitoring all over the world in many different forms, we think it ultimately comes out as a sizzle for innovation enthusiasm, even if there are some execution fizzles to tackle.