Credit

The (Fin-tech) Revolution Will Not Be Credit, Guys

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No amount of noble intentions or technological innovations can solve the complexities of poverty without education.

In the decade since the financial crisis, fin-techs (financial technology companies) have changed the ways in which we spend, borrow and save, revolutionizing both our relationship with money and our interactions with financial institutions. Among the highest performing in this cohort are alternative lending startups, many of which were designed to fill the historic service gaps that banks and traditional lenders created,  delivering the sources of credit that many traditional financial institutions were unable to provide in the immediate aftermath of the financial crisis.

Alternative financial lenders have changed how consumers find credit and created new avenues of access for individuals excluded from traditional lending. They have succeeded in delivering money to those who need it and previously had no access to traditional forms of credit.

But access is only half of the equation.

As new, previously underserved consumers enter into the alternative lending space, a reexamination of the assumed level of financial knowledge of these new consumers is required. Are these newly tapped consumers adequately informed to fully understand the potential risks posed by easy credit? Easy access to credit is not inherently a problem. However, providing customers with access to credit (which is really just future debt), without sufficient financial education is a problem.

Although tech innovation has changed how people access credit, what has not changed is the inherent relationship between credit and debt. Once used, credit immediately becomes debt. For some this may seem to be an obvious bit of information, but for many it is one that has to be learned. The perils of easy credit access without sufficient education were illustrated best in the 2008 housing market crash, where access to easy mortgage loans actually led to more foreclosures than the homeowners it purported to create.

The relationship of access and education is neither specific nor exclusive to finance.

Access to calorically rich foods, coupled with poor nutritional education, has led to public health concerns regarding the rising obesity rates across the U.S. Here perhaps the food industry may offer a model to help fin-techs balance the demands of inclusivity in access and education. After all, how amazing would it be if all financial products had an informational breakdown of their constituent parts (interest rates, APRs and fee disclosures) similar to the nutritional content found on food stuff? It was precisely questions of this kind that guided the founding of Lifesaver. We developed a model that empowers consumers of all financial flavors, combining access and information into a new user experience. We arm consumers with information on a product-by-product basis, explaining what a product is, how it works, and who it’s for. In this way, discovery becomes an educational experience that helps consumers make better, more informed financial decisions.

For more on the perils of accessible credit and its relationship to poverty, check out Elena Mesropyan's article "Accessible Credit Will Not Lift Individuals From Poverty, Financial Education Will".