Credit history is a Digital Asset in an underserved market

credti score

Adult life in the US is highly dependent on your credit history.

Your credit history, which is sourced from 3 credit bureaus and checked against the US overdrawn database; is your Digital Asset! Wake up to this reality!

One of the largest underserved segments in the US, are individuals that don’t own this Digital Asset – Credit history.

The CFB reports that 1 in 5 adults don’t have a credit history. So, 20% of US adult population is underserved and the majority is a result of:

  1. Complying with the CARD act of 2009, that requires extending credit to adults between 18-21 to be very tedious.
  2. Initiating any transaction towards building a credit history is still a catch22 problem.
  3. User experience of the existing alternatives is old-fashioned.

NerdWallet one of the top online “advisor” and comparison sites for a broad range of consumer needs (credit cards, basic bank accounts, basic investing, mortgages, loans and insurance) summarizes and covers all the traditional alternatives towards building a credit history. The four main ways are the following:

Several tools can help you establish a credit history: secured credit cards, a credit-builder loan, a co-signed credit card or loan, or authorized user status on another person’s credit card.

The first two are options that require a lump sum deposit that is held in an account backing the securing credit card or the “fake” loan. The last two options require another person’s participation. In both cases the user experience is old fashioned.

SelfLender is an alternative way to establish credit, very similar to that offered by credit unions (credit-builder loan or the secured credit card) but that the UX is upgraded to the digitization age (i.e. online). The onboarding and approval takes 5min and the deposit required is a monthly installment instead of an annual upfront lump sum. The bank account that needs to be created, the certificate of deposit and the loan document, are all seamlessly created online. The customer is offered the opportunity to initiate the process of developing a credit history and of monthly savings.

In mid March, SelfLender was included in the NerdWallet platform as an alternative way to build credit and start saving.

SelfLender is operating in a very regulated part of banking. What is more interesting is the way they have chosen to launch their offering. They are operating a revenue sharing business model with the FDIC insured bank they are partnering with. They essentially sit in the back-office of the bank, use the bank’s balance sheet to open bank accounts, issues CDs and loans for the underserved looking to build credit history. SelfLender is in charge of marketing to the huge addressable market (competing of course with those in the secured credit card and credit-builder loan business). SelfLender is also undertaking the loan servicing.

Austin Capital Bank is their FDIC insured customer. SelfLender is keeping it simple for now at least. Their offering to the underserved is:

A one-year loan of face amount $1,100. The SelFLender client pays $98 per month ($1,176). That means the total annual cost for building one’s credit history is $76.

Self Lender is more affordable because one doesn’t have to put down the entire lumpsum from their own money as upfront collateral and can instead simply pay off the loan in monthly installments.

This is the first all-online credit builder loan; ideal for students, young adults especially those in no-mans land 18-21yrs old, foreign students, immigrants, H1-B visa holders, and others with zero credit history who need to establish credit.

Daily Fintech Advisers provides strategic consulting to organizations with business and investment interests in Fintech. Efi Pylarinou is a Digital Wealth Management thought leader.



2 thoughts on “Credit history is a Digital Asset in an underserved market

  1. Efi Pylarinou , nice post .
    Consumers with digital asset (good credit history) will get credit at a lower cost and with the new data sources and alternate credit scoring models ( monthly rent , cable bill , mobile payment etc.) should help prove creditworthiness of credit-underserved consumer.


Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s