November 06, 2023

Lending smarter with cash flow data: Plaid’s path ahead in Credit

Mike Saunders

Mike Saunders headshot

Mike Saunders
Head of Credit

Mike leads Plaid’s credit business, helping lenders incorporate cash flow data to make smarter risk decisions.

Today, we’re excited to announce that Plaid has formed a new entity that will build solutions for customers who want ready-made credit risk insights from consumer-permissioned cash flow data. 

This new entity will operate as a consumer reporting agency and help our customers make smarter risk decisions throughout the lending process. 

Cash flow data: the missing puzzle piece

Lenders and consumers alike know that traditional credit scores don’t tell the full story of someone’s financial life. Information on savings, income, or on-time rent payments is often left out of the picture, even though this data is critical to understanding someone’s ability to pay back a loan. 

For lenders and other financial services providers, the challenge is clear: getting this cash flow data and making it useful is hard, expensive work. As a result, companies and consumers are both negatively impacted.

  • Lenders feel blind to potential risks—and opportunities—in their underwriting strategy. They want to offer more competitive products to grow their business, but can’t without a more holistic view of the borrower that cash flow data can provide.

  • For consumers, a subprime credit score or “thin file” credit history can obscure responsible financial behavior in other aspects of their lives. This can disqualify them from products they can actually afford, limiting credit options for those who may need them most.

Here is how we'll help. 

Cash flow insights for better risk decisions 

Leading our credit business, I hear more and more every day from our customers how important cash flow data is, especially in navigating this current macroeconomic environment. They want to separate the signal from the noise on that data. Our team couldn’t agree more. 

For cash flow data to be used broadly, we’ve heard two opportunities where Plaid can make a difference: availability (can this data be accessed digitally, with a consumer’s permission?) and usability (how easy is it to integrate this data into a decision model?).

On availability, we’ve spent the last decade building the infrastructure that makes data sharing possible and safe for both financial services providers and consumers. Today, hundreds of companies like Oportun and Mission Lane and property management firms like Mynd and Funnel Leasing use Plaid to modernize application and verification workflows by sourcing cleansed income and assets data on borrowers.

On usability, though, cleansed data alone often isn’t enough. At scale, cash flow data is hard to make sense of. Many lenders simply don’t have the time, money, or technical resources to develop insights on top of this detailed, transaction-level data by themselves. 

It’s no surprise that we often hear from customers, “Just give me the answer” when it comes to cash flow data. 

Plaid has formed this new entity to tackle the usability problem head-on. It enables a future where customers can get actionable and differentiated cash flow insights from open banking transactions data to better predict a borrower’s ability to pay. 

However far along our customers are in their digital journeys, we will have a full suite of credit solutions to meet their needs.

This will allow our customers to focus on what they do best, whether that’s making a loan, servicing borrowers, or screening a potential tenant.

Cash flow data can meaningfully expand credit access

Going beyond traditional credit scores offers massive potential to create opportunity, especially for the nearly 50 million adults in the U.S. deemed unscorable or credit-invisible. 

Take the example of an immigrant who recently moved to the U.S. She’s gainfully employed and saves more than she spends. We’re excited by a vision where she gets approved for an auto loan at an affordable rate based on her ability to pay and isn’t held back by her lack of credit history.

Or consider a young adult with a bad credit score from a default on his first and only credit card, which was taken out years ago. We’re building for a future where he gets approved for a new apartment because his leasing agent sees he has stable income and hasn’t missed a rent or bill payment in years. 

Putting cash flow insights to work unlocks opportunities for lenders to grow their business while managing risk. This fosters inclusion, expands credit access, and serves a broader set of consumer needs. 

Build the future of lending with us

We’re still in the early innings of what the future of cash flow underwriting could look like. 

Traditional credit scores still play a critical role in risk management, but it’s time to expand how we put cash flow data to work.

While we’re currently offering these new solutions in a limited release through the consumer reporting company, we will continue to offer our current Plaid credit solutions as well. We couldn’t be more excited for the path ahead.

Stay tuned if you’d like to learn more about this initiative.