Fintech lending can help more people access affordable credit and avoid financial exclusion, new research has found.
According to a paper by the Emerging Payments Association (EPA), more than 10 million adults in the UK cannot access affordable credit due to low credit scores or badly designed credit products. But fintech lenders could fill this gap in the market, and reduce the risk of problem debt, the EPA said.
“With the industry changing at pace, it is important we don’t leave people behind,” said Tony Craddock, director general of the EPA.
“We have already seen many turning to short-term credit sources to make ends meet through the pandemic. However, whilst the demand for affordable credit has increased, supply has diminished.
“Our industry must adapt its products to fit in with people’s lives rather than having products that leave many behind.”
The EPA has released a report called ‘Low Cost, High-Tech Credit: Solving financial inclusion through innovation’, which explores the ways in which fintechs can help provide consumers with affordable credit.
These include understanding why people use credit and how a lack of tailored credit products can be a definitive cause of financial exclusion.
The report also addresses the reasons why people cannot access credit and how this can lead to problem debt.
It added that fintechs can change this pattern, by using improved customer data, new means of assessing and decreasing risk, inclusive product design and alternative business models.
“We’re excited to have produced this important assessment of the market for affordable credit – which is more important than ever given current economic circumstances,” said Josh Berle, business development director, Mastercard, and lead of EPA Project Inclusion.
“I’m particularly proud that Project Inclusion has been able to mobilise over the past year to add critical value in such a range of related arenas despite the impact of the pandemic on our prior working practices.”
Read more: Five key takeaways from the fintech review