New immigrants lacking credit histories will benefit from booming advances in financial technologies that aim to give them the tools to pursue the American dream of homeownership and steady employment, advocates say.
Immigrants face well-established challenges upon their arrival, including language barriers and discrimination. Financial technology boosters say one of the largest obstacles they face is the inability to gain access to the credit needed for basic necessities of renting an apartment, obtaining a car loan or getting a cellular phone.
Personal credit histories generated in other countries don’t always transfer to the United States, requiring immigrants to begin generating new credit histories in the U.S., a process that can take years.
“It is a huge problem for new arrivals,” said Nicky Goulimis, the chief operating officer and co-founder of Nova Credit, a New York City-based fintech started in 2015 to help immigrants apply for financial services in the United States.
She said newcomers are rendered “credit invisible” with practically no financial identity upon arrival because American underwriters can’t access international credit data.
“They find themselves immediately stuck in a type of second-class status,” Goulimis told CQ Roll Call, saying they often need to start generating U.S.-oriented credit histories “from scratch.” Nova Credit says getting a new personal credit history can take as long as five years.
Nova Credit uses technology to find and share the financial history of newcomers wanting to prove their creditworthiness to banks and other types of lenders. With the consumer’s consent, the company translates international credit data into a U.S.-equivalent score and reports it in a format familiar to American underwriters, who use it to evaluate applications for credit products. They use so-called alternative credit data. That data provides information not typically found in credit files and applications, such as rent and utility payments made on time, a consumer’s job and bank transactions.
Goulimis, a visa holder who came from the U.K. to study at Stanford University several years ago, said Nova Credit is not simply serving a “niche market” but helping to steer “a core driver for the economy and banking sector.”
The numbers bear that out.
The United States, by far, has more immigrants than any other country in the world, according to data from the Pew Research Center. Pew says more than 40 million people living in the U.S. were born in another country, accounting for about one-fifth of the world’s migrants. The U.S. foreign-born population reached a record 44.8 million in 2018. Most immigrants, 77 percent, are in the U.S. legally, according to Pew estimates based on census data.
Goulimis noted that the Census Bureau projects that by 2030, most of the net U.S. population growth will come from immigration.
Supporting the unbanked
Goulimis said immigrant-focused “open banking” presents new and significant opportunities for fintechs.
Open banking is a collaboration in which financial data is shared through an “application programming interface” between two or more unaffiliated parties such as banks and nonbank fintechs, according to international business consultant McKinsey & Company.
David Reiling, the CEO of the St. Paul, Minn.-based Sunrise Banks — which dubs itself “the world’s most socially responsible bank” — told CQ Roll Call that fintech “is in a prime position” to support the unbanked immigrant population.
Reiling said Sunrise Banks has partnered with fintech firms like Remitly Inc., which offers banking services to immigrants, including a product that enables them to store and send money digitally without charging fees.
“The immigrant population is growing and one that needs to be accounted for in the financial services industry,” Reiling said in an emailed statement. “The bottom line is that everyone deserves a fair shake in the financial system and fintech is one way to create more access to banking services — especially among marginalized communities.”
Jo Ann Barefoot, CEO and co-founder of the Washington-based policy group Alliance for Innovative Regulation, said even immigrants with high degrees of education and professional work histories face daunting challenges. “They have had jobs and are educated and have a good record on making payments in their home countries, but they essentially have to start over” when they come to the U.S.
The organization promotes the development and use of “responsible technology” to advance a “fair financial system.”
Barefoot, a former U.S. deputy comptroller of the currency, said she is encouraged by the “pioneering” work of fintechs to promote the sharing of cross-border financial histories. She called on U.S. legislators and regulators to do more to encourage the use of alternative data to improve credit access and “to clarify the rules of the road” for banks in using alternative data in a manner that is “accurate and inclusionary” and complies with fair lending laws.
In December 2019, the Federal Reserve, Consumer Financial Protection Bureau, Office of the Comptroller of the Currency, Federal Deposit Insurance Corporation and National Credit Union Administration together released a statement recognizing “that use of alternative data may improve the speed and accuracy of credit decisions and may help firms evaluate the creditworthiness of consumers who currently may not obtain credit in the mainstream credit system.”
The CFPB in October issued an advance notice of proposed rule-making on consumer-authorized third-party access to financial records, which Goulimis believes has the potential to “unlock a new age for U.S. fintech and consumers — creating more open banking options for individuals and more paths for collaboration for institutions.”
John Pitts, the head of policy at fintech firm Plaid Inc., said the lack of interoperability between the financial systems of different countries has long-standing roots dating to the Middle Ages, the time of the development of modern nation-states and the first banking systems.
“The systems do not talk to one another,” Pitts said in an interview. The solution to modern financial pitfalls is contemporary financial technologies, he said.
“One of the foundational ideas of fintech is that personal financial information belongs to the consumer and it is portable, transparent and transferable,” Pitts said. “This concept is of particular benefit to immigrants looking to gain financial visibility in their new countries, which is among the hardest hills to climb.”