Filling the knowledge gap: FinTechs and credit education
FinTechs thrive by offering a better alternative to traditional financial institutions. They reduce the friction that consumers often experience in dealing with financial institutions, lower the costs, and engage consumers with a better, more personalized customer experience in digital and mobile channels. Yet they still face the same challenges as any business: a highly focused product or service designed to address just one aspect of the customer’s life – in the case of FinTechs, one aspect of their financial lives.
Growing demand for credit education
Credit is a fundamental aspect of the customer’s financial lives. Yet it’s complex, challenging for the average consumer to navigate, and not a subject that most people are taught as they’re growing up. According to a 2015 study conducted by the Consumer Financial Protection Bureau, most of the participants expressed confusion, frustration, and uncertainty related to their credit reports and scores. Many of these consumers:
- Found it difficult to disentangle credit reports and credit scores.
- Said they knew about the three largest nationwide credit reporting agencies, but were hard-pressed to name all three.
- Were puzzled when they encountered differences in information across their various reports.
In a recently conducted Experian survey, we found that nearly one in four respondents had never obtained their credit report or score. The knowledge gap can be expensive for them, resulting in high interest rates, fewer rewards, and the inability to qualify for the things they want in life.
FinTech’s millennial audience needs help
As digitally savvy consumers just starting out in life, millennials are more inclined to use new FinTech products than the average population. But while they know the digital realm, the largest living generation on Earth is still fairly new at the credit game. Many are just starting to use credit instruments and, with such young credit histories, they’re more at risk of tarnishing their financial reputation by abusing them. Research conducted by OppLoans, a financial technology firm found that millennials felt that their credit scores prevented them from reaching financial goals like buying a car, buying a home, or accessing loans. In fact, just 39% of people ages 25-34 own a home today, compared with 48% in 1977. The survey also found that:
- 24% had received insufficient educations about the habits and techniques required to build a strong credit history.
- 15% surveyed said they regularly miss credit card payments.
- 43% described their credit card debt as unmanageable.
The issue becomes particularly anxiety-producing for this generation when you factor in the enormous student loan debt that they’re currently shouldering. CNBC reports that, “Roughly 70 percent of grads leave college with student debt, and over 44 million Americans hold a total of $1.4 trillion in student loan debt.” The situation is only getting worse. Average loan debt skyrocketed by 20% between 2015 and 2016 and continues to climb today.
That said, they’re generally eager to learn more about how to improve their creditworthiness. According to a 2017 survey conducted by LendEDU’s, nearly 70% of millennials reported that they wanted to build their credit histories. The survey also showed that millennials have more credit cards than they should and tend to rely on them for basic expenses more than they should.
Credit education can be a big draw
With the many scoring models, risk factors, and common pitfalls, there is clearly a need to demystify the concept of creditworthiness and how to build it. In fact, the audience is looking to their trusted brands to provide that education – particularly the brands they depend on for the financial aspects of their lives. Seventy-six percent of 18 to 24 year-olds are interested in financial and credit educational tools or assistance, according Experian’s 2016 survey [SA1] . Helping your customers navigate the often-confusing credit landscape not only meets this growing demand, but it also drives customer acquisition, retention and engagement. With Experian as a partner, FinTechs can stand out from their competitors and enhance their reputation as a company that cares about their customers. Specifically, Experian allows you to:
- Give them access to their many credit reports and scores.
- Deliver alerts that help them understand credit score fluctuations.
- Offer them tools to help increase their credit literacy and confidence as well as protect themselves from identity theft.
Higher credit scores mean more valuable customers
A recent Experian study found that credit scores were an average of 14 points higher for people receiving credit education. Additionally, the number of credit inquiries and external collection trades for these individuals were down 9 percent and 21 percent respectively. These newly educated consumers are taking action and moving up in the credit world, making them more valuable to financial institutions.
Financial literacy and credit education services can deepen customer relationships, establish loyalty, and help FinTech companies solidify their place in the lives of their customers. As one of the largest credit bureaus and a leading global information services company, Experian is uniquely positioned to offer solutions to help your customers navigate life’s most significant and challenging financial decisions, while also building your business.
Acquire more customers through credit education
Want to improve your FinTech’s acquisition efforts? Talk to us about adding our innovative credit education solution including credit scores, score updates, simulations, fraud alerts, monitoring, and much more. It’s remarkably easy to implement (under 60 days). Help your customers be financially successful and grow your business at the same time.