Lending with Mastercard Open Bank

Mastercard (NYSE: MA) has announced significant enhancements to its Open Banking for Lending program in a move that could reshape the lending landscape. In partnership with Argyle, this development aims to streamline the lending process and give consumers greater control over their financial lives.

Key Developments in Mastercard's Open Banking Initiative

Expanded Coverage and Digital Verification

Mastercard's new features have the potential to "provide income and employment coverage to the estimated 95 percent of the U.S. workforce who receive payments via direct deposit," according to the company's statement. This expansion is designed to power "smarter and more inclusive lending decisions" and bring more individuals into the digital economy.

Addressing Underserved Populations

The initiative targets a significant gap in the current lending system. Mastercard notes that "19 percent of individuals who fall outside of the traditional credit reporting system face difficulty opening a credit card or renting an apartment." This move could potentially open new avenues for credit access to this underserved population.

Consumer Willingness for Digital Access

A recent Mastercard survey revealed a striking statistic: 90% of consumers who "do not have sufficient credit history to qualify for a loan are willing to grant secure digital access to their financial accounts to obtain one." This indicates a strong consumer appetite for alternative methods of credit assessment.

New Features and Partnerships

Verification of Income and Employment Solution

Mastercard is expanding this solution to include credentialed payroll, powered by payroll data aggregator Argyle. This aims to enable financial institutions to digitally verify an applicant's income and employment.

Single Integration

Lenders will have the flexibility to verify income and employment data through connected bank accounts or via payroll systems with the applicant's permission through a single integration to Mastercard's Open Banking platform.

Cash Flow and Balance Analytics

These solutions allow lenders to analyze cashflow trends and account balances in an individual's bank account, potentially indicating creditworthiness for those with thin or no credit files.

Small Business Solutions

The same analytics and insights can be applied to improve financial experiences for small business owners who give their permission via open banking.

Rent Payment History

Mastercard's technology can use rent payment history to prove creditworthiness, potentially creating opportunities for first-time homebuyers with limited credit history but strong rent payment records.

Brian Geary, Chief Operating Officer at Argyle:

"We're excited to make digital verification of income and employment widely available through Mastercard Open Banking, balancing our shared priorities of trust and innovation. These solutions empower all parties to take advantage of frictionless lending experiences and achieve faster and more accurate verification."

Implications for the Lending Industry

This move by Mastercard signals a growing trend towards alternative data in lending decisions. For traditional and alternative lenders alike, this could mean:

• Increased competition in serving previously underserved markets

• Potential for more efficient and streamlined lending processes

• Greater emphasis on digital verification and open banking technologies

• Possible shifts in risk assessment models to incorporate alternative data

Our Opinion:

As this initiative rolls out, industry observers will be watching closely to see how it impacts lending practices, credit accessibility, and the competitive landscape in the financial sector. The success of this program could potentially influence future innovations in the lending space.

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