Liz Pagel, the Senior Vice President for Consumer Lending at TransUnion, joins us to talk about alternative credit – the not so new data trend that’s the future of the payments industry.
Please Note: The Tresata Talks podcast is designed for audio consumption. If you are able, we strongly encourage you to listen to the audio, which includes tonality and emphasis that’s not on the page. Transcripts are generated using speech recognition software and may contain errors. Please check the corresponding audio before quoting in print.
Access to credit is not universal in our country, and those three digit scores are no longer the be all and the end all of credit. There’s many lenders who still use them, but there’s a lot more data out there that could help you.
This is Tresata Talks and I’m your host Shreya Nandi. Our intention is to bring you perspectives: some our own, some from our group of even smarter friends and confidantes to help inform your opinions on how data, as the nuclei of digital and tech, will reshape the world we live and breathe and play in. In this episode, we have Liz Pagel, the senior vice president for consumer lending at one of the holy trinity of domestic credit rating bureaus – TransUnion. And she is here to talk about alternative credit, the not so new data trend, that’s the future of the payments industry. You can find the transcript for this episode on tresata.com. That is T-R-E-S-A-T-A dot C-O-M. And, let’s keep listening.
Liz, welcome to Tresata Talks. How are you today?
I’m great. Thanks for having me.
It is our pleasure. Before we discuss what you do, we’d love to talk about why you do it, Liz. I think it’s safe to say most kids don’t mention going into the credit bureau industry when talking about what they want to be when they grow up. So, why Transunion?
I’ve always found data really interesting. I started my career as a corporate credit underwriter. So I was looking at business data and understanding the value of it and how you can look at it in different ways. And it’s not just one formula.
Most Americans think ‘credit bureaus’…and they think about their credit report and this mysterious three digit score that they don’t totally understand, but they know is important to get as high as possible. TransUnion, and when I joined the company, this really came out to me -they’re so much more than just the holders of a bunch of data and the keys to your credit score. In fact, a lot of the three digit scores aren’t even built by us, we just have the data behind them. And I think we’re just at the very cusp of unleashing a whole lot more power from data in the credit world.
In the past, even pre-pandemic, you have spoken and written about alternative credit’s impact on financial inclusion…Can you elaborate on this a bit?
It’s helping make sure every consumer has access to credit and access to affordable credit. I think that 2020 just put a bigger spotlight on it. Access to credit is not universal in our country, and it’s really difficult for some people that are excluded from affordable credit either due to really negative credit history – so they’ve had some trouble in the past and their credit report isn’t looking so good,…or because they have no credit history at all, and building that credit history is so important. And I don’t think we do a great job in this country of explaining to young people the importance of getting that first credit card, paying it off every month, building that history.
How do credit bureaus and TU specifically play a role here?
The role that I think TransUnion plays and the data companies play in this ecosystem is that we build trust or establish trust between the lender and the consumer, and they don’t know each other. Credit used to be your neighbors – they knew you, they knew where you live, they’re gonna knock on your door, if you don’t pay the back. That’s not how it works anymore. You need something to establish that trust. And it’s always been the credit report and saying have you paid back credit in the past. But now we need more than that. We need more data to help establish that trust between the lender and the consumer and there’s so much out there that we haven’t tapped into fully yet.
Can you give us some examples of the type of alternative data you’re describing?
Just think about all the different things that you could use to prove to a lender, like: hey, I can make payments on time. I’m reliable. You have your cell phone bill, you pay your rent, your utilities, even your Netflix subscription. Like you could even open up access to your bank account and show how responsible you’ve been with your money. Have you been saving up? Have you ever run out of money in your bank account? Have you never run out of money in your bank account? There’s a story behind all that different data that could help lenders really get their arms around lending to more people and making that dream of homeownership or the new car possible for people.
Building on our original question on why you do what you do…what makes you so passionate about financial inclusion?
In college, I volunteered at a housing project as a tutor in Boston for four years working with the kids after school, helping them with their homework before their parents got home from working, probably one of two jobs that they needed to have in order to keep food on the table and to care for their kids. And they couldn’t pay rent, they were living in this subsidized housing. And there’s so many things that you can’t get to if you can’t get access to credit.
So these people were stuck there, often times for generations, unable to get into the mainstream credit world. And there’s just so many things now that we could think of to be able to help them prove that, “hey, I’m really working hard, I’ve got two jobs, I’m taking care of my kids, I’m keeping food on the table.” If you watch their bank accounts, as they were managing through, you’d begin to see some trends that I think lenders could really begin to understand that these consumers are credit worthy.
How have regulators, the US government, and the public sector responded to the use of alternative credit?
Financial Inclusion is definitely a hot topic in Washington right now. Regulators want all consumers to have access to affordable credit, and there’s a lot of pressure for the credit bureaus to enable that, particularly right now coming out of the pandemic. So the regulators are really into the idea of alternative data, and they wish we had it yesterday. It’s a lot of work to get access to that data. So think about rental data that would just clear slam dunk. We should absolutely have data on whether or not you’re paying your rent, whether you paid it on time, how much you pay, all of those types of things.
But think about where that data would come from. There’s so many tiny landlords, there’s so many people who own one property and have one renter. It would be really, really hard to get to all that data. And but the regulator’s, I hope will be supportive of us. It’d be really great if they could get even more involved and say, hey, telcos, or cell phone companies, we need you to report your data. It helps consumers and to help push this along a little bit. And we get to any specific kind of data, other than like rental, which is going to be a pretty easy slam dunk.
But there’s a lot of oversight, we want to make sure that we’re not biasing any models against any underserved communities, because that would be the opposite of financial inclusion. So any new types of data, like, what college you went to, or something from social media or what industry you work in, or what your college major was, all of those things are kind of on the edge and will need a lot of analysis before the regulators’ get comfortable letting lenders use them, and they might not let them be used, depending on the results of the analysis. But more broadly, there’s a lot of interest from lawmakers to include these other items, rental, utility, telco, on the credit files to give people credit for the financial obligations that they make payments on every month.
Going back to what you mentioned before about needing to better educate the youth of our nation on financial literacy – what advice would you give to college age students who, for the most part, are just starting out on their own?
I remember years ago, working with my brother when he came out of college, and he wanted the credit card that I had, and I said: oh, yeah, it’s great, I definitely recommended great rewards and everything. And he couldn’t get it, he didn’t have a thick enough credit file. And so, we had to back up and say, okay, well, you can’t get another hard hit on your credit, because you’ve been declined for one. So we, without actually getting the cards, you need to wait a while. And then you try again. And we’re gonna have to get you a secured credit card. And then after a few months, you can apply for the next level up and work with him to establish credit.
But he got through college without understanding that he had to do all of that, and I think most people do. When I was in college, you could get a credit card at any football game you went to because it was before the Card Act and they would offer you a free t-shirt with your credit card application. Or the worst if it was cold outside at the football game, they’d offer a blanket with your credit card application. I bet you they had record signup days on those cold days at the football games.
Hopefully those in our audience that fall into this demographic pay heed to this advice. Switching gears here slightly, earlier you touched on data companies and fintech innovation…how are you seeing the influence of fintechs in this space specifically?
FinTech innovation has been in hyperdrive over the past several years…starting way before the pandemic when unsecured personal loans, which had kind of fallen out of favor, came back into the market. And this was probably seven years ago and they started to grow again. Buy Now Pay Later really burst onto the scene right before the pandemic. And it helped, that everyone started shopping online, and that those offers for pay in four pay in six were right there and available to consumers that maybe would go back and put a little bit more in their cart if they saw the opportunity to finance it over a few payments. And it’s debt but it’s another option. You don’t have to put that on your credit card, and especially if you keep a high balance on your credit card, you’re paying interest on that. This pay in four, pay in six is another option for you.
TU customers span multiple industries…which I would imagine provides a pretty unique purview when it comes to emerging trends and shared challenges. What approaches have you seen be successful in terms of validating new offerings and services for your customers that are in line with these?
First of all, I love our advisory boards. And it’s one of the most fun parts of my job when I get to sit. It used to be in person with industry leaders and talk about what they need. So we get in the room with them and talk about what’s bothering you, what’s keeping you up at night, what’s not working in your business right now. And when we get them all in the room together, even though they’re competitors, we have to have lawyers in the room and everything to make sure nobody goes off the rails. But they say, “Oh yeah, I’ve been having that same fraud problem.” Fraud is a common enemy, we can say talk about whatever we want with trying to get rid of fraud.
And we’ve come up with a lot of new ideas. They say, hey, what if we do this and somebody will add on, well, what if we do this…And we tweak the strategies. Some of our biggest product launches have come directly out of ideas from our advisory boards. The other thing I really like doing with them is taking our half baked ideas to them, and say okay, “here it is, here’s what it looks like, here’s exactly what it does – what do you think?” And they’ll almost always tear it apart and tweak it and change it. One time they said, “don’t launch that, that’s awful, we’ll stop working with you if you’ve launchthat.” But perfect. Like we really, really needed that feedback. And then we go build something that has all this input, and they feel like they were part of building it so they’re probably more likely to buy it too.
Now, Liz, here’s our favorite part of trust data talks, the one mic stand. I want you to pick one trend that the planet is not paying attention to, but should be.
Sure, and I’ll be boring and go back to data here. But that’s okay for this audience.
I’ll take something that people are paying attention to but need to broaden their understanding of. So over the past few years, consumers have become a lot lot more aware of the importance of credit and credit scores. And I can tell you that when I get picked up in an Uber from the TransUnion headquarters, there’s a lot of questions that I get asked about credit and credit scores. That’s great. But now I want people to think more broadly and think about alternative data, too. So, those three digit scores are no longer the be all and the end all of credit. They’re definitely important. There’s many lenders who still use them. But whether your three digit score goes up or down a couple of points doesn’t matter as much as what’s going on within your finances.
And so most of the fintechs that I work with, many of you use the three digit score as an input, but they go way beyond that. in the analysis. Taking in all kinds of any kind of alternative data the regulators will let them. They use AI and machine learning to build their own secret recipes. And that’s because there’s so many different lenders out there. So there’s competition. So you as a consumer, there’s competition for your business. And if they were just using that three digit score, they would all be making the same decision on you. I want consumers to also think about trust.
How do you let lenders know that they can trust you? Maybe you want to give them access to more data? So if you’re having trouble getting a credit card like my brother was, can you give them access to more good data? If they ask for access to your bank account, maybe you let them get into your bank account to look at what’s in there, see your balances over time if they’re growing, see that you’re making your rent payment every month. There’s a lot more data out there that could help you.
Liz, thank you so much for joining us. We hope you enjoyed it as much as we have.
Thank you, I really did.
If you want to know more about data and digital powered transformations, give our last episode with the Technaught, Chase Cabanillas a listen. And if you’re left wondering about anything else related to Tresata Talks, email us at firstname.lastname@example.org. That’s c-u-r-i-o-u-s at tresata.com. Give us a follow on LinkedIn, Twitter, Instagram and Facebook. And feel free to subscribe anywhere you’re listening to us. And we’ll talk data to you soon.