Addressing the poverty premium: a data-driven approach

Poverty premium is a term that means more than being charged more for certain products and lack of credit history.; it can also amount to a digital exclusion.

By placing more and more emphasis on the environmental, social and governance (ESG) agenda, banks do not wish to be seen as socially irresponsible. Regulators and authorities are also increasingly focusing their attention on these issues, understanding that the poverty premium is an obstacle to regional and national economic progress.

Banks must therefore find ways to offer more nuanced services, so that fair banking is open and accessible to all. And it ultimately works to their advantage too. Not all demographics that are abandoned by digital services are poor – think millennials with no credit history or older baby boomers who are not digitally savvy – but by being unbanked or excluded from the system, they can easily follow a downward spiral and finish badly.

Banks also have the ability to provide digital education and coaching services, engage people, educate them better, and of course, avoid certain pitfalls. Through astute capture, processing and analysis of data and technology, banks can take the lead in addressing the worn-out biases that exist in traditional credit decision models over certain credentials or attributes, which are often the result of programming by human biases.

Thanks to open banking and shared data, especially since this theme is found in other sectors such as energy, insurance and health, fintech startups and neobanks are already at the origin of the change in this regard.

Download your copy of this Finextra white paper, produced in collaboration with Competent, to learn more.

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