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World’s First Open Banking Affordability Score Launched By Castlight Financial

Affordability innovator Castlight Financial has developed a new open-banking affordability score, providing access to borrowing for the first time for the 5.8 million people, in the UK alone, with “thin credit files”.

The company, which has been pioneering open banking based affordability products for the last three years, including the Affordability Passport and Categorisation as a Service (CaaS), has now taken the open banking technology currently being used for traditional credit assessment and unlocked a powerhouse of additional functionality.

Revolution

The new affordability score, CastScore, is not dependent on a customer having a history of credit in order to demonstrate creditworthiness and instead uses open banking technology to analyse a customer’s transactional data in real time and score their likelihood of paying credit back.

The AI that powers the CastScore technology has been validated on actual loan performance data, supplemented by expert analysis of spending trends, with high street banks. CastScore then merges this information with transaction analytics, sourced from an up-to-the-minute review of the customer’s actual income and spend as well as a more complex analysis of lifestyle and discretionary spending.

CastScore is currently being piloted by three of the UK’s High Street banks.

Says Phil Grady, CEO of Castlight Financial: “CastScore looks at and categorises every debit and credit and so it allows us to fill in the gaps in traditional credit data reporting and give customers, particularly those with thin files, a chance to be fairly assessed. Traditional credit scoring focuses on the consumer’s future credit behaviour being similar to their past performance through looking at historic credit reference agency data. The CastScore creates an up to date view of a consumer’s available disposable income and is able to predict future payment performance using more recent and relevant data. It truly represents a revolution in how lenders may view all consumers, from those with established credit profiles to those with thin files.

For the first time someone with a thin credit file will be able to demonstrate, at the touch of a button, not only that they have a regular income coming in, and that they are financially robust, but they will be able to show a set of exemplary financial behaviours which make them a very good credit risk indeed. For a financially cautious millennial with little credit history but enough money in the bank, CastScore could be the difference between securing a mortgage or being stuck in the generation rent trap.”

But it’s not only the millions of people with little or no credit footprints who will potentially benefit from the CastScore technology. A predictive CastScore, even somewhere in the middle of the range, could be used to augment a traditional credit score and radically improve it.

Says Grady: “The reason that a CastScore rating, taken by a lender in conjunction with a traditional credit score can improve a customer’s credit score is because CastScore isn’t just reviewing a history of credit repayment performance. It is instead based instead on an individual’s nuanced behaviours. The open banking technology scans all the customer’s transactional information and assesses whether the customer is a saver or a spender, do they run a tight ship or exceed their means and even are they a homebody or a party animal. It will also raise good and bad financial behaviour flags. A good flag might be that discretionary spending on charitable giving and personal health has increased. A bad flag might be unpaid bills, bank charges, increased gambling or payday loans.”

Machine Learning Powerhouse

Castlight’s machine learning powerhouse merges both the transactional analytics and the customer’s financial “story” into the CastScore which gives lenders all the enhanced predictive information they need to make a lending decision for customers with thin or no credit files. And for customers with traditional credit files, it significantly augments their financial profile, providing all parties involved with more insight, less risk and more lending scope.

An example of CastScore’s insight might be a customer who takes out a finance plan for a new car in January. This commitment may appear on a traditional credit score a few months later, if the credit score has good coverage, and only then will the credit score be updated. However, the CastScore score will update as soon as payments start being made from the account, providing financial decision makers with up to the minute information.

CastScore assesses a customer’s full financial big picture. So, whilst the new car payments may be greater than the customer’s previous car payments, there may be reductions in insurance premiums. The customer may also have taken out roadside assistance, which is statistically a good indicator. By taking factors like this into account CastScore could demonstrate that the new car was a sensible investment that in the long run cuts costs and increases financial stability.

CastScore’s algorithms have been uniquely trained to analyse the hard numbers but also to reach out into the complexity of a customer’s real life and set credit and income movement in context. CastScore’s AI brain has the computing power to demonstrate that, in a particular case, a new car may not just be an item to put on a list of credit obligations, it could be a sensible investment that in the long run creates stability in the family life and cuts costs. Ultimately that means that when the entire credit scenario is computed, it will actually factor positively in the generation of a good CastScore.

3D movie

As CastScore is being piloted with the UK’s banks as a means of enfranchising customers or helping them augment their credit scores, Castlight Financial is already developing CastScore to provide the banks themselves with significant competitive edge in a busy market place.

Says Grady: “If traditional credit scoring provides a snapshot of a customer’s affordability, CastScore provides a 3D movie. That means that any bank offering CastScore to customers is going to be able to use the enhanced modelling system to identify risk more accurately and ultimately offer better credit terms. Credit risk teams will also be able to use CastScore  for ongoing control and monitoring of customers’ finances, providing an early warning system of potential problems and allowing them to update their risk models and limits if needed.

“Open banking has already revolutionised the way we think and bank. But it’s a massive iceberg, with a huge percentage of its capability still to be exposed and exploited. By harnessing the full potential of open banking, we are powering a potential revolution in credit scoring and the wider world of banking. I believe the CastScore can help both lenders and customers access better, safer credit as well as enfranchising the millions of people with thin credit.”

Time For A Financial Fire Drill

A law has just come into effect in the States which allows American consumers to freeze and unfreeze their credit without paying a fee. Signed in May by Donald Trump, the Economic Growth, Regulatory Relief and Consumer Protection Act amongst other things, abolishes the not inconsiderable fees which were previously associated with freezing and unfreezing credit.

Will they do it? I’m not so sure given that, according to various surveys, only 8% to 20% of customers have enacted one in the last 12 months.

Surprising maybe, but what I found even more surprising is that whilst freezing credit is a key tool for consumers to use to safeguard their identity, it is not widely understood.

I was talking about this with friends this week. Friends who are professional people but not financial professionals. Their assumption was that a credit freeze was a freeze on the use of their credit cards.

Why would they not? It’s not exactly crystal clear is it? And they’re not alone. Researchers at the University of Michigan School of Information in Ann Arbor, also found plenty of consumers who thought that a credit freeze stops them from using their own credit cards, rather than restricting access to their credit files and stopping crooks opening credit reports in their name.

So with an apparent level of inertia in the States on credit freezing and unfreezing and a lack of understanding of the process here in the UK, it’s maybe a good time to consider our options. Time for a bit of a financial fire drill.

Putting your credit on ice, freezing it so that no-one can open an account in your name is one way to safeguard against identity theft but what else can we do as consumers to protect our credit and identity?

Lauren Lyons Cole of Business Insider compiled a thorough checklist earlier this year. And I couldn’t agree more with her recommendations. I believe now is a good time to give them another airing.

  • Monitor your current accounts daily or weekly. Use an account-aggregation app like Mint or log into your various accounts to make sure all charges were made by you. If you see something suspicious, contact your bank immediately.
  • File your taxes early. The IRS is cracking down on tax fraud, but there could be an uptick after the Equifax breach. Get your tax information organized early, and submit your return as soon as you receive your W-2 and 1099 forms. Added benefit: If you’re due a refund, you’ll get it sooner, and if you owe taxes, the amount isn’t due until April 15 regardless of when you submit your return.
  • Use secure passwords and two-step verification. Because most identity theft occurs with existing accounts, one of the best things you can do is safeguard your data online, especially for accounts that contain identifying information and credit-card or other financial data.
  • Set up alerts for new credit activity. Save yourself money and use a free credit-monitoring service, like Credit Karma or Credit Sesame. You can also set up a fraud alert or credit freeze if you’d like.
  • Check your credit reports regularly. You can access one free copy of your credit report from each of the three bureaus once a year through the government-sponsored AnnualCreditReport.com. Set a calendar alert to remind yourself to do this every year, or pull one report every four months to be extra vigilant. While you’re at it, there may be things you can do to improve your credit score, fix any errors on your credit report, and optimize your collection of credit cards.
  • Choose identity-verification questions and answers carefully. Additional identity-verification questions can help keep accounts secure, but not if you choose questions like “What street did you live on when you were growing up?” or “Where were you born?” that could easily be answered with access to your social-media account or other personal information.

Companies and Algorithms Need Women in Tech

Our team at Castlight Financial is growing by the week and we were delighted to note this week that, despite the fact that just 17% of people working in technology across the UK are female, 23% of our employees are women. And in the even more traditionally male-dominated developer sector, 57% in our development team are female.

These are important statistics for a number of reasons and not just the obvious ones. Of course we want to be sure we are attracting the best people for the job and not just the best men for the job. But it goes deeper and wider than that.

Talking around the table with some of our female developers this week, it was interesting to listen to their take on the importance of encouraging more women into tech roles. Clare said: “Where previously ‘IT’ sometimes felt like a separate subject, now it feels more like tech is integrated into many different areas, and often in service of something else. For example, at Castlight we’re harnessing tech to try and deliver a safer financial world and that has a wide appeal”. Laura, who recently joined us from New Zealand, added: “We’re not just writing code. We are problem solving and that’s gender neutral. In fact a diverse team has the advantage of accessing different ways of problem solving.” Amy pointed out that “we won’t even be having this discussion in a few years time as kids are being brought up on the iPad, not gendered in any way.” And Hayley highlighted that attracting more women into tech is a self-fulfilling prophecy. “The more women on a development team, the more appealing that company is to women. I have been put off applying for jobs where I knew I would the only female developer.”

So, of course it’s good for companies to attract and sustain gender diverse development teams. And we will continue to recruit the best people for the job and for the team.

However, where the issue of women in tech gets really interesting is that encouraging women into tech isn’t just good for their careers and good for tech companies, its good for the users of tech too. Algorithms need women.

Hannah Kuchler in the Financial Times has said: ‘Given that algorithms are rapidly becoming responsible for more decisions about our lives, deployed by banks, healthcare companies and governments, built-in gender bias is a concern. The AI industry, however, employs an even lower proportion of women than the rest of the tech sector, and there are concerns that there are not enough female voices influencing machine learning. Kuchler goes on to quote Sara Wachter-Boettcher, author of Technically Wrong, who says: ‘I think we don’t often talk about how it is bad for the technology itself, we talk about how it is bad for women’s careers. Does it matter that the things that are profoundly changing and shaping our society are only being created by a small slice of people with a small sliver of experience.’

Yes Ms Wachter-Boettcher, it matters very much.

Our affordability products are for everyone who needs them, developed and created by our team of talented men and women. That’s something that’s important to us and, increasingly, to the users of our products.

CaaS – Built for the Fourth Industrial Revolution

In his recent Mansion House speech “New Economy, New Finance, New Bank” Mark Carney referred to the brave new world we inhabit as the Fourth Industrial Revolution. We are living in an age characterised by a technological tsunami that is constantly changing and shaping the way we live, work and interact with each other. Read more

Redemptive Technology

I wrote recently about the sea change in perspective in the lending landscape. The FCA is urging lenders to be more forward looking, to anticipate how borrowers will be able to repay their debt further down the line. Will they be able to weather a storm or will they go under? Read more

Chancellor calls fintech the future of global finance

The UK fintech sector contributes nearly £7 billion annually to the UK economy and employs over 60,000 people across 1,600 companies. And every day companies like our own are developing and rolling out products and services which have the power to transform the everyday lives of millions of people, in a host of different ways, from medical interventions to financial security and new ways of banking. Read more

AI is Powering Transformational Change

We are living in exciting times as the power of artificial intelligence is unleashed, impacting on every sphere of life. At home, we might have Alexa at hand to dim the lights for us, so we don’t have to leave the sofa and I expect most of us are keeping an eye on the self-driving cars story, however we feel about it. Read more

Open Banking And A Light Bulb Moment

When new technology bursts onto the scene it is almost always received in two different ways, by two different camps of people – those who are excited by the new opportunities it opens up and those who are resistant to change. Read more

Castlight shortlisted in the FT’s Future of Fintech Awards 2017

The Financial Times have included Castlight in their shortlist for their Future of Fintech Awards.

Castlight was shortlisted by the FT along with four other early-stage firms as a leading fintech innovator. The awards recognise both innovative ideas and the ability to bring them into widespread use, with the Innovation Award in particular rewarding newer fintech companies that are bringing out novel solutions.

CEO, Phil Grady said,

“It’s great to have Castlight’s innovation recognised as capable of creating lasting change in the financial services sector on a global scale.”
The FT judges, on including Castlight said:
“The idea of better credit scoring is attractive and it is significant that the company has made a profit from the first year and has not had to take any financing.”
Read more on the Financial Times Future of Fintech Awards 2017 here.

Fintech is Good News for Emerging Economies

Susan Lund is a partner at McKinsey and Company in Washington DC and an expert in digital finance in emerging markets. It was refreshing to hear her contribution to this week’s Analysis programme on Radio 4, where she reminded listeners that the digital revolution in finance doesn’t just benefit Western consumers, but is bringing better and cheaper finance to the developing world too. Read more