No-frills accounts prove popular; lenders use AI to parse credit
Wall Street Journal
No frills, no problem
No-frills bank accounts are attracting more consumers beyond the low-income customers they were intended for. The accounts generally include ATM access, debit cards and mobile banking services but not paper checks or overdraft protection, “two features that aren’t as popular amid a customer shift to digital banking. Banks say the accounts have also appealed to a broader base of consumers, particularly young people who don’t use checks and cost-conscious customers who want to avoid incurring overdraft fees. The accounts’ increasingly sophisticated online banking functions, from bill pay to mobile check deposit, have boosted their appeal.” The Federal Reserve Bank of St. Louis, which recently did the first comprehensive survey on the business, said its data “demonstrate the vibrant market for these accounts.”
Synchrony Financial and Ford Motor Credit are among a growing number of lenders “that have looked into the future” and are starting to use artificial intelligence to help determine consumers’ creditworthiness, enabling them to make loans to people they previously overlooked or turned down. Subprime auto lender Prestige Financial Services, for example, has partnered with ZestFinance, an AI software developer, to “drill down into some 2,700 borrower characteristics instead of the couple of dozen that the lender typically had on its risk-assessment scorecard.”
The Federal Housing Administration "is keeping an eye on" the rising percentage of homes in which first-time home buyers got help from relatives with mortgage down payments. More than a quarter of borrowers who used FHA-insured loans, which require a 3.5% down payment, got assistance from a relative in the year ending in September, up from about 22% in 2011.
Patience is a virtue
Federal Reserve Bank of Dallas president Robert Kaplan said the Fed should take a wait-and-see approach before raising interest rates again. Kaplan, who doesn’t have a vote on the Fed’s Federal Open Market Committee this year, said “patience is a critical tool we should be using” in determining monetary policy. “We should be patient and give some time for the economy and watch how this situation unfolds.”
Three former Credit Suisse bankers were arrested in London on Thursday and charged by the U.S. Department of Justice for their alleged role in a $2 billion fraud scheme in Mozambique. The bankers, as well as the former finance minister of Mozambique and an executive of Privinvest Group, allegedly diverted money from $2 billion of debt deals the bank arranged for Mozambique government-owned companies in 2013 and 2014. Credit Suisse, which was not charged, said the former employees “worked to defeat the bank’s internal controls, acted out of a motive of personal profit and sought to hide these activities from the bank,” citing the indictment.
Leading through strength
The decline in Europe’s banking industry “must be arrested and then reversed if the EU wants to remain a force to be reckoned with on the world stage amid unprecedented geopolitical volatility,” Josef Ackermann, chairman of the Bank of Cyprus and a former chief executive of Deutsche Bank, argues in an FT op-ed. “To do so, it must become truly independent — and a strong banking sector, particularly in the eurozone, is central to that ambition. If the EU wants to be sovereign and prosperous, it must strengthen its banking industry, starting with the capital market business.”
Two steps closer
Britain's finance ministry, which has been criticized for appointing too few females to the Bank of England’s three main policy committees, has named two women to the BoE’s Financial Policy Committee. The two are Colette Bowe, currently chair of the Banking Standards Board (BSB), an industry group, and Jayne-Anne Gadhia, the former CEO of Virgin Money. Their appointments bring the number of female policymakers at the central bank to six, versus 16 men. “Gadhia has long been an advocate for greater representation of women in senior roles in Britain's financial services, where the four big banks all have male chief executives and chairmen,” Reuters reported.
“The way credit has been done for the last 30 years or so is using credit bureaus and credit-bureau data and maybe some other things. What artificial intelligence and machine learning allow us to do is to get much broader perspective on consumers, and we’re going to be able to lend more to people who were invisible.” — Synchrony Financial CEO Margaret Keane.