Financial institutions already struggle with how to tap into the 26 million Americans who are Credit Invisible (those without National Credit Reporting Agency records), as well as the 19 million unscorable (those with NCRA records, but insufficient credit histories to generate a score).Competition into that space includes not just traditional banks and credit unions, but alternative lenders, startups and tech giants as well. What’s more, the cost to acquire new accounts is high. But there’s another space largely untapped by financial institutions of all sizes: newcomers to the country.
The newcomers challenge for lenders
There are almost 45 million immigrants in the U.S., which represents a 70-year high. This translates into a growing need for newcomers to access credit. These populations struggle to get access to credit and financial services products. Millions of people coming to the U.S. have built credit histories abroad that are not easily accessible to U.S. banks and credit unions. This often means that those consumers are forced to look to alternative financial services, or simply hold back from banking products they may want and need to use. Financial institutions lose too because they hold back lending to customers that otherwise would be high performing accounts in both the short and long term.
Foreigner newcomers are as financially diverse as the rest of the population
The next several years will be ripe for white-space lending to foreigner newcomers, and lenders who develop a newcomer strategy for this population will likely outperform their peers in both the short term, as well as the long term. Here’s why:
- Foreigner immigrants have a higher rate of workforce participation than U.S. born citizens
- More than 25% of new businesses in the U.S. are founded by immigrants
- More than 75% of immigrants in the U.S. are in the country legally
- Median income for foreign-born households is significantly higher among immigrants coming from certain parts of the world vs. the median income of U.S.-born households
- Overall, immigrants have roughly the same rates of college education, but are actually much higher from some countries
- In 2018, nearly 1.1 million immigrants became lawful permanent residents, and of the 1.1 million, 52% obtained a green card.
Immigration is present in communities across America and broader financial access to all people provides healthier economic communities for everyone. Identifying and serving these populations to the appropriate levels is a win for both the newcomer and the financial institution that serves them. Consider that immigrants tend to rely on alternative financial services, which presents an open opportunity for Financial institutions. There’s no pre-existing banking relationship to change.
Financial institutions who meet these populations where they are can offer better terms and help credit worthy consumers get access to checking and savings accounts in addition to credit. Consider that wealthier families from abroad tend to send money to their relatives living in the U.S. This includes students, who need accounts to receive those funds. These newcomers present substantial long-term opportunities as they graduate, get married, open a business, and buy a home.
Data insights are key to opening the newcomer opportunity
FIS is addressing the most significant obstacle for clients by helping them understand the credit histories of foreign-born newcomers. By partnering with industry leaders who specialize in aggregating international credit histories, we can overcome the limitations of the US credit bureau. For the FIS Ethos data solutions team, helping institutions assess risk is core to our mission, but it’s also critical that data insights open doors. In this case those open doors will allow communities to thrive as financial institutions fuel the true potential of newcomers with solid credit histories.