Pub. 10 2022 Issue 2

looks like and then attempt to implement procedures afterward. This often leads to a suboptimal outcome before it even starts, and the institution runs the risk of being accused of simply “virtue signaling” when it comes to its financial inclusion initiatives. Compliance, risk and regulatory concerns Financial institutions operate under specific regulatory standards, and fintechs must understand and appreciate these requirements because regulators can — and will — come for either of them if a problem occurs. Both should thoroughly vet potential partners to ensure they are in line with visions, expectations and compliance requirements needed for any program’s policy. This will make ongoing reporting and monitoring much easier for both sides because everyone will be aware of agreed-upon measurements (and who is accountable for what). For financial institutions, risk is always the major factor when it comes to loans and credit products. While all areas of banking have some level of inherent risk, most tend to be more frontloaded. For example, once a deposit account is confirmed and approved, it becomes only a profitability decision or concern (e.g., account limits/requirements, interest rates, fee and maintenance costs). This is not the case with lending or credit since the supporting financial institution will take on more risk with each new loan decision. Leveraging AI/ML technology Technology may be the answer for financial institutions wanting to be more inclusive in their decisions without drastically increasing their risk. Often, the best way to reach and serve today’s underbanked communities is through the right app or platform. Solutions that are quick with user-friendly interfaces and available anywhere, anytime can make banking much easier and much more accessible. When leveraged and monitored appropriately, technologies like artificial intelligence (AI) and machine learning (ML) solutions can further enhance banking experiences. These technologies can streamline lending processes for consumers while helping financial intuitions make better informed, more inclusive lending decisions. In most cases, the two fundamental questions regarding lending are “Can the borrower afford to pay it back?” and “Is this borrower an acceptable risk for the institution?” While traditional credit scoring has been the standard for years, fintech companies are increasingly helping to enhance and fill in the gaps often left open by this method. AI/ML technology that augments credit decisioning can help financial intuitions incorporate new, alternative credit data into these processes, allowing them to responsibly consider borrowers who may have lower credit scores but are still reasonable loan risks versus those who are not. However, these solutions come with some inherent risks that should be carefully considered prior to implementing them. They are designed from sophisticated decisioning models, leveraging proprietary algorithms, protocols and judgment to function. Unfortunately, this means they can be subject to bias, which could create problems — compromising a program’s intended purpose and/or function. It is vital that fintech companies offering these technologies are aware of the inherent risks and possible weak points for bias to creep in, while financial institutions must understand where and how much they are relying on these models for their financial inclusion programs. To ensure these platforms remain unbiased, financial institutions need to create comprehensive, stringent monitoring procedures to continuously assess these technologies. The scrutiny and demand for increased financial inclusivity are growing. Financial institutions and fintech companies are perfectly positioned to help close many of the financial inequality gaps that under-banked and underserved communities have faced for years. Financial institutions and their fintech partners that can step up and step in to reach out and meet the needs of these customers and members can establish themselves as trusted partners, creating deeper relationships and long-term opportunities for all sides. Often, the best way to reach and serve today’s under-banked communities is through the right app or platform. The Community Banker 13

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