Plaid Launches New Initiative to Transform Cash Flow Underwriting

Plaid, a leading fintech company, announced a significant advancement in cash flow underwriting with the launch of Consumer Report. This initiative aims to simplify and mainstream the use of cash flow data in lending decisions.

Having become a consumer reporting agency (CRA) last year under the name Plaid Check, Plaid can now provide critical insights from consumer-permissioned bank account data to lenders. This capability is pivotal as it transforms complex cash flow data into actionable insights, which are essential for underwriting.

Plaid’s Consumer Report will offer lenders insights from up to 24 months of bank account data, along with Income Insights to verify consumers’ ability to pay. A key feature of this launch is the expanded partnership with Prism Data, which provides a unique cash flow risk score called CashScore. This metric assesses creditworthiness based solely on cash flow data.

Since its beta phase, Consumer Report has been tested with nearly a dozen lenders across various sectors, including personal loans, Buy Now Pay Later (BNPL), and proptech, involving major players like Oportun and H&R Block. According to Jonathan Gurwitz, Plaid’s Credit Lead, lenders are using Consumer Report to reconsider applicants initially declined for credit and to offer better interest rates to marginally approved borrowers.

Gurwitz estimates that lenders could see a 5 to 15% increase in loan originations without added risk by utilising Consumer Report alongside traditional credit reports. This approach benefits borrowers with improved approval rates and interest terms, lenders with an expanded customer base, and Plaid with increased data usage.

Plaid’s platform simplifies the bank account linking process for users, making it a low-effort but high-reward proposition. The Income Insights tool, part of Consumer Report, categorises various income streams and provides accurate debt-to-income calculations, a feature that sets it apart from traditional credit reports.

Looking ahead, Plaid plans to enhance its machine learning models and develop new cash flow attributes to better predict credit risk. The company’s extensive network of 500 million connected accounts offers a rich data source, potentially enabling future underwriting decisions based on comprehensive, real-time financial information, including brokerage and money market accounts.

Plaid’s Consumer Report is poised to transform the lending landscape, potentially bringing cash flow underwriting into the mainstream and reshaping how creditworthiness is assessed.