Welcome to the middle class! Congratulations, you made it! Good luck getting approved for a credit card with that low or nonexistent credit score, though.
Traditional lenders may not use this exact phrasing, but the sentiment might as well be on the cover of the brochure for new middle-class life. Whether an applicant has recently immigrated and lacks the background data to be approved, or is recovering from a drastic life event such as a divorce or death of a spouse, demonstrating their creditworthiness is often impossible by traditional means – i.e. the FICO score – leaving as many as 160 million Americans up the creek with no paddle.
Mastercard is one company that’s working to build and provide paddles to those thin-file, non-prime borrowers, creating an on-ramp for them to join the mainstream economy.
Sherri Haymond, EVP of digital partnerships at Mastercard, told Karen Webster during a recent interview that the company’s recent partnership with Fort Worth-based Elevate Credit Inc. will help further this mission.
“160 million Americans have low or no credit scores,” Haymond said. “That’s a huge part of our economy. Our philosophy is that bringing people into the economic framework and giving them access to financial literacy and tools helps everyone. It helps the economy as a whole when more people participate in a meaningful way.”
Past History With the New Middle Class
Haymond said Mastercard has already put its philosophy into practice by partnering with CreditStacks, a FinTech that focuses on providing credit to new Americans, as well as launching its Inclusive Futures Project in December 2017 to address the needs of gig and on-demand workers. The company also continually invests in research and programs at its Center for Inclusive Growth.
Funnily enough, Haymond said, Elevate has its own center similar to Mastercard’s. Elevate’s center focuses specifically on the “New Middle Class,” a growing cohort of productive yet credit-constrained Americans with credit scores lower than 700 and little to no savings. Without access to traditional credit, the New Middle Class tends to be limited to more expensive forms of credit, leaving them with few options to meet immediate financial needs.
“A key issue for America’s non-prime population is income volatility,” Elevate CEO Ken Rees said in a press release announcing the partnership with Mastercard. “Accessing a traditional credit product with real buying power will allow them the opportunity to smooth their financial ups and downs.”
Income volatility is at the heart of Mastercard’s Inclusive Futures Project, Haymond noted. The people who benefit most from the project are often juggling multiple jobs, challenging schedules and resultantly irregular income streams.
Mastercard Meets Elevate
Some of the features of the new product will include purchase and fraud alerts, credit score monitoring, a full-service mobile app and on/off functionality for the credit card. Cards will be awarded based on the analysis of data from alternative sources, Haymond said, which can fill in the blanks to evaluate a customer’s creditworthiness when traditional data points are not present or don’t meet requirements.
Webster noted that people often want to understand how to be better with their money, and a tool like this could help them do that – but people also don’t want to be told what to do with their money. It could be a tricky balance to strike, she commented.
Haymond said that Mastercard’s goal with the Elevate partnership – and with its own pursuits in this area – is to give people tools and empower them. It’s not the same as nagging someone to spend more carefully or establish savings, she said – yet providing the right tools can absolutely have those outcomes, enabling struggling consumers to develop the good habits they want to learn.
Once the feedback loop kicks in, it enables consumers to become self-aware about their financial habits. If spending X caused Y to happen, the customer can develop new habits around that type of spending. Haymond said that just seeing the consequences spelled out in front of them, as the Mastercard/Elevate product will enable, can be enough to set people on the right track without telling them what to do.
“Digital provides those tools in a private and transparent way,” Haymond said. “With continual credit monitoring, you can see the effects of your score going up – and that’s positive reinforcement.”
Haymond said Elevate is working with a bank partner to develop the new credit product, but the partner’s name has not yet been disclosed. Both the partner and the product are set to be unveiled sometime in 2018, she said.