Banking startups, like Affirm and Earnest, use artificial intelligence (AI) and big data to accurately predict a borrower’s ability to repay a loan - even if they have little or no credit history. By instantly analyzing a huge swath of information – from the applicant’s transaction history to the details of their social networks — these startups can identify and extend fair credit to a wider base of qualified borrowers.
While now scrappy startups, these types of lenders are growing quickly and can’t be ignored. Affirm has already issued more than a million loans, and Earnest is taking on big ticket items, like student loan refinancing. They’re becoming the new normal. And the reason they’re succeeding is simple: big data underwriting lets them quickly extend fair credit to the qualified borrowers that traditional banks turn away.
AI-backed lending will broaden the market substantially by issuing home loans to people who aren’t in the credit system or don’t have access to credit. Whether they haven’t had the opportunity to build up good credit or have had a blemished credit score but have since demonstrated good financial habits, banking startups will be able to look beyond this and accurately assess the risk of lending to these borrowers.
People whose credit rating made it difficult for them to secure a student loan, purchase a car, or even buy furniture will now find themselves on the path to homeownership. Their needs and expectations will be different than those of buyers who spent years planning and preparing to be part of the market.
It’s hard to tell exactly how this shakeup will affect the real estate market—there’s absolutely no precedent for this. But one thing’s for sure: real estate agents will have to adapt. The sales strategies that feel tried-and-true now will soon be as outdated as 75-minute listing presentations, and agents who don’t see the change coming won’t be able to capture this new, sizeable market.