Auto-pricing, cash in advance; moving forward

'The Bureau of Consumer Financial Protection (BCFP) and federal banking regulators have monitored FinTech lenders’ use of alternative data by collecting information and developing reports on alternative data,” said the GAO, as noted in media coverage this past week. “But they have not provided lenders and banks with specific guidance on using the data in underwriting. For example, BCFP’s fair lending examination procedures and the banking regulators’ third-party guidance on risk do not clearly communicate the agencies’ views on the appropriate use of alternative data.”Of those surveyed, said the GAO, nine of the 11 said that regulatory uncertainty has been a hurdle in credit expansion. According to the banks that have linked with FinTech firms, such guidelines would help relationships between the parties.“GAO recommends that BCFP and the federal banking regulators communicate in writing to FinTech lenders and banks that partner with FinTech lenders, respectively, on the appropriate use of alternative data in the underwriting process. The agencies each stated that they plan to take action to address GAO’s recommendations,” reports said.

The GAO has been watching to see which Fintech companies adopt auto pricing of loan/deposit.  The alternative data, in this case, means credit authorization, crypto badges.  I, and the GAO, fear the selecting of representative set of S&L clients is unstable.

The worry is kind of valid, many of these Fintech companies are relying on super wealth for clients, not  representative sample.   The funny thing about currency banking, you cannot restrict credit according to ad hoc rules, else you cycle into bankruptcy the first sign of stress.  You clients will know more than your interest charges  swapping code.

The system works fine if the credit requirements are operationally well known, then the  average Joe can be a banker client anywhere, by keeping the published ratio. Thus, when terms of trade happen, the interest swapping code can react as fast as any other bot, information arrives equally from all clients.