Need Cash? The Bank Might Want to See Your Phone Bill
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Here's your Money Briefing. I'm J.R. Whelan at The Wall Street Journal in New York. Many small lenders have been digging into your shopping habits and your ability to pay your phone bill on time to determine whether you're a lending risk. Well, now the big banks want in on that action, too. We'll explain in a moment. First, some money and market news you should know. Inflation inched higher by a tenth of a percent in August. According to government data, rent and medical prices were the main drivers behind stronger inflation. That inflation figure would have been higher if not for weaker energy prices, including lower gas prices at the pump. Overall, prices, including food and energy, are up 1.7% from a year ago.
And a survey by creditcards.com takes a look at how people tip service personnel. Women are more likely than men to always tip hairstylists, waitstaff, and food delivery people. But women give about a percentage point less than men. And while baby boomers are more likely than millennials to always tip their waitstaff at a restaurant, millennials tip an average of 22%. But baby boomers usually give 17%.
For decades, when consumers wanted money from a bank, their credit score was the key to getting a loan. But millions of Americans have little or no borrowing history and no credit score. But the banks want their business, too. Wall Street Journal reporter Ana Maria Andriotis is here with some unexpected data that banks are using to reach them and loosen the qualifications. So, Ana Maria, the banks are looking to make more money on lending and to determine someone's risk profile. They're diving into data far beyond just simply, do you pay your bills on time?
The data ranges from somewhat boring accounts. You think about things like bank accounts and whether people have enough cash in them, if they're overdrawing those accounts or not. whether they're paying their phone and utility bills, to some pretty peculiar data points. Things like if they subscribe to magazines and pay them, if they tend to shop at discount stores, if they tend to spend more money buying groceries than they do eating out.
Wow. So the banks are just following me at every step of my day. And the smaller banks have been doing this for a while. They've been looking for opportunities to bring more people into the fold by using some unorthodox data like this. But now the big banks want a piece of this action as well.
So small lenders, in particular the fintech lenders, many of which launched after the last recession, as a way to sort of stand out from the big lenders and try to approve borrowers that the big lenders weren't approving, turn to various types of so-called alternative data that's outside of credit reports and scores. What has been happening more recently is that interest in this type of data has been playing out at the big banks. So, for example, Ally Financial, one of the largest auto lenders in the country, reviews data including things like electric bills, utility bills, phone bills, as they determine whether people can get approved for car loans or not. Discover Financial, one of the larger credit card issuers in the country,
is right now experimenting with different types of data that it'll be using to underwrite people for personal loans. And one of the areas of interest there is looking at whether these people shop at discount stores and giving them essentially, assigning to them less risk.
So why would someone shopping in a discount store mean less risk to a bank?
Credit card holders who use their cards to shop at discount stores, there has been some type of correlation that has been found there that they are less likely to be credit risks.
Interesting, because you would think that maybe if somebody was going to a discount store, they might have less money to spend on food and products there than they would at a store that might sell it at a more expensive price.
I was surprised by this, too.
But I suppose paying your credit card off on time, regardless of where you are, is just as valuable to the bank, you know, no matter where it is.
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