Written by: Eric Bank
Edited by: Lillian Guevara-Castro
Reviewed by: Adam West
Key Takeaways
- Experian and Plaid are rolling out an integrated solution to provide lenders with real-time cashflow analytics to drive enhanced credit decisions and inclusion.
- The alliance shows growing industry interest in alternative channels of information to underwrite customers who have limited or no credit history.
- Experts have said the adoption would reshape the subprime market, but integration problems and regulation issues remain.
Real-time cash flow information is the place to be right now, and Experian is anxious to lead the charge.
Under the new partnership between Experian and Plaid, the credit bureau is marrying transaction-level bank account detail with its proprietary analytics to give lenders an instant, end-to-end perspective on an applicant’s finances.
The goal: to increase the accuracy of underwriting, expedite decisions, and increase the availability of credit — most significantly to those outside the mainstream FICO net.
Experian maintains the new Cashflow Score is 25% more predictive compared to traditional methodologies, according to Experian’s internal analysis. Perhaps it is the ability to lend to near-prime and credit-invisible borrowers, however, where the new math has the biggest implications for subprime lenders compared to traditional methodologies.
As increasingly more Americans have irregular incomes or credit imperfections from decades gone by, the industry is searching for new ways to look beyond risk without shutting them out.
How the Cashflow Score Works
Experian and Plaid say transparency is built in. Consumers must grant permission for their data to be accessed, and Plaid’s consumer reporting agency issues the report, delivering it securely to Experian.
The information is drawn from over 12,000 financial institutions (according to Experian and Plaid) and includes up to two years of transaction history. Once received, Experian analyzes the data and returns a credit-relevant Cashflow Score ranging from 300 to 850.
Relevance of Subprime and Use Cases
That score can reflect a range of factors: income stability, recurring expenses, overdraft activity, and savings patterns. Theoretically, a gig worker with no traditional credit could qualify for a loan based on stable cash inflows and responsible budgeting. For lenders, that means a deeper, timelier read on borrower health.
“Real-time cashflow insights, alongside traditional credit data, are becoming essential for lenders to improve business outcomes and expand access to credit,” said Eric Sager, Chief Operating Officer at Plaid. “Our work with Experian is about removing long-standing barriers.”
Regulatory and Technical Considerations
Still, execution may determine whether the tool becomes mainstream. Many lenders already struggle with integrating new data streams into legacy underwriting systems. And while cashflow underwriting isn’t new, its effectiveness depends on context.
“Alternative data is not a panacea for the problems in credit reporting,” said National Consumer Law Center staff attorney Chi Chi Wu. “There are also tens of millions of consumers with poor credit scores and histories, disproportionately Black and Latinx.”
She went on to say that a bad credit history is more harmful than no credit history, and alternative data will not eliminate racial disparities in credit scores.
That concern is magnified by the broader push for regulators to scrutinize AI in credit scoring. The Consumer Financial Protection Bureau has warned lenders to avoid overreliance on opaque models and to ensure explainability in credit denials.
Cashflow underwriting has been introduced as a solution to credit accessibility, but integrating it won’t be simple.
A 2023 study by the nonprofit innovation center FinRegLab notes that regulatory ambiguity, along with data access and privacy concerns may weigh on how quickly lenders embrace cashflow underwriting — especially for products subject to closer scrutiny like credit cards and auto loans.
“For customers that the card companies judge are just too risky, now that they can’t charge higher interest rates, they’re just going to not extend credit to those types of subprime borrowers,” said Natasha Sarin, who is a law professor at Yale Law School and previously served at the U.S. Treasury Department.
Wider Market Implications
But the potential is huge. According to the latest PYMNTS study, nearly 80 million American adults are credit avoidant or marginalized; they’ve been turned down for credit recently, or they’ve chosen to opt out. If Experian’s score helps lenders identify low-risk borrowers among this group, it could expand portfolios without diluting credit standards.
“The availability of real-time cashflow data addresses two critical industry challenges: creating pathways to credit for underserved consumers that didn’t exist under legacy scoring models, and for financial institutions, it expands the consumer lending addressable market while improving the ability to manage credit risk,” said Stewart Watterson, Strategic Advisor for Datos Insights.
It can also help lenders satisfy Community Reinvestment Act requirements to provide service to underserved markets.
TransUnion and Equifax offer similar tools, including Equifax’s Cashflow Insights and TransUnion’s Income Estimator. But Experian’s integration with Plaid, which reports coverage of half of U.S. bank accountholders through the use of Plaid’s infrastructure, can give it a leg up.
And Plaid, hitherto most famous for its fintech integrations, is increasingly positioning itself as an infrastructure play across the credit space.
For now, the Cashflow Score is a strong signal in an otherwise noisy market. The lenders will have to decide, though, if the signal is strong enough to influence actual credit decisions — and if regulators will let them follow it.
