Going With The Flow: A Lending Shift That’s Opening Doors for Borrowers

Fed data shows that overall credit rejection rates dropped from 24.8% in October 2025 to 15.9% in February 2026, begging the question of whether the cash flow data now being used by lenders and fintechs in underwriting is playing an outsized role in higher acceptance rates.

With cash flow underwriting, lenders are using open banking data to better understand borrowers’ income and expenses when deciding whether to approve or deny loans. Cash flow underwriting also looks at things like payments and bank account balance data in its decisioning.

There are 49 million adults in the United States with thin credit files or no credit history at all. These adults may be unable to qualify for a car loan or home loan because of their lack of a credit history. But they may qualify for a loan using cash flow underwriting. 

The BadCredit team recently spoke with Zhiyao Pei, Founding Partner at the fintech consulting firm CreditBots & Partners, about why cash flow underwriting is gaining ground, and why entrepreneurs are building companies to make cash flow underwriting go mainstream.

He also told us about compliance matters, how to balance approvals with risk, and why consumers without credit files or with very thin files and consumers with subprime credit are benefiting the most from cash flow underwriting.

Here is a closer look at the ins and outs of cash flow underwriting with Zhiyao Pei.

BC: How would you explain the shift toward cash flow underwriting and why it’s gaining such traction right now?

ZP: In order to get the cash flow data, basically the bank transaction data, lenders or credit card issuers need to ask the consumers for permission on that. So traditionally, what that means is that people need to provide banking credentials. 

So Plaid is the major player that does the infrastructure on that side.

Plaid will also have this product innovation that if you’ve gone through this before, the next time you apply with a lot of lenders and credit card issuers, you actually don’t need to provide your bank credentials again. You only have to do the phone one-time password that more people are accustomed to. 

So I think that’s an example of why as more and more people have experienced this, the friction of doing this has been smaller and smaller. And regulatory wise, the past few years .. the regulators have been more open to the lenders and credit card issuers using this data for the underwriting. 

BC: What would you say are the biggest changes making this approach more viable today?

ZP: I think it’s … the entrepreneurs. They build companies to make this process easier and easier.

So they really make a push on both the consumer side and also on the commercial side as well. So it’s just become more and more popular. And then the consumers have seen it multiple times, and they are more used to it.

BC: Where are you seeing the biggest gains in approvals when cash flow underwriting is used? Are there specific consumer segments benefiting the most from this?

ZP: The biggest immediate gain is the consumers that don’t have a credit bureau file, or they have a very thin credit file. Maybe they have a credit history of only one year, or they have a few years of credit history, but it was only a few credit trade lines. 

So usually the lenders would not trust that much, even if you have a really good credit score, but your credit file is so thin, they wouldn’t trust it. So cash flow data just naturally solves this problem. So that’s the biggest gain for sure. 

And also for a lot of other customers with low credit scores, basically the subprime population, have also been able to gain a lot of approvals.

Because subprime consumers, unlike the prime consumers that have a lot of options, are more willing to go through that open banking experience, provide the credentials with the phone or one-time password that I just mentioned. 

BC: How are companies that are using cash flow underwriting making sure they’re maintaining compliance and not committing any errors that could put consumer privacy at risk?

ZP: All the consumer lenders are regulated, so they have a lot of information security.

The bar is really high on the information security wise. And also I think a lot of things that all those vendors that I mentioned, there were also a lot of times that they provided solutions around that as a safe harbor. 

BC: How are issuers balancing the opportunity to expand approvals with the risk aspect and understanding how these new models are operating?

ZP: It takes time. It probably depends on the cycle of your loan. If your loan and you lend it out and the repayment cycle is very quick, then you can learn better. 

But for the auto, mortgage, you have a much longer cycle to learn. But generally, it has to take time. You do the A-B testing experiment, take a test and learn the approach, and look for the earliest signals as much as you can. 

You don’t want to see your delinquency is really high and then to realize you actually have buyers there. Because that data could be useful, but if you overestimate its usefulness, it could screw the lenders and credit card issuers in a bigger way than not using that data. So those are definitely important.