Working paper
Fintech Credit and the Financial Risk of AI
U Iowa Legal Studies Research Paper, Vol.No. 2021-39
SSRN
09/15/2021
Abstract
The promise of artificial intelligence and related financial technologies in revolutionizing how financial institutions operate and in broadening access to financial products and services continues to capture the imagination. This has been particularly true as fintechs and banks are increasingly harnessing AI underwriting and alternative data in their lending programs. The benefits of these new techniques are that they can arguably capture a more accurate picture of a borrower’s ability to repay. This is compared to incumbent credit scoring models that rely heavily on a more limited set of indicators, often disadvantaging demographic groups that already struggle financially. Through the use of alternative data and sophisticated algorithms, proponents aim to bank the unbanked and underbanked. Yet, the use of AI in credit markets has downsides—it can increase financial risk. This chapter describes the use of AI and alternative data in credit underwriting, including through the use of data collected from publicly available securities filings made by the nation’s largest bank holding companies and most prominent fintech lending firms. In doing so, I raise black box concerns inherent in these credit products and compare these to the pre-2008 subprime mortgage market. The project concludes with observations related to the potential for future systemic risk and by offering a preemptive path forward
Details
- Title: Subtitle
- Fintech Credit and the Financial Risk of AI
- Creators
- Christopher K Odinet
- Resource Type
- Working paper
- Publication Details
- U Iowa Legal Studies Research Paper, Vol.No. 2021-39
- Publisher
- SSRN
- Number of pages
- 45 pages
- Language
- English
- Date posted
- 09/15/2021
- Date updated
- 03/15/2023
- Academic Unit
- Finance; Law Faculty; Public Policy Center (Archive)
- Record Identifier
- 9984582307402771
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