Fintech algorithms are capable of many remarkable things. One thing they cannot do is determine a user’s race, which is proving to be a good thing for minorities seeking financing.
A November study by the Federal Reserve Bank of Philadelphia found that fintech lenders have made more loans in underserved minority and rural neighborhoods. The theory behind this is that old-style bankers discriminated against minorities because they met loan applicants face-to-face. Fintech’s computer algorithms, the argument goes, are blind to race, and loan approvals are more anchored in a borrower’s creditworthiness.
Economists at the University of California at Berkeley found more mixed but still promising results, concluding that lenders “do not discriminate at all in the decision to reject or accept a minority loan application,” based on an analysis of lending p
