Ying Lei Toh examines the barrier traditional credit scores pose to obtaining affordable credit in the United States and discusses efforts to address this barrier. Using data from the 2019 Survey of Consumer Finances, she finds that traditional credit scores may indeed hinder a sizeable share of consumers from obtaining the credit they desire. Further, disparities in credit access across several sociodemographic groups match the disparities in their likelihood of having high traditional credit scores, suggesting lenders’ reliance on traditional credit scores may drive disparities in credit access.

Socure,  a provider of artificial intelligence for digital identity verification, sanction screening and fraud prevention, reveals that 35 per cent of Gen Z in the US and nearly a third of legal immigrants are digital ghosts.

The demographics of these ghosts have little to no history of credit cards, loans, rental leases, home purchases or mobile device plans, leaving them without the credit bureau history and public records data to pass the traditional identity verification systems generally used to safeguard access to our most critical services.

These communities also face challenges in accumulating verifiable records due to limited time for educational and job achievements, property ownership, and other significant life events. Legal protections for minors and immigration data also restrict access to verification sources.

Additionally, legacy identity verification systems struggle with biases in name matching, incorrect address normalisation, and inadequate coverage for localized address formats common in areas where many legal immigrants live.

“Too many consumers today are locked out of the digital economy because identity verification systems rely on outdated data sources and methods,” said Josh Linn, senior VP of product and GM of compliance at Socure.

“At Socure we believe there’s a better way. By leveraging modern technology, alternative data, and advanced analytics, we can build an equitable finance ecosystem where everyone can access the financial services they need to thrive. Solving the identity challenges of underserved populations is not only an economic imperative, but a moral one. The industry must come together to prioritise financial inclusion.”

Digital wall

According to Socure’s research, legal immigrants in the US face significant hurdles in accessing banking and government benefits. Seventy-four per cent of legal immigrants lack loans, over half (56 per cent) don’t have credit cards and 44 per cent don’t have bank accounts.

More than half (51 per cent) report difficulties verifying their identity, limiting various aspects of their lives. Almost half (48 per cent) were denied government services, 45 per cent were denied access to jobs and student loans, and one in five (21 per cent) believe they will never achieve equal access to these services compared to those born in the US.

ID difficulties

The Credit Card Accountability Responsibility and Disclosure Act of 2009 has deterred Gen Z from entering the financial system, requiring cosigners and income proof for those under 21, suggests Socure.

Consequently, 54 per cent of Gen Zers report identity verification difficulties, with 35 per cent citing a lack of digital financial footprint as the main issue. Over half have had to verify their identity in person multiple times, and 46 per cent have had to send documents for proof.

Financial literacy and trust are also issues, with 49 per cent regretting not applying for financial accounts earlier, and 50 per cent feeling unprepared to enter the financial system at 18. Additionally, identity theft apathy is high, with 20 per cent unconcerned and 37 per cent believing stolen identities are not valuable. Despite this, identity fraud cost consumers $42.9billion last year.