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The proposed tool is being designed to better identify individuals who may be classified as vulnerable (due to mental health issues, severe indebtedness or otherwise lacking the capacity to make fully informed financial decisions) during the credit application process. This would ultimately streamline credit providers’ ability to offer help and guidance sooner.
While vulnerable people exist in every area of society (1 in 4 UK adults experiences at least one mental disorder in a given year), they face some of their greatest struggles within the financial and banking sectors. The solution being developed by UEA students, in collaboration with Rainbird, will more rigorously analyse potential signals of vulnerability — such as low or erratic income, high indebtedness or low savings — to help credit providers arrive at more holistic and responsible decisions.
Regulators, society and policy-makers are increasingly concerned with financial institutions’ ability to prove they are not disadvantaging vulnerable individuals, with the FCA last summer releasing a consultation providing guidelines on best practices. Given AI is predicted to outperform humans in credit decisions by 2024, the UEA-Rainbird collaboration exemplifies both parties’ commitment to harnessing the technology for social good.
Sean Ennis, Professor of Competition Policy at Norwich Business School and Director of UEA’s Centre for Competition Policy, commented: “This type of project can counterbalance the risk that automated procedures will lock vulnerable individuals out of the financial food chain. It will always be the case that loans should go to those able to repay them, so this will naturally lead to higher rejection rates for applicants with problematic track records, some of whom may be vulnerable. It’s an utmost priority to provide tools that can ensure the fairness of credit risk modelling.”
In addition to receiving inaccurate credit decisions, vulnerable individuals can face an uphill struggle due to lacking access to financial planning and educational tools and resources.
James Duez, CEO of Rainbird, said: “This partnership came from a realisation that not enough financial institutions are taking action to support vulnerable individuals: 18% of people with a mental health problem also have a debt problem and 46% of people in financial difficulty also experience mental health difficulties.”
He added: “We hope this initiative will change the current mindset in the industry. Instead of placing the onus on individuals to prove that institutions are being unfair, the institutions should prove they are not discriminating against vulnerable people.”
Raphael Markellos, Professor of Finance and Director of Research at UEA’s Norwich Business School, commented: “I firmly believe that brilliant outcomes will follow if you combine passionate people with powerful ideas, cutting edge technology and ethical considerations. I see this partnership as proof.”
He added: “Current models often focus on reducing the risk of misclassifying bad credit as good credit, as this is associated with losses due to non-payment of interest and principal. Our modelling efforts are also concerned with avoiding good credit being misclassified as bad credit. This is particularly relevant to vulnerable people and households and represents an opportunity cost of lost interest for lenders”.
