Consumer lending in the on-demand economy has created new opportunities for individuals and businesses with limited credit histories or financial data, commonly known as “thin files.” The rise of alternative credit scoring models, driven by technological advancements and changing consumer preferences, has allowed these individuals to participate in the economy based on their performance and reputation rather than solely relying on traditional credit scores. However, the use of thin files also presents challenges, particularly in terms of security and fraud prevention.

In a recent podcast, Sunil Madhu, Founder and CEO of Instnt, and John Buzzard, Lead Analyst in Fraud and Security at Javelin Strategy & Research, explored the opportunities and pitfalls in consumer lending within the on-demand economy and discussed the importance of balancing customer experience with fraud prevention measures. This article will provide the highlights. It will also discuss how businesses can streamline identity verification processes and reduce friction by adopting emerging standards like verifiable credentials.

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The On-Demand Economy Is Built on Thin Files

Individuals or businesses that have limited or insufficient credit histories or financial data are said to have “thin files.” Traditionally, this lack of information made it difficult for them to access loans, credit, or other financial services. However, the rise of the on-demand economy has introduced new opportunities for thin-file individuals and businesses.

For example, the on-demand economy has seen the emergence of alternative credit scoring models, which rely on non-traditional data points to assess creditworthiness. Platforms like Uber and Airbnb consider user ratings and reviews, transaction history, and other data to evaluate participants. This approach allows thin-file individuals to participate in the economy based on their performance and reputation rather than solely relying on traditional credit scores.