This report details the evolution of the use of cash-flow data in small business lending. It explains the reasons why electronic cash-flow data may be particularly useful in the small business context, presents evidence of its increasing use by a diverse range of incumbents and new entrants, and notes market and policy issues that may affect the nature and pace of further expansion.

FinRegLab research finds that cash-flow data can help both to underwrite applicants who lack traditional credit history and improve risk scoring among borrowers who are ranked similarly by traditional scoring systems.

We conducted an independent analysis of data from six firms that use cash-flow metrics to assess consumer and small business applicants. Using loan level performance data, we evaluated the information’s implications for predictiveness, inclusion, and fairness.

Records from consumers’ deposit and card accounts and from small businesses’ accounting software can provide a relatively detailed and comprehensive picture of how applicants manage their finances on an ongoing basis. FinRegLab conducted an empirical assessment of the data’s benefits and risks, as well as market and policy analyses of the challenges to its wider adoption.