Comment by HoyaSaxa | Hacker News Reader

Comment by HoyaSaxa | Hacker News Reader

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While Patrick is right that community banks have provided an important role in the explosion of fintech in the United States over the last 10 years, that role is unique to a small subset (~100) of community banks that have become heavily involved in Banking-as-a-Service (BaaS).

The other 9,900 community banks and credit unions largely continue to operate with vanilla retail and/or business banking models. I'm biased, but the importance of these financial institutions cannot be understated to the success of the American economy. Obviously a homogenous credit underwriting and decisioning process is a negative for society. While some do heavily rely upon the traditional credit bureaus in their decisioning, many do not. Access to responsible credit is one of the best ways to lift a group of individuals and/or businesses up. There is no surprise then that these organizations receive bi-partisan support.

As @patio11 points out this long tail often best serves their communities. There are a lot of reasons, but these are not purely because they happen to serve a specific geographic area or because they use different underwriting methods. Credit unions especially tend to be extremely diverse. For example, the majority of credit union CEOs are women[0].

I highly recommend supporting these community banks and credit unions by moving your loans and deposits to them. If you need a recommendation for one that has better digital experiences, please feel free to reach out to me.

[0] https://news.cuna.org/articles/119415-cuna-study-finds-51-of...

> Obviously a homogenous credit underwriting and decisioning process is a negative for society.

No, this is not obvious at all. Given a fixed risk tolerance (or risk/payoff curve), you can only do certain amount of lending, so either you lend to the best prospects ("fairly", in some abstract sense), or you lend less efficiently and give less overall social benefit (but direct the social benefit to some particular subgroup). Having a bunch of different ways of assessing credit just ends up as a time tax that forces people on the margin to apply a bunch of different times, which ultimately benefits no-one.

Where I live there's a single standard formula that every lender uses, which seems a lot more efficient.

You're describing a system in which the subgroups that have been historically advantaged remain those with ongoing access to capital.

The more opaque and subjective a system is, the more it will favour advantaged groups (principally those of high social class) - in my experience this is especially true of systems that are nominally intended to help historically disadvantaged groups (which tend to benefit high-class members of those groups). Objective standards, consistently applied and enforced, are disadvantaged peoples' strongest weapon against discrimination.

"The law, in its majestic equality, forbids the rich as well as the poor to sleep under bridges, to beg in the streets, and to steal bread."

The only way to equalize the playing field between someone with access to capital and someone without access to capital is to redistribute it from those with the capital to those without.

Any other solution will just result in inflation or some other problem. If the root cause is not addresses, then the problem will persist (as reality shows).

If you only promote the standard formula winners, you risk failing to find the losers that can be eventually better when given the chance.

In other words, if the formula isn't perfect, it isn't good to apply it strictly. Some randomization of the low end threshold / lottery for the losers seems to be a good idea.

> Obviously a homogenous credit underwriting and decisioning process is a negative for society.

I think you will find that many community banks and credit unions still use the same ~2 vendors for id verification checks and credit history. That said, you are much more likely to be able to negotiate around an adverse finding at a smaller institution.

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