Latest / Fintech Conversations with Fexingo: Banking, Payments, and Financial Software Companies / How Fintechs Use Real-Time Payroll Data for Lending
Transcript
- Lucas: If these conversations are useful for what you're building or running, stick around through the end — we'll share something quick about how this show keeps going. Luna: Alright, so what's our angle today? Lucas: I want to talk about a shift I've been watching in consumer lending — using real-time payroll data instead of a FICO score to decide who gets a loan. There's a company called PinPoint, based out of San Francisco, that's been doing this for about three years now. Luna: PinPoint — I've seen them in a few pitch decks. They connect directly to employers' payroll systems, right? Lucas: Exactly. Instead of asking the borrower to upload pay stubs or bank statements, PinPoint integrates with platforms like ADP, Gusto, and Workday. They get a live feed of that person's income, employment status, and tenure — in real time. Luna: So it's not self-reported. It's coming straight from the source. Lucas: Right. And that changes the risk equation significantly. PinPoint's data — they shared at a conference earlier this year — shows their default rate is about 30 percent lower than what a traditional fico based model would predict for the same applicant pool. Luna: Thirty percent? That's huge. Where does that improvement come from? Lucas: A couple places. First, income verification is instantaneous — they know you're still employed and what you actually earn. Second, they can spot volatility. If someone's hours have been cut 20 percent over the last month, a traditional lender wouldn't see that until it's too late. Luna: So the underwriting becomes more dynamic. It's not just a snapshot. Lucas: Exactly. It's a continuous feed. And that matters a lot for people with thin credit files — roughly 45 million Americans who don't have enough traditional credit history to generate a reliable FICO score. PinPoint can lend to them based on steady payroll data. Luna: Who are they lending to? What kind of products? Lucas: Mostly small-dollar installment loans — think two to five thousand dollars, paid back over six to twelve months. Also some salary advance products. Their average borrower earns around $48,000 a year and has a credit score of 640. Luna: That's squarely in the near-prime or subprime range. So this is a population that typically pays high rates elsewhere. Lucas: Right. And PinPoint's APR averages around 28 percent — which is high, but cheaper than a payday lender or even some credit cards for that risk band. The key is that because defaults are lower, they can offer better rates than the alternatives. Luna: What about privacy? Giving a lender direct access to your payroll feels invasive. Lucas: It's a fair concern. PinPoint requires explicit consent, and they only pull the data needed for underwriting — income, employment status, and tenure. They don't see your spending or your employer's internal data. But still, it's a shift. Instead of a credit bureau, the lender is effectively plugged into your employer. Luna: And what happens if you leave your job? Does the loan get called? Lucas: No — the loan continues, but PinPoint gets a real-time notification that employment ended. They can proactively offer forbearance or restructuring. They claim that early intervention reduces loss severity by about 20 percent. Luna: So it's not just about approval — it's about ongoing risk management. Lucas: Exactly. Traditional lenders find out you lost your job when you miss a payment. PinPoint knows the same day. That's a huge advantage. Luna: Are there other fintechs doing this? Or is PinPoint unique? Lucas: A few others — Earnin and DailyPay do similar things for earned wage access, but they're not really lending in the same way. There's also a company called Even, which integrates with payroll for budgeting and advances. But for actual installment lending using payroll APIs as the primary underwriting signal, PinPoint is probably the most advanced. Luna: What about regulatory risk? The Consumer Financial Protection Bureau has been looking at data sharing. Lucas: Yes — the CFPB's Section 1033 rulemaking, which is about open banking and consumer data rights, could directly affect this model. PinPoint would argue that the consumer is authorizing the data pull, so it's consensual. But regulators might worry about coercion — do borrowers feel they have to agree to get the loan? Luna: And there's also the question of accuracy. What if the payroll data is wrong? Lucas: That's a real edge case. PinPoint has a dispute process, but it's not as mature as the credit bureau dispute system. For now, the trade-off seems worth it for borrowers who would otherwise be locked out of credit entirely. Luna: Before we wrap — you mentioned earlier that listener support keeps the show going. What's the story there? Lucas: Yeah — quick honest thing. A handful of listeners chip in monthly through buy me a coffee dot com slash fexingo, and that's literally what funds making this many episodes. No ads, no sponsors — just that. Luna: It's a small group, but it makes a big difference. If you find these conversations useful, that's one way to keep them coming. Lucas: Right. And back to payroll lending — one thing I find promising is the potential for this data to help build credit history. PinPoint reports on-time payments to credit bureaus, so borrowers can improve their FICO score while repaying the loan. Luna: So it's a double benefit — access to credit now, and a stronger profile later. Lucas: Exactly. For the 45 million thin-file Americans, that's a real path into the mainstream system. And if default rates stay low, we'll see more lenders adopt this model. Luna: Do you think we'll get to a point where payroll data replaces the credit score for some segments? Lucas: I don't think it replaces FICO — but it augments it. For a gig worker with irregular income, a traditional score is almost meaningless. Payroll data gives a much clearer picture. Over time, lenders will use multiple signals. But payroll will be a big one. Luna: Interesting. So the future of lending might be less about what you've borrowed before, and more about what you're earning right now. Lucas: That's the thesis. And companies like PinPoint are proving it works.