Consumer finance is ubiquitous. The US, for example, carries more consumer debt than corporate debt. Consumer finance is also consequential. Consumers’ balance sheets can drive the sales of an individual firm and can shape the trajectory of macroeconomic crises. This course studies the design of consumer financial products and how business leaders more broadly can respond to consumers’ financing needs.
We begin with recent innovations in consumer finance, including FinTech business models related to underwriting, ML/AI, and alt-data, as well as recent developments in more traditional financial services. We then ask what makes these innovations successful – or not. Three main themes emerge. The first is an understanding of consumers’ finances: how do the risks, income, wealth, and decision-making of consumers affect their financial needs? The second is the role of the competitive and regulatory environment: market forces such as adverse selection are shaped by regulation and by competition, and these crucially affect what financial products are viable. The final theme is the benefits, and risks, of new technology, including ethical concerns that arise in the debate around financial inclusion.
Particular applications and markets studied in the course include credit scoring; ML/AI in underwriting; mortgages and rental housing; credit cards; student loans; regulators, banks, and non-banks in the US financial system; and high-risk products and consumer financial distress.