Being able to travel the world while working from the convenience of a laptop has become a symbol of globalisation and digitisation. It’s an innovative approach to work that captures what it means to work and live in the 2020s and can greatly enhance quality of life.
So much so that remote work and continues to dramatically grow in popularity across the world reaching over 35 million people by 2023.
A brief overview of the statistics to provide context for the digital nomad world right now:
- 90% of digital nomads have received a higher education
- 58% of digital nomads are men
- Spain, Thailand, and the US are the most popular travel destinations for digital nomads
- 43% of digital nomads are self-employed
- The average digital nomad earned between $50k and $125k a year with a median at $75k.
- The highest-earning digital nomads worked in software development, graphic design, and IT.
Digital nomads and the problem with fair credit access
And yet, despite being well educated, well paid and often extremely creditworthy they are a chronically underserved market. This can be extremely important when you are far from home and lacking in the infrastructure and support of friends and family.
For everyone, access to affordable credit can be extremely important for a whole number of reasons such as emergencies, smoothing short term cash flow and rental deposits. So as nomads are pioneers in transforming the world of work, they are let down by legacy credit systems that can’t keep track.
Even the non-nomad self-employed can struggle to access fair credit given the legacy credit system’s preponderance for the social security based pay-check of yesteryear. Now imagine the difficulties faced by those who move countries. This can make their lives significantly harder.
Why existing credit models fail
Existing credit scoring systems overwhelmingly favour those with a corporate payslip and a home base. For obvious reasons this does not suit the nomad lifestyle and as a result their access to credit is severely curtailed. This is something that we are fixing with our Finance Passport, you can check it out here.
The scope to improve arguably goes well beyond simply adapting existing credit models, and about creating a whole new ecosystem to support this growing way of working. Whilst the existing legacy lenders will likely be slow to adapt, it is a huge and potentially extremely profitable opportunity for challenger fintechs to serve this new market and increasingly many are.
The cross border challenge
The big challenge is to establish a system of reliable credit history across borders despite legacy data regulations, currency fluctuations and the absence of a permanent address.
And this is where open banking APIs can become a very powerful tool, allowing us to gain insights into where the future of lending is moving. By providing a holistic picture of spending patterns and financial behaviour over a prolonged period, lending algorithms and their adjacent pricing mechanisms can begin to much better serve both customers and capital providers.
And yet even innovative open banking players face a challenge given the still single country-based regulations. Something that is changing as the consumer gains increased power to transfer their data across borders.
The instability illusion
Despite the growing wealth of evidence to the contrary traditional lenders often still view nomads essentially as tourists rather than serious professionals. This is self-evidently untrue in most cases given the previously mentioned statistics around the valuable skills that can and often are applied remotely.
Solutions for the future
Technology offers plenty of solutions. New and growing techniques such as machine learning can interpret multitudes of complex data and still provide a nuanced understanding of creditworthiness.
And it’s not just the feature of more data but increasingly better and richer data, helping innovative lenders to better serve that market by understanding the nomad lifestyle and financial needs. This is potentially a huge opportunity for the legacy credit reporting agencies (CRAs) with their wealth of legacy of interpreting data. If they can adapt to this changing environment, then they are well placed to thrive. If they cannot, as seems likely given their semi-monopolistic status in many markets then this can provide a huge opportunity to challengers.
Its going to be interesting to watch!
