As regulators and banks mull ways to correct unfair lending practices to people of color, fintech startup Ocrolus Inc. has participated in a study showing that automating more of the loan application process increases loan diversity.
With non-white borrowers continuing to receive a lower percentage of home and business capital, Ocrolus CEO David Snitkof co-authored a study by New York University professor Sabrina Howell on automation in small business lending.
The study, Automation in Small Business Lending Can Reduce Racial Disparities: Evidence from the Paycheck Protection Programis expected to be republished in the coming weeks in the Journal of Finance, an Ocrolus spokesperson told MarketWatch.
For the study, Ocrolus contributed data it compiled while handling document automation for the COVID-19 pandemic under the Paycheck Protection Program (PPP).
Black-owned companies disproportionately received PPP loans from fintech lenders, not traditional banks, especially in areas with high racial animosity, according to the NYU study.
The data also shows that after traditional banks automate their loan application processes, their PPP lending to black-owned businesses grows.
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Snitkof, who is head of analytics for Ocrolus, said the document automation and analytics technology the company uses for clients like PayPal PYPL,
Brex, SoFi, SOFI,
and Plaid helps reduce human bias in lending.
“The biggest black box of all is the human mind,” Snitkof said. “You never know how people make decisions. If you can take those aspects and have them audited and automated, you take a lot of the potential bias out of the system.”
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Currently, Ocrolus processes more than 200,000 small business loan applications per month. Launched in the mortgage space in 2020, it now counts mortgage originators as clients as it plans more growth there.
Ocrolus raised $80 million in a Series C funding round at a company valuation of $500 million in September 2021, led by Fin VC and with the participation of several other firms, including Thomvest Ventures, Mubadala Capital, Oak HC/FT, FinTech Collective and QED investors.
The company expects to generate $40 million in annual recurring revenue by the end of 2022, up from $1 million in annual recurring revenue in 2018.
Ocrolus counts nine of the top ten borrowers as clients, including Cross Country Mortgage LLC.
