Stratyfy, a NYC-based startup offering AI-powered predictive analytics and decision management solutions for financial institutions, will function as the tech platform for a two-year pilot program under the Underwriting for Racial Justice (URJ) umbrella, an initiative led by the Beneficial State Foundation to reduce racial disparities in lending.

Twenty lenders spanning geographies and verticals are participating in the program, aiming to unlock capital for people of color who, due to systemic racism baked into financial systems, have been denied access to mortgages and other wealth-building products.

The participating institutions will have access to Stratyfy’s credit-risk and decision-optimization solution as part of the program, leveraging the startup’s technology to assess creditworthiness and gauge lending risk more fairly through alternative data.

Deep racial disparities persist in finance and lending, including through supposedly objective metrics such as FICO credit scores. ZIP codes’ inclusion in these algorithms entrench the realities and history of redlining into lending decisions, further widening the gap between communities of color and wealthier, whiter consumers.

According to the National Association of Realtors, 43.4% of Black Americans own the homes they live in, compared with 72.1% of white Americans. An undersupply of housing and rising prices are only exacerbating this issue, as does the disproportionate rate of people of color who are rejected from loan applications, driving many to high-interest—and often usury—loan products.

Alternative data can be used to expand the number of applicants who gain access to affordable loans, said Laura Kornhauser, Co-Founder and CEO of Stratyfy.

“What I think is really exciting is the diversity of the group that we have as part of this program, the different types of institutions that are represented in the program, and their geographical reach, as well as the diversity and types of loans that we'll be focused on, from small business to residential mortgage to unsecured consumer [loans],” Kornhauser said. “As far as the impact that we can deliver as part of this initiative, it is expected from a geographical footprint standpoint, from a type-of-institution standpoint, and from a type-of-loan-product standpoint.”

Shannan Herbert, Executive Vice President of Inclusive Credit at Stratyfy, said that the initiative’s strength partially stems from the range of loan products that will be extended throughout the pilot program.

“This is a great opportunity to diversify what that loan type looks like that would qualify for a program like this, and to really work with data to see how we can change the way that we think about risk across the board,” Herbert said.

Leading Stratyfy’s efforts in the program, Herbert said part of the startup’s role involves meeting participating FIs where they’re at, and making Stratyfy’s innovative technology “accessible, transparent, and explainable.” Doing so lets participating lenders explain the benefits and ongoing operations of the program to regulators, to their board, and to other stakeholders.

This requires more than technological support, Kornhauser said. Stratyfy will offer tailored recommendations to individual lenders on the changes they can make to their underwriting policies and criteria in order to increase impact without compromising on risk. The platform will offer these recommendations on an ongoing basis over the course of the program, and will also evaluate the success of the pilot program for each lender against their stated impact goals.

Kornhauser said Stratyfy and Underwriting for Racial Justice are looking to impact 14.9 million households of color in the US through the pilot program. By making institutions’ internal stakeholders comfortable with underwriting changes through machine learning-driven visibility, transparency, and control, and by delivering clear information to external regulators, Stratyfy has the potential to unlock the value of machine learning and drive greater inclusion and fairness in lending, Kornhauser asserted.

“That is the very powerful key Stratyfy has to unlock,” she said.