By Dmitry Borodin, Head of Risk Analytics at Creditinfo Group
In societies of Digital Nomads, working from home Millennials, global migrations and emerging economies, lenders are often facing a shortage of relevant data to score and assess a big pool of population. Consequently, lenders are often unable to make decisions on so called ‘thin files’ due to a lack data. Thin file customers then remain excluded from formal finance.
Can Lenders under such circumstances, rely on alternative data such as Psychometrics, payment behavior on previous small loans, Telecom and utility data to gather initial insights on customers and their financial credibility?
Thanks to its global footprint Credintinfo have been able to gather enough data to suggest that Telecom and other alternative data sources, MFI and IL channel can help lenders predict future credit risks of thin file applicants for formal credit.
To an extent we can say that alternative data and the experience with small loans results predictive in the long term. This study presents a number of predictive characteristics from alternative data sources and their impact is evaluated across several Creditinfo markets. Particular attention is paid to Kenya, which has seen an unprecedented growth in mobile money and mobile borrowing.
Findings of Creditinfo suggest that lenders are able to convert short terms loans to traditional credit products, boost decision quality by utilizing alternative data, help customer retentions and facilitate access to banking loans for unbanked thin file individual applicants and small business owners.
Creditinfo Group, the leading global credit information and fintech services provider has today announced that it has signed a long-term strategic partnership agreement with PT PEFINDO Biro Kredit (PBK) to further support financial and non-financial institutions in Indonesia. Using Creditinfo’s knowledge and experience, PBK will enhance its consultancy and analytical services to provide customers with additional value-added risk management solutions and support.
As a global supplier of credit bureaus and credit risk solutions, Creditinfo has been active in Indonesia since 2014, in a partnership with PBK. Established in 2014, PBK is the leading Private Credit Bureau in Indonesia today, serving numerous traditional financial institutions, fintech companies, and other non-traditional institutions. Since becoming operational, PBK has enriched its data coverage, improved its services and is now playing an important role in the operation of its members. The new agreement secures a further five years of collaboration between the two businesses and will focus on the delivery of services to improve financial inclusion in the region.
“We are very excited about our new, strengthened partnership with PBK. Together we have a significant opportunity to increase the level of financial inclusion in Indonesia, a country where the economy is driven by microbusinesses and SMEs,” commented Samuel White, Regional Director, Creditinfo Asia. “In close collaboration with PBK, and supported by its stakeholders, we will introduce new products and services that will help financial institutions to better assess their customers, enhance risk management capabilities and provide better services to the Indonesian market.”
This announcement marks another significant milestone for Creditinfo, which is a world leader in providing intelligent information in mature and emerging markets. Backed by international know-how and local market support, Creditinfo solutions set a high bar wherever they are implemented.
By Stefano Stoppani – CEO, Creditinfo Group
Last month, consumer champions Which? revealed the findings of research into the state of the UK banking sector – with a somewhat bleak conclusion. The top line of the study? A third of all UK bank and building society branches have closed over the last four and half years. Of those that remain on our high streets, opening times have narrowed.
To some, this news might not be so surprising. We’ve already seen the so-called ‘death of the high street’ claim retail victims from all corners of the UK. Mass closures of this kind – whether in retail or banking – are arguably the result of the widespread digitalisation of services. We’ve all been bitten by the convenience bug. As time-poor consumers, we crave access to services and products in the easiest and cheapest way possible – and if this means managing our finances via an app from the comfort of our own homes, rather than brave queues in town centres, then so be it.
Fintech unicorns such as Revolut and Monzo have clearly upped the ante from a banking perspective – these businesses are agile, novel and attractive propositions, particularly to younger generations, in today’s digital age. With no bank branches and a lean infrastructure, the alternative they provide to traditional banks leans into a more digitally-savvy generation who is driving how we consume products and services today. Revolut’s recent partnership news with Visa will also enable the firm to expand to even more countries than it currently serves.
However, with opportunity comes risk. A lack of physical bank branches means that more vulnerable citizens, such as the less digitally- or financially-savvy, and the elderly are without access to crucial financial services. And so, this brings us to the financial inclusion conundrum in developed economies, which continues to be an issue today.
As my colleague Paul Randall outlined in an article for Global Banking and Finance Review last year, according to stats from the World Bank, a whopping 1.7 billion adults across the globe remain ‘unbanked,’ with no bank accounts and no access to formal finance. Most of the unbanked admittedly live in the developing world, in countries such as China, India or Africa. But developed economies are also still struggling to close the gap between banked and unbanked citizens.
While the UK has a good level of financial inclusion, one in four British families is now classed as low-income. What’s more, 13 million of the lowest-income individuals in the UK are financially excluded by mainstream banks and lenders. So how can we close the gap? In the first instance, traditional and established banks need to work alongside fintech ‘disruptors’ to ensure that services are accessible to all in society. This includes facilitating change in the credit lending industry, by helping banks to tap into and use new sources of data that can unlock access to services for the wider unbanked population.
At Creditinfo, we’re doing just that – using our innovative psychometric testing methods to measure the risk of potential customers who may have been overlooked for formal finance in the past, by assessing their core personality. Just like credit bureau data, where millions of raw variables are split into segments such as default, early stage and revolving arrears, or credit card performance, so personality data is split into segments in a similar way. By uniting psychological models with traditional risk analytics, lenders can reduce risk with existing customers and start new relationships with prospective customers, thereby increasing affordable access to financial services products.
Government also has a role to play in supporting more vulnerable citizens in accessing services that are arguably a basic human right today.
In March of this year, the HM Treasury and Department for Work and Pensions released a financial inclusion report that outlined its commitment ‘to building an economy where everyone, regardless of their background or income, can access the financial services and products they need.’ This involves a programme of initiatives, such as the new Single Financial Guidance Body (SFGB), which will ‘develop a long-term national strategy to improve people’s understanding of money, pensions and their ability to manage debt.’
While this is an encouraging step in the right direction, the proof of these initiatives will be in the progress we make together, in closing the financial inclusion gap for the improvement of all citizens’ lives and eradicating poverty as best we can.
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By David Kaufer (Senior research psychologist at Coremetrix)
I used to live in a small town where everyone knew everyone. I don’t live there anymore – not even in the same country or continent. I grew up and moved on, but deep inside I still have a sweet spot for this town because of the memories; memories of the countryside, my primary school, my family, neighbours, playmates, teachers and local merchants.
I used to go to the local grocery shop and take anything – be it an ice-lolly or some shampoo – without needing to pay for it immediately. I would smile at the shop owner and show him what I took. I didn’t even sign his notebook where he registered the items I took. He trusted me (especially my parents) to pay him at the end of the week. In return, they trusted him to accurately record the purchased items. We were very loyal to our local merchants and even when new and bigger shops opened, we kept going to the same shops. We knew each other, trusted each other and want to help each other. There was a special unwritten bond between us.
Many things have changed since then. The town has become a city, I have lost my hair along with the need for shampoo and many of the smaller stores have lost their battle against bigger and stronger retailers that can offer more for less money. Sometimes, it makes me sad to think of the sweet memories from the past, but at other times I enjoy the immense offering that this modern economy has brought. What hasn’t changed since then is the need for mutual trust. Trust from the side of retailers, and service and credit providers to be paid for their offerings and from the side of the customers to get these services and goods at a fair price and interest. From a business perspective, this trust can obviously be translated into income. More good customers, loyal customers, customers who will recommend products to their friends or customers that will buy other products from the same company, just as we did 30 years ago.
We don’t always have the luxury of getting to know each and every customer personally in order to build mutual trust. How can we, as a business, develop and maintain trust when we deal with hundreds of thousands of customers? How can we ensure that our customers feel unique? How can we better understand customer needs and motivations?
Coremetrix’s psychometric profiles are the solution for large-scale companies who really want to understand their customers and recreate this business-to-customer bond. Coremetrix can now help businesses segment their entire portfolio based on personality traits that underlie their customer behaviour and motivation. When intelligently and respectfully used, this knowledge will translate to actions impacting higher retention rates, acquisition of new profitable customers, and creation of effective communication channels and development of new products.
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