The Creditinfo Chronicle
The current situation in Lithuania compels businesses to regard its partners with a deeper mistrust. The enterprises face challenges of their survival – how to ensure the continuity of activities, reorientate its services, and not lose the clients. Even those businesses which have a sufficient number of clients, feel worried about whether their partners are still trustworthy and will make payments on time.
As soon as the quarantine was announced, the queries about the solvency of other enterprises have increased by approximately 1.5 times. From March 16 to April 14, in comparison with the identical period of time before quarantine (February 16 – March 14), the system of credit bureau “Creditinfo” fixed the increasing number of queries from companies of the following sectors: building constructions and real estate (+56%), public utilities (+44%), transport (+44%), industry (+41%), insurance (+32%). Having been given the opportunity to share information about the debtors, 120 enterprises expressed their wish already during the first week. When the economic situation is complicated and the perspective of the enterprises’ mutual payments is bad, to preserve a high solvency ratio becomes vital. Head of credit risk assessment of “Creditinfo Lietuva” Rasa Ruseckaitė, proposes to immediately tighten the policy of credit risk control of the company and perform the following actions:
- Re-examine the clients’ portfolio more often, watch more closely the companies which fall into a high-risk group. We recommend to review and reassess the financial situation of high risk clients and the clients who must be watched at least once in a quarter. Analyze the process of the client’s making payments, how long the payments have been overdue, how the financial situation of the enterprise is changing. If you have received information about a lawsuit filed against the client, measure the risks that you may face, and consider the behavior of other creditors. If other enterprises started debts recovery in a court, sending polite reminders most probably would not be the most effective means. Taking into consideration great uncertainty, the risk appetite for credit should also be reduced. Analyze the credit limits granted to the clients and consider the possibility of a more conservative behavior regarding shortening the time for payment.
- Significant changes in business occur every day, so recognize and constantly watch the warning signs. It will be easier to assess the clients’ situation if you have a predetermined opinion of what events should be considered critical. The increasing risk can be made known by a new lawsuit regarding debt, a new asset seizure or the officially announced information about debt. However, there are some other important signals such as a change of the debtor’s address, a replacement of financier or head of enterprise, unwillingness to communicate, a change of accounting methods and others, which are often considered as not serious enough.
The client’s solvency situation having worsened, immediately prepare a specific plan of your further actions. The speed and adequacy of actions can determine the amount of your losses. Firstly, we recommend getting in touch with your debtor, discussing the present situation and scheduling of clearing the debt. Other steps can be as follow: to cancel the granted credit limits, to terminate the means of advance payments, to reconsider the conditions of agreement, and to apply means of early exaction. Moreover, estimate the possible losses and their impact on the liquidity of your company.
- Use external information about the partners. In evaluating the clients’ portfolio, it is important to use not only the existing internal information, but also to look for available external information. It can include data announced by the Centre of Registers, Social security institutions, Department of Statistics, bankruptcy administrators, State Tax Inspectorate, the National Court Administration, credit bureau and other sources. They will help receive a preliminary signal about the impending problems of the client’s solvency, even if they make payments to you on their due date thus far.
- Exchange data about the debtors. Exchanging data will help you recover debts since the debtor who was announced in the credit bureau, will have restrictions on receiving loans, making agreements of communication, Internet supply and other agreements with deferred payments. The debtors of your enterprise will become known to other participants of the credit bureau – financial, telco’s, insurance companies and other Lithuanian enterprises which estimate their clients’ solvency in the credit bureau. And the debtors’ awareness that information about them will become public in the debtors’ data system, can be sufficient motivation to fulfil their obligations.
- Monitor how the solvency of your own company appears in public. Seeking to maintain a high level of solvency of your enterprise and business partners’ trust, it is important to observe not only the indicators of your clients’ solvency and riskiness, but also the public image of your own financial situation. To feel secure under the conditions of uncertainty, the enterprises quite often exaggerate the credit risk and thus take strict precautionary measures – without warning their partners, they share their debts with the credit bureau system and appeal to the court. Do not wait until the creditors are the first to inform about the debts and their actions. Using the monitoring measures available in the market, be the first to learn about the problems of your solvency and react instantly to impending threats to your business. It is especially important not to miss the unpaid bills due to inconveniences of remote style of work or simply through inadvertence. And having learned about a new debt, take actions with no delays.
- If necessary, reorientate the company activity. Communicating actively with the existing partners, discussing with them and reacting to their needs, you can discover new niches in business. There are numerous examples in the market. Alcohol industry companies started to produce disinfectants, cleaning companies began to provide disinfection services, the fashion house sows masks, and a great number of businesses have moved to online serving. Be bold and creative. The present conditions are extremely favorable for new business directions and even experiments. If the number of clients and orders has decreased, turn to your current clients, and think about the untapped potential. Identify low risk clients and give them a maximum of attention, consider a wider range of cooperation possibilities, and react to changing needs.
Rasa Ruseckaitė – Head of Credit Risk Assessment, Creditinfo Lietuva
Ieva Kutkaitė – Marketing Manager, Creditinfo Lietuva (Editor)
A political and economic vision
Last October, King Mohammed VI of Morocco made a speech to mark the beginning of the new session of Parliament. In the yearly address which traditionally signals the general policy direction for the next 12 months, he called on banks and financial institutions to play “a greater role” in the country’s development. He specifically referred to “simplifying and facilitating access to loans…. and financing the creation of small and medium sized enterprises.”
Then, on 19 November 2019, King Mohammed VI received Chakib Benmoussa, tasking him with the leadership of the new “Special Commission on Development”. Composed by businesspeople, former government officials, civil servants, and civil society members, Benmoussa’s job is to conceive and implement a new development plan, specifically targeting critical areas such as youth unemployment, as well as regional and income disparities.
Finally, in the end of January 2020, Morocco released a plan that structures the country’s approach to SME financing. As part of this plan, interest rates on loans will be capped at 2% in urban areas, and 1.75% in rural areas, and an envelope of MAD 6 billion (US$ 620 million) will be made available over three years. Existing SME loans will be refinanced at a preferential rate of 1.25%, 100 base points lower than the current benchmarking interest rate. This last was only the latest stage in a large, concerted push to put financing at the front of economic development efforts.
These three events should of course not be taken in isolation. They are three prongs of the same strategy. The direct allusion to “access to loans” and “financing” is an explicit and major recognition of the power and ground-breaking role financial inclusion has in spurring development. By definition, it is especially relevant in involving sectors of the population that would otherwise not have access to financial services. These segments include women, younger generations, and the rural population, which in Morocco stands at about 35% of the total and where socio-economic indicators are less performant. According to the Doing Business Index, banks, MFIs and other credit institutions in Morocco only have data on 31.6% of citizens, meaning the remaining share are unbanked or part of the “informal” sector. They are a particular target of financial inclusion programs.
According to World Bank Findex Data, in Morocco informal financing demand stands at 49% of formal demand, the second highest proportion in the region. The total financing need of the informal sector is over US$ 21 billion. The financial inclusion gender gap in Morocco is 25% and is increasing. The MSME financing gap is US$ 13 billion for female owned enterprises and US$ 24 billion for male owned enterprises. Morocco has a 29% banking rate compared to a much higher regional average 44%. It is even lower for women, at 17%. Its GINI coefficient, a measure of inequality from 0-1 where 1 is maximum inequality, is estimated at around 0.4, far above its neighbors.
These numbers briefly resume a structural weakness: financial gaps are significant, with even greater divides when gender and regional differences are taken into account. And while Morocco registers economic growth, it is not evenly distributed. It is a major socio-economic weakness which is an existential test. The data serves as evidence that the SME financing scheme was not only necessary, it was urgent, and even more action is needed.
While Morocco has some vulnerabilities, they are not all absolute, and some are even opportunities. For example, by mid-2019, mobile internet accounted for around 93% of all internet connections. The combination of youth and technology usually signals the existence of an exploitable space for innovation. Surfing this trend, mobile provider Inwi launched Morocco’s first mobile payment system, Inwi Money in September 2019. By January 2020 it had 140,000 users, with the company expecting 1 million by 2021 and Bank Al-Maghrib (the Central Bank) forecasting 6 million for the sector by 2024.
With the similar objective of covering the financially excluded, in 2010, Al – Barid bank was launched, exploiting the capillary extension of the national postal network to reach more remote and rural areas. It is a pragmatic recognition that while innovative methods retain their power, demographic realities enforce their limitations. Al-Barid has over 1800 branches, of which 1200 in rural areas, and has a stated mission of “facilitating access to financial services and increasing the banking rate in Morocco”.
Furthermore, Morocco has two private credit bureaus, making it a leader in its region in terms of sharing of credit information.
The SME funding scheme, along with these parallel actions, shows that the socio-economic problems have at least been diagnosed, and that indicatively, the appropriate cure has been proposed. It also underlines that there is buy-in from the private sector to accelerate horizontal financial inclusion. The personal intervention of the King on this theme underlines the policy importance given to it. Lower rates, loan refinancing, along with communication and an awareness campaign will all go a great length in achieving the stated goals.
A step further
Two examples of innovative solutions that would catalyze access to finance are loan automation and “psychometrics”. The world of SME lending is often confronted with a paradox: while SME loans are traditionally smaller than average business loans and theoretically represent less exposure for banks, their relatively negligible size makes it unprofitable for banks to dedicate resources to their management. Automation software would resolve this conundrum: allowing for a uniform, centralized, quick and error free handling of loans, banks would have higher returns and lower costs, while SMEs would have more access to loans. Platforms such as these would handle the loan process from inquiry until recommendation, eliminating manual review as well as paperwork, and leaving the final decision to the underwriter.
Psychometrics is a second example of how groundbreaking technology can dramatically accelerate financial inclusion. Individuals who take out loans to fund their SME activity face yet another seemingly unsolvable vicious cycle. How to build a credit history for when one completely lacks one, with banks often reluctant to expose themselves to the perceived risk of lending to the unbanked? While not everyone has a credit history, everyone has a personality. Psychometrics builds a risk profile based on personality traits and emotional reactions analyzed as a result of expert built and approved psychological tests. A 3-5-minute quiz testing notions such as maturity, responsibility, the concept of “limits”, feelings about the future and self-perception suffices to accurately map these traits and expand them into models for consumer and SME risk prediction. These then are integrated into lending systems to expand customer bases. With additional risk profiles, lending can increase.
Morocco has been at the forefront in promoting financial inclusion, using new technologies as well as traditional methods, and highlights the complementarity between pursuing noble goals such as financially empowering-low income segments with profitability for traditional and non-traditional lenders. Of course, the next step is to introduce the most advanced solutions to truly achieve universal coverage and give a chance to those who despite all formal efforts remain unserved, underserved, or still part of the informal sector. In an economy dependent on sectors particularly vulnerable to external shocks, like tourism and agriculture, a robust SME ecosystem would only increase systemic resilience.
Global Consultant, Creditinfo Group.
The rapid spread of the Coronavirus is impacting economic growth and market volatility is increasing thus impacting the industry through weakening investment returns and potentially adverse impact on the capital position of financial institutions around the world. A sustained economic slowdown triggered by the outbreak will put negative pressure on revenues and lead to a material increase in credit risk and a potential spike in claims including for health, credit and event cancellation insurance.
Credit Bureaus’ data can provide valuable insights on the state of lending industry, which is tightly linked to the country’s economy as a whole. This data can also help to identify trends and market shifts at the early stage so, vigilant market players can better prepare themselves for the upcoming storm. Creditinfo has done an analysis of credit bureau inquiries data in over 15 markets, including Africa, Eastern Europe, Caribbean and others. The results proved to be interesting. While most markets still show enviable resilience in adverse conditions, some have started to experience serious trouble. The number of bureau inquiries dropped by more than 30% in the second half of March, signaling serious shrinking of lending, which is not explained by seasonality. While the shrinking of lending is understandable under current circumstances –lenders tighten up credit underwriting to reduce risk exposure in the face of upcoming defaults. It is surprising to find such significant difference between countries that are facing similar challenges.
Why is lending in some countries still stable, whereas in others, the volumes are plummeting? In order to dig out reasons, we first need to understand dominant operational models that are utilized by lenders in the troubled and the resilient markets. The most striking difference is in development level of remote banking channels. For example, in Kyrgyzstan, one of the markets that has suffered the most, lenders are required to get written consent from customers in order to access their credit bureau history or simply pass their data over to the bureau. In other developing countries, e.g. Jamaica, borrowers must open banking account in order to be able to get a loan, which requires facial verification of person’s identity, which means that customer must physically visit the bank’s office to pass the onboarding procedure.
Whenever regulations require physical presence of customers it limits development of digital banking channels, especially online lending. This in turn leaves lenders vulnerable to changes in consumer’s behaviors like what we are currently observing. Under the COVID-19 crisis, many people choose to stay at home and limit personal interactions. Governments are shutting down restaurants and shops and require companies to let their employees work from home. Offline businesses are experiencing pressure like never before and lenders are no exception. How can Bank provide a loan to a customer who is not willing to risk visiting bank’s office to pass KYC procedures or provide credit history consent? Such requirements now become a real driver of lending decline.
In those countries where remote onboarding is a common practice things look much more optimistic. For example, in Kenya and Tanzania there are many purely digital lenders that provide loans through mobile apps or websites. In these countries we do not observe significant change in number of credit bureau inquiries, a good sign of stable volumes of disbursements. People still want to borrow money and buy goods even if they stay at home.
Digital channels not only enable Lenders to seamlessly onboard new customers but also efficiently manage relations with existing ones.; for example, offering top-ups to reliable borrowers or restructure debts of those with financial trouble. The latter can become a critical tool in helping people who were severely hurt by the current crisis.
It is too early to draw strong conclusions. Most states have just started taking serious measures only a few weeks ago and the effects are yet to come. Creditinfo will continue to closely monitor the situation and provide analysis of the trends and recommendations.
Senior Business Consultant, Creditinfo Group.
The quality of predictive algorithms plays a crucial role in Creditinfo operations. We strive to help our Clients perform efficient credit decisions through smart and innovative use of data.
Our operations are spread across numerous territories in five continents and many of our countries have lived through challenging periods before. This has allowed Creditinfo to aggregate an invaluable experience of risk management in a crisis. Each crisis poses unique challenges and sees different government responses. However, amidst all uncertainties we have numerous times come to the following conclusions:
1. Credit Bureau Scorecards are behavioral in nature and thus they promptly adjust to the changing economic environment.
Average Credit Bureau Score is higher in an expansion phase than it is in a recession.
2. Scorecards developed by Creditinfo continue to rank order credit risk during a recession.
Understandably, observed default rates are likely to increase across the full spectrum of scores. In other words, we are typically seeing that all customers become riskier.
Scorecards continue to rank from the highest risk at the lowest scores to the lowest risk at the highest scores. This is because Creditinfo’s model development methodology pays a significant attention to the interpretability of trends utilized in the predictive algorithms. Furthermore, we validate each developed scorecard against models that we have created historically in similar projects. Such qualitative measures help to capture causal relationships and thus ensure that our scorecards perform well through all parts of the economic cycle.
3. It is necessary for lenders to change their cut-off scores to higher values and make other score-driven policies more conservative to retain the quality of the portfolio and compensate for the increased risks.
This can be done based on expert judgement or economic impact analysis and affect either all customers or just specific industries that are expected to be hit the most by the crisis. Lenders should not neglect increased correlation between Probability of Default and Loss Given Default that is observed in a recession. Furthermore, financial institutions should review limit assignment policies. This is critical in an environment where incomes are vulnerable to reductions.
4. Where regulators and governments are providing assistance to borrowers or asking the lenders to do so, we are working closely with the data providers to ensure that these cases are identified and have a minimum impact on the scores.
The data provided to the Creditinfo database will incorporate the updated agreements with payment holidays and other short-term measures, which in turn, will be reflected in the scores. For more details on the specifics of each market please contact your local Credit Bureau.
We are confident that Credit Bureau Scorecards remain an extremely valuable tool at your disposal. It is necessary to review score-driven policies to ensure that this tool continues being optimally used.
Creditinfo is monitoring the outbreak of COVID-19 and its effects on businesses and individuals. We will track markets dynamics using the wealth of Credit Bureau data and provide proactive guidance to our Clients through advanced analytics, consultancy and Benchmarking reports.
Together we will get through the storm!
More questions on we can to support you in managing your limits and cut-offs during these challenging times?
Get in touch! Email: firstname.lastname@example.org
In these troubled times, credit providers are searching for actions to take to protect themselves from the worst of the economic storm. Many different options are available however what is often overlooked is the critical need for having accurate and timely visibility on your loan portfolio. This can be the difference between a defaulted credit contract or a recovery.
The unique situation the world faces is a significant reduction in economic activity occurring at the same time globally. The economic effects of the pandemic likely be severe and it is not an exaggeration to suggest that the Financial Sector faces its greatest challenge perhaps ever, if not then certainly since the 2008 financial crisis.
Credit providers face the twin challenges of worsening repayment performance on existing credits and greater risk in issuing new credit. With unemployment rising and many businesses facing severe financial difficulties, it is to be expected that there will be an imminent and severe impact on the NPLs of lenders.
In large sections of the global economy financial difficulties are already being faced by consumers, entrepreneurs, MSME and Corporates alike. A wave of layoffs is underway in the areas worst affected by the outbreak. As no country is completely working in isolation, the effects are already being felt on a global scale. Creditinfo has already observed in most markets that the number of loans disbursed are decreasing rapidly coupled with a rise in missed due payment, a clear early warning of a forthcoming rise in default levels.
In these troubled times, credit providers are searching for actions to take to protect themselves from the worst of the economic storm. With the enforced closure of bank branches, the movement towards online and application-based banking will undoubtedly be given a boost in the medium to long term. However, the most valuable step that lenders can take immediately is to increase their visibility on the performance of their portfolios.
- Informed decisions on credit risk policies adjustments
- Informed decisions on collections strategies adjustments
- Targeted actions to take place making sure lenders resources are focused in on where it matters most.
- Lenders to receive advanced warnings on changes to their portfolio
Having accurate and timely visibility and can be the difference between a defaulted credit contract or a recovery.
Gaining visibility of your internal credit portfolio performance is relatively straightforward. All successful lenders will have implemented systems to measure and monitor their loan book performance.
However, this can only logically provide part of the overall picture. The part of their client’s overall credit history provided by that lender. What is missing and what is crucial in times of economic stress is the ability to view all market activity of your clients. For if a client is suffering financial distress elsewhere in the market then there is a high probability they will soon exhibit distress with you.
This is where Creditinfo is able to assist you through our Monitoring and Alert solution. A straightforward tool for proactively providing notifications whenever one of your clients records a significant event on their credit file. So, for example, you will learn when your client:
- Misses a repayment elsewhere
- Has overdue amounts throughout the market over a certain level
- Reaches a certain level of credit exposure in the market
- Enquiries for credit elsewhere
- Takes out credit elsewhere
The Monitoring tool can be activated within minutes and will ensure a stream of alerts is sent to your risk team as and when they are generated. Armed with this information lenders can ensure early engagement for at-risk customers and help teams rapidly focus their pre-delinquency efforts. Efforts such as fast-tracking collections actions, preparing payment plans or reducing exposures to that client. With knowledge comes options and the ability to make better decisions.
The mantra saying that “knowledge is power” has never been more true as it enables you to effectively monitor your clients’ performance across the market. This should be the very first step in preparing and defending yourself against the economic downturn.
Ben Riley, Global Consultant at Creditinfo Group
András Horvath, Head of Product Management at Creditinfo Group
Never Has There Been Stronger Evidence for Mobile Loans in West African Economic and Monetary Union region
With many countries in the West African Economic and Monetary Union (WAEMU) region in lockdown, bank branches empty and movement constrained; the case for a true, robust mobile lending ecosystem is stronger than ever. In global markets where mobile lending is nascent or inexistent, and the credit market is relegated to physical interaction between underwriter and customer, physical confinement and countrywide lockdowns are the equivalent of death sentences. Credit markets are frozen because critical communication is impossible. On the other hand, where digital wallets and e-money are common, no such barriers exist.
In the WAEMU region, many initiatives are already in place. MoMo Kash, a mobile money solution by MTN in Côte d’Ivoire has over 5.000.000 subscribers and specifically targets ‘financially vulnerable’ segments of the population. It has a similar structure in Benin. Orange Bank will launch in Côte d’Ivoire this year. Other solutions such as Moov show that the seeds have been planted and are ready to grow. Growth has been incentivized by ‘healthy’ competition and a well-designed regulatory environment. In addition to mobile lending, successes such as Creditinfo Kenya underscore the importance of having a strong and functioning Credit Bureau platform to prevent over lending from responsible lenders, as well as its complementarity with a vibrant e-money ecosystem. While Côte d’Ivoire leads the way, it is high time for the rest of West Africa to embrace such transformative solutions.
Nevertheless, while there are many positives, there are still key steps to be taken. One fundamental obstacle that needs to be removed is the difficulty of obtaining customer consent digitally or online. Comprehensive digital onboarding is important in normal times but critical in a crisis. It enables rural communities far from bank branches to take advantage of access to finance. It also prevents overcrowding at bank branches for small, short term loans that would otherwise be financially unviable for banks. It reduces the costs, errors, and subjectivity that were once structural components of human underwriting. In a crisis like this, with people stuck at home, digital onboarding and disbursement can be completed in a few clicks, pumping ‘real’ money into the economy, keeping families afloat, and allowing bills to be paid. None of this is possible if a sole trader must physically sign a form at a bank branch far from his home. Therefore, digital consent is the crucial next step in transforming the lending industry. This must be coupled with a mandatory bureau inquiry for mobile loans, to avoid the phenomenon of high default rates observed so far. To this end, Creditinfo have planned to launch a mobile score which will be ideally suited for risk analysis. The technology and infrastructure are not only a commercial, but an economic imperative as well, and there is a need for a revolution in the region.
Global Consultant at Creditinfo Group
With the stock markets falling and unemployment increasing as a likely outcome of the current virus-led situation, it is important for credit providers to start thinking about management of their portfolios. List of areas to review ranges from collections management, payment holidays to anti-fraud policies. The immediate focus should be on C.A.L.M (Cut-off Analysis and Limit Management). This article provides initial guidelines for those wanting to STAY C.A.L.M.
Rank Ordering and Probability of Default Calibration
When reviewing evidence from last recession (in line with what was shown in previous recessions such as UK mortgage crisis in 1990), it is clear that to a large extent, credit scorecards retained their ability to rank order credit risk. This means that scorecards continued to rank from the highest risk at the lowest scores to the lowest risk at the highest scores. This is because many scores are dynamic and they adjust as typical risk profile changes. Credit Bureau scorecards built on payment data and enquires are a prime example of this, as average Credit Bureau score slumps during a recession due to a worsening of Credit Bureau data.
Well-thought-out scorecards continue to rank ordering risk during a crisis or recession. What does change is a calibration between scores and the probability of default (PD). Evidence from past recessions suggests that at each score, observed bad rates (BR) tended to surpass initially predicted PD. As an example, let’s imagine that a cut-off is set at a certain score, let’s say, 610 and we expect PD to be equal to 13% at the cut-off point. However, during a recession observed BR will increase to a higher value, perhaps 15% depending on the depth of the crisis.
It is, therefore, necessary to change the cut-off to a higher value to retain the quality of the portfolio. Further analysis and modelling can help to produce a detailed estimate of the impact of key economic factors on levels of default to safeguard the portfolio from significant losses.
RECOMMENDATION: REVIEW YOUR CUT-OFF SCORE
Loss Given Default and Reducing Exposure
We all hope that the impact of the virus crisis will be relatively short-lived and then expect a return to normality. One of the major learning points from the previous sub-prime mortgage crisis was that both PD and Loss Given Default (LGD) estimates were impacted in a recession. The deterioration of LGD was overlooked, as there was a repeated belief that sub-prime mortgages carried a low risk due to a high value of a housing asset even despite potentially high PD. This falsehood was laid bare when asset prices tumbled in line with rising defaults.
Reviewing how limits are assigned is an important step. This will have a dual benefit of making payments more manageable in an environment where incomes are vulnerable to reductions, and secondarily to reduce losses if defaults increase.The considered strategy of risk-driven exposure reduction will minimize any spikes in losses from the current portfolio and any new loans in the coming weeks and months.
RECOMMENDATION: REVIEW YOUR LIMIT MANAGEMENT
Creditinfo will be using their data resources in each country to monitor the situation and identify any trends which will support the management of credit portfolios in each country. Each lender needs to continue to review portfolios and assess what changes are needed to best manage through this difficult period.
More questions? Get in touch: email@example.com
Íslandsbanki – one of Iceland’s three largest banks – launches new self-service affordability calculator and loan application system developed in collaboration with Creditinfo.
Íslandsbanki is a leader in financial services in Iceland. A universal bank with roots tracing back to 1875. The Bank offers comprehensive financial services to households, corporations, and professional investors in Iceland. It has a strong market share across all domestic franchise areas (Retail Banking, Corporate Banking, Capital Markets, and Wealth Management) and a 25% – 50% market share across all local industry segments.
With a team of 800 employees and a vision of being #1 for service, Íslandsbanki prides itself on being ranked first among banks in the Icelandic Customer Satisfaction Index for six out of seven years. The Bank was voted ‘Best Bank in Iceland’ by Euromoney four years in a row (2013- 2016) by the anker (2014, 2016 & 2017) and ‘Best Investment Bank in Iceland’ by Euromoney (2014).
Íslandsbanki customers can now apply for a mortgage, complete the affordability calculations and application process online, and get results from the affordability calculations in real-time. If followed up with a loan application, they also get confirmation within the day. This very same process would take up to two to three weeks before.
The affordability calculator works for multiple loan types (mortgage, car leasing, and other consumer lending). There is also a new feature for up to three unrelated individuals to apply for a mortgage together. This feature will make it easier for friends, unmarried/unregistered couples, parents, and their children to buy together and thus serves to simplify the buying process for first time buyers.
Creditinfo’s role in the process has been to develop the affordability calculations in collaboration with Íslandsbanki. The Bank connects to Creditinfo’s API but developed the front-end and user interface themselves. Creditinfo data sources used in the calculations can be seen below:
“This is an important step in our strategic partnership with Íslandsbanki. The implementation has been very successful, and we look forward to contributing to their clients improved journey,” says Dagný Dögg Franklínsdóttir, Head of Sales at Creditinfo Iceland.
“This process has so far been more or less manual so there has been a lot of waiting around for our customers, but now we have a fully automatic payment assessment,” says Linda Lyngmo, Project manager of digital solutions at Íslandsbanki. “Now everyone can apply for a credit assessment for mortgages, car loans or other loans on the Íslandsbanki website and get an answer about their payment capacity right away.”
Retail lending in Kenya has taken a unique path. It has skipped some stages typical for developed markets and climbed to heights that can be admired and envied. Ironically, this happened not due to economical advantages but rather due to certain historical deficiencies. As it happens in many developing markets at some point lots of people move from rural areas to big cities seeking better-payed jobs. These people as they earned money needed some way to transfer it to their families, often left in the villages. Most of these people didn’t have a banking account as banks were avoiding such customers, viewing them as high risk/low profit. In such circumstances a person wishing to transfer money to his family would have to find a bus driver, going to his home village, and ask him to carry cash to his family. Not the most fast, convenient and secure way to commit a financial transaction.
In 2007 Safaricom, a Kenyan telecom company addressed this problem by launching MPESA – mobile wallet linked to user’s phone number. A user could send money to another person over network who could then withdraw funds from the system through an agent. The agents were either Safaricom’s employees or shopkeepers who partnered with Safaricom besides of doing their primary business. With 93% of population coverage by mobile (Safaricom’s Annual Report 2019) and ubiquitous agents network the problem of money transfers was solved. People started to use MPESA to transact with each other, and also with businesses and government agencies. Since 2007 mobile money has rapidly proliferated in the developing world and today there are more than 500 MLN users in at least 90 countries (GSMA 2016a).
Besides solving money transfer problem MPESA has propelled the development of retail lending. Millions of people that hadn’t had access to finance suddenly entered the financial system. They sent money to each other, payed bills and purchased goods through mobile wallet. Whereas many people in Kenya are not officially employed (according to the National Bureau of Statistics informal sector represents 82,7% of employment) this data is the only reliable footprint of their financial activity.
Mobile lending has become a critical growth driver of lending market. A typical mobile lender is a financial institution partnering with mobile operator (e.g. Commercial Bank of Africa partnered with Safaricom and launched their M-Shwari product in 2012). A credit application is submitted through mobile phone (app or USSD interface) and remotely processed by Lender. In case of positive decision money are funded on person’s mobile wallet. Mobile wallet is also used to make regular loan payments. Such purely digital approach has obvious benefits. Since loan is disbursed remotely Lender doesn’t have to extend sales network, keeping operational costs low. The disbursement is made immediately without need to visit bank’s office which improved customer experience and boosted growth. The weak sides of such approach are limited KYC (which is basically delegated to a telecom company) and weak collection (in most cases customers are out of physical reach of Lender). This results in higher than usual NPL rate which is compensated by higher interest rate (or service charge).
At the dawn of mobile lending credit limits were relatively small, starting from 500 KSH (5 USD). Now, banks are ready to provide 50,000 KSH (500 USD) and even higher amounts which is on par with traditional unsecured loan. This has become possible due to building up of good customer base and advanced scoring mechanisms that rely on a vast array of data, both traditional (e.g. credit bureau) and non-traditional (e.g. phone meta-data, mobile wallet). Non-traditional data proved to be useful for assessing customers without previous credit history (64% according to The World Bank). Data sources include calls journal, installed apps, sms and other. Most of such data is not linked to credit behavior but some subtle items matter a lot. For example, Creditinfo has conducted research that showed that customers who have installed UBER app are more reliable than those without. Gambling apps on the other hand indicate higher risk. Another research showed that people who have certain government agencies in their phone book are less risky than the rest.
In the domain of non-traditional data mobile wallet proved to be the most powerful resource. Data on financial transactions is used to estimate customer’s income and to assign credit limit. A person that is regularly paying 5,000 KSH bill is likely to have enough income to serve 10,000 KSH loan given for three months. Of course, different people have different financial behavior so designing limit assignment system is not a straightforward exercise and requires solid analytical work. The advanced approach recommended by Creditinfo’s consultants combines specific MPESA variables with an internal/CRB score breaking down population by customer segments (e.g. Prime/Sub-prime). Higher limits are provided to low risk/high income customers which leads to increased profitability and reduces risk exposure. A good limit assignment system will also consider length of relation with customer and his borrowing activity. New customers will typically get smaller amounts than those who have already repaid several loans. This strengthens customer relations and helps building up good customer base. Implementation of such advanced approach requires besides of heavy analytical work availability of proper automation tools that support not only scorecard calculations but also complicated decision matrices varying by customer segments. Furthermore, as every analytical model limit assignment model requires regular reviews and fine-tuning. We need to monitor stability of financial behavior patterns and alignment of limit size with level of risk. It becomes possible only if historical decision data is properly stored and maintained, and can be easily linked to customer’s payment behavior.
We are yet to observe what will happen to lending market in Kenya. Recently the growth has slowed down which might indicate a tipping point in the credit cycle, followed by a decline and growth of NPL. Still the lessons learned are insightful and can be utilized in other developing markets.
National Commercial Bank of Jamaica veteran joins Creditinfo team to help credit providers embrace digitalisation and boost financial inclusion.
Creditinfo Group, the leading global credit information and decision analytics solutions provider, today announced that it has appointed John Matthew Sinclair as the CEO of its Jamaican credit bureau. In this role, Sinclair will continue the significant work conducted by Creditinfo in the country, with the vision of helping credit providers to embrace technology and unlock access to more financial services for citizens and businesses.
Sinclair joined the Creditinfo Jamaica team in January 2020, following senior positions held at the Bank of Jamaica, and, more recently, the National Commercial Bank of Jamaica, where he was responsible for digital transformation across the organisation. His broad and unique experience in financial services, working for one of the most forward-looking banks and also experience on the regulatory part of banking, will play a crucial role in his new remit as CEO of Creditinfo Jamaica.
This strategic hire by Creditinfo will see Sinclair responsible for leading the charge in educating the Jamaican market on the importance of intelligent business solutions; broadening the usage of financial and non-financial data as instruments for credit providers; and providing best-in-breed risk management consultancy and automation solutions that help the industry make better financial decisions. Sinclair will lean on his experience driving and executing on digital transformation projects to support regulators in the country with the digitalisation of financial services.
Claudia Garcia, Regional Manager, LATAM & Caribbean, Creditinfo commented on the appointment: “John Matthew brings positive energy, openness, enthusiasm and in-demand skills to the role of CEO of Creditinfo Jamaica. This credit bureau is the oldest entity of our three points of presence in the Caribbean market, but we see huge untapped potential in the country. We’re excited to have John Matthew on board. His digital transformation experience will prove vital in helping to educate on the importance of digitalisation in financial services.”
John Matthew Sinclair, CEO of Creditinfo Jamaica added: “I’ve watched Creditinfo Jamaica from afar, and have been impressed with the way the bureau has built such a secure financial infrastructure in the region, with automation and digitalisation at the heart. As I join the Creditinfo team – a team that has been a key player in financial services innovation – I look forward to being at the forefront of such significant industry change in both Jamaica, and in the Caribbean more widely.”
Sinclair replaces former Creditinfo Jamaica CEO Craig Stephen, who after successfully driving the business through 3 consecutive years of growth will now take the position of COO.
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.
Contact us at: firstname.lastname@example.org
The key to success (my humble opinion): Any lessons from credit-vibrant Iceland to small population countries?
By Reynir Finndal Grétarsson – Founder, Creditinfo Group
In 2010 I decided to go back to University and learn Anthropology. This is the discipline that deals with human behavior in wide and holistic manner. Why do humans behave as they do? After graduating in 2014 with a bachelor’s degree, my understanding of the complex organism that is the modern human being increased just a little bit. The most important thing I learnt was that different behavior of different groups of people could be explained by what we call culture.
This is not saying much. Culture has been defined countless of time. It is a subjective term, but in short it is about what people does and how. Behind that are the motives, knowledge, values, beliefs, etc. I believe that the most important thing for companies, which are one form of groups of people, is its culture. You might point at some of the greatest companies in the world and say that they came about because of great ideas. I would say that the initial ideas were rarely novel, but elaboration (or even plagiarism) of someone else’s ideas. Why did those groups of people succeed and not other groups with similar ideas? Sure, luck plays a role. But luck is also about being prepared when opportunity arrives. Most important is the mindset of the founders and their team in creating a culture of success. And then to add to the team people who fit into that culture.
We started a small company in Iceland in 1997. In 2002 we started expanding to other mainly smaller markets, focusing on those with high growth potential in the long term. We now have offices in 25 countries (last count). Iceland is still the most important part of the company, contributing more in revenues and profits than any other country, yet it is the smallest in population. Why?
It is firstly the culture of the country. Icelanders like new things. To start internet-based service in Iceland in 1997 was easier than in some other European countries many years later. Icelanders are usually in hurry and very demanding. They want things now. Call me biased, but to open a bank account or register a company, as examples, is easier that anywhere else, at least for locals. Iceland has the highest proportion of payments being made electronically. Cash is disappearing. Secondly, the company culture, at the heart of which lies respect and appreciation towards one’s colleagues. You don’t just give orders and expect people top follow; you explain them and are prepared to listen to reasons why things should be done differently. Of course, the boss is the boss, but he/she must be reasonable. This has the effect of improving decision-making. I have often been guided towards a better approach by my colleagues. And knowing that you will be questioned, you avoid asking for things that serve limited purpose. In short, you won’t get away with nonsense. What you ask the people to do has to serve a purpose that is in line with the overall goals of the company.
I recently read the autobiography of General Georgi Zhukov, he mentions officers who do not respect their common soldiers. He says that they are stupid as this results in the soldiers not being ready to fight as hard as they can for their officer.
I think that the reason for the tremendous success of Creditinfo Iceland is the fact that we have been fortunate in finding the right people. Not only good professionals, but also good people who respect their colleagues and in that way are in line with the most important part of the company culture.
We can say that Iceland success can be seen as the result of business intuition & social listening with perfect timing & great professionals blended together.
Last but not least: luck. Iceland was prepared for our services and you never really know beforehand if this is the case. Luck is always a factor in business, although by our professional team adapting our services to meet the changing environment, we have stayed lucky for over 20 years!