News and updates at CredoLab
Alternative Credit Scoring: Banking for the Unbanked
Traditionally credit is extended to people based on a credit score. Banks, credit card companies and other financial institutions will assess creditworthiness based on repayment histories and other financial benchmarks held by credit bureaus as well as their own internal databases. Most people in the developed world went through a “credit building” phase in their lives, but 4.5 billion people around the world have little or no credit history (source: LTP – Let’s Talk Payments, March 16, 2017).
This is a particularly big issue in the developing markets of Asia. Access to traditional banking services and most importantly credit can be extremely limited in these Asian markets. These unbanked people represent a huge opportunity for financial institutions who can successfully assess this risk.
Fintech proposes to address this challenge by developing strong and reliable alternative scoring systems. Relying on past repayment history comes with its own set of issues, as many financial institutions say frequently:
“Past performance is not a predictor of future results”
New approaches by Fintech companies look to rely on other sets of information to better predict human behaviour and creditworthiness. Progress in managing and analysing huge data sets makes this assessment possible. Access to big data on customers, data analytics and social media footprints can yield behavioural analytics that lead to positive lending decisions.
Why are these alternative approaches needed especially in the developing Asian markets? Traditional banking institutions have always struggled to extend their footprint to remote areas. It is expensive to set up and maintain remote branch locations serving low impact customers. Consequently, these people are generally unbanked, operate in the cash economy and never develop a credit score. Many are good credit risks but have no way of proving that to a lender.
Additionally, this potential client base:
Lacks access to financial services but in many cases are moving into the middle class making them a good target customer.
Lacks the resources to get to the nearest bank branch. It may be a day trip or more to get to the nearest bank branch.
High levels of bureaucracy and paperwork inherent in the traditional banking world poses a serious challenge to this customer base. Arbitrary lending rules and criteria will in most cases disqualify this potential customer.
There is little or no financial history about the applicant as credit bureaus in these markets are immature. Banks using traditional scoring methods will find little or no financial history on these applicants and will automatically deny the loan.
The traditional credit scoring approach will not be successful for this client base, many of whom would be a very good customer. Fintech’s alternative scoring approach offers lenders an opportunity to reliably assess these customers and expand their business.
Mobile phones are proving to be one of the most important devices that have information that can be tapped to develop alternative credit scores. Mobile phone penetration globally is huge – over 100% as many people have more than one phone. In the developing markets of Asia the penetration is over 90% and the devices are used for more than just phone calls and messages.
In addition to mobile phone penetration, phones now contain a wealth of valuable information that can be analysed. Beyond calls and messaging, users are now using their mobile phone for contact lists, calendars, internet surfing and social media. All that activity provides data on people’s personalities and can be used for behavioural analytics. With the right data analytics the result is a reliable credit score. Deploying these new methods will provide significant benefits to lenders like:
- Digital technology to enable financial inclusion
- Reduce credit risk of consumer lending
- Reduce time on credit decision
- Open new client segments
- Access to huge unbanked client market
Fintech promises to make banking and financial services more available, faster, easier to understand and cheaper. But it also promises to bring banking to the unbanked. Progress in alternative credit scoring will go a long way towards addressing the credit and loan segment.
CredoLab, based in Singapore, partners with banks and retail lenders to improve financial access in unbanked populations, through alternative data use and collation of mobile touch points. Get in touch to find out how CredoLab can transform your credit lending capabilities.
Traditional credit scoring is not enough for emerging markets
Credit lending has historically favoured those in developed markets, in more affluent regions of the world, leaving consumers in less well-off emerging markets without any way of obtaining a credit loan. This is a vicious cycle because without a loan, those people cannot build a credit score, and therefore find it challenging to obtain a loan. The loop continues. I’m interested in breaking this cycle, using alternative data to empower financially ‘invisible’ consumers and disrupt traditional credit scoring methods.
Developed vs. emerging markets
Traditionally, lenders base a customer’s creditworthiness on their past repayment data and therefore, this is only possible in developed markets. While it should be recognised that these traditional credit scoring methods are highly predictive, the information required to produce them is limited because it relies on data from centralised credit bureaus.
Emerging markets find it difficult to break into this ecosystem, as bureau data is often incomplete or entirely unavailable. According to World Bank, less than 10% of people in low and middle income countries globally are on file in public credit registries.
FinTech start-ups in emerging markets are realising the potential of alternative data to provide financial services to ‘thin file’ customers, and such methods are gaining traction. In their report on financial inclusion in emerging economies, McKinsey Global Institute (MGI) has calculated that widespread use of digital finance could boost annual GDP of all emerging economies by $37 trillion by 2025.
What is alternative data?
Alternative data can represent a broad range of material. Essentially, any information that can be gathered from sources beyond the re-payment data obtained by banks and credit bureaus can be used in an ‘alternative’ manner to establish a person’s creditworthiness. The sources that are of particular interest to many FinTech companies are online, mobile and psychometric data. These sources have differing benefits in terms of predictability of loan performance and ease of access.
The unprecedented spread of mobile phones across the globe is the key driving force of alternative data use for credit scoring. In 2014, almost 80% of adults in emerging markets owned a mobile phone (predicted to reach 90% by 2020), whereas only 55% had financial accounts. It is thought that mobile banking can lower the cost of providing brick-and-mortar financial services by 80-90%, allowing providers to access those in lower income populations.
The trouble with traditional credit scoring
How does the difference between emerging and developed markets translate into problems with traditional credit scoring methods? The reliance on existing credit infrastructure for traditional credit scoring to work, means people in emerging markets don’t get a look in.
The major benefits of alternative data come from the productivity gains of switching from cash and manual payments to automated processes and digital payments. According to MGI, two thirds of the estimated economic gains would come from the reduced cost and superior speed of using digital finance over traditional cash and brick-and-mortar financial services.
Additionally, emerging markets tend to experience higher levels of corruption and black market activity, but MGI predicts that by switching from traditional cash to digital finance, emerging markets could reduce corruption and potentially save governments $110 billion.
The effect of FinTech in Asia
Out of the six most financially excluded populations in the world, Asian regions take up four positions, with South Asia at number one (see Figure 2). 73% of the world’s unbanked population live in predominantly Asian countries and although the banking sector is relatively developed countries like China and India, the population is so vast that there a large regions which go unbanked and unnoticed.
The traditional banking sector in Asia is growing rapidly, thanks to factors like skirting the 2008 financial crisis, which devastated the European and US markets. However, shadow banking is widespread across many Asian countries: in China, shadow banking made up 40-70% of GDP in 2017.
So how can FinTech market penetration impact traditional banking in Asia? Asian banks must respond to the growing middle class demand for access to the global e-commerce space, to gain a competitive edge. To do so, they are turning to digital offerings brought to the table by FinTech companies, choosing to partner with these start-ups rather than compete with them. In line with this, Asian governments are supporting this transition by encouraging FinTech to supply funding to small businesses.
Embracing digital finance in emerging markets
In their report, MGI estimated that alternative finance solutions could help connect 1.6 billion people to the financial system – over half of which would be women – out of the 2 billion people who are unbanked in emerging markets. There is no doubt that emerging economies are realising the benefits of digital finance over traditional credit loans. By using innovative financial technologies to empower ‘thin file’ customers, greater financial inclusion in emerging markets can be achieved.
CredoLab, based in Singapore, partners with banks and retail lenders to improve financial access in unbanked populations, through alternative data use and collation of mobile touch points. Get in touch to find out how CredoLab can transform your credit lending capabilities.
CredoLab: revolutionising credit scoring methods through mobile user behaviour
Mobile phones have become ubiquitous across the globe. Not only that, but smartphones are in the hands of a large majority of users and leave an enormous digital footprint, with tens of thousands of data points that can be used to predict user behaviour. The sheer amount of Big Data is exactly why CredoLab’s statistical models are so impressively predictive and stable.
Each of these mobile phone accounts provides a particularly rich source of data: almost every detail about each call, text and information request is captured and stored by the mobile device and can be utilized. It’s not hard to see why many industries are looking to tap into such a valuable data source. The insights into customer behaviour are unparalleled, incredibly predictive and instantly available, and CredoLab’s digital credit risk management is evolving rapidly as a result.
Mobiles as a data source
Traditionally, credit reports and salary history provide the data that lenders require to make a risk assessment in developed markets. Credit bureaus utilize this limited data with few data points to establish a credit score. While this method has been reliably used in the past 50 years, it simply inadequate in the present day since it cannot serve thin file customers, forming the majority of under and unbanked potential borrowers in emerging markets. Lenders want to establish three key factors: the customer’s identity, ability to repay, and willingness to repay. In emerging economies, however, these methods aren’t as effective. Today, there are over 2.5 billion people globally without formal financial services access, and lenders therefore have no access to previous borrowing behaviour. A lack of regular, fixed wages and formal savings adds to the financial inconsistency. Existing credit models do not serve the needs of economically active lower-income households and enterprises, which is why many lenders are seeking out an alternative approach. CredoLab’s easy-to-use, instant, and amazingly predictive CredoApp solution aims at serving exactly these people.
CredoLab’s significanly more inclusive risk models can be obtained using mobile phone data, with algorithms consistently developing highly accurate scorecards for consumer lenders. The digital scorecard can be used separately or in conjunction with traditional methods, to create a unique metadata footprint with incredible predictive power.
The CredoApp allows lenders to gain greater control over their lending decisions, vastly expand their pool of qualified borrowers with little or no credit history, and reduce the overall risk. Lending has historically been, and remains, the bank’s main source of revenue. So digital credit scoring is sure to benefit the bank, whilst providing a more efficient and fairer service to the customer. The data collected from a customer’s mobile phone can help banks make better credit decisions and smarter loan evaluations.
Despite being a promising resource, mobile phone data acquisition draws scepticism from customers with regards to security and authenticity. Data privacy is at the forefront of every customer’s mind, so how do credit scoring organisations reassure them that digital credit risk management is a friend rather than foe?
Rules and regulations
Regulatory requirements and privacy laws can stand in the way of organisations looking to gain access to digital data. Often, the data sets that lenders need are owned by, for example, telecoms companies, utilities, or retailers, which may themselves be prohibited from sharing information. Similarly, governments will be particularly cautious about sharing details about citizens.
Two solutions to these problems are to either pay for access, or to build partnerships with companies in a way which benefits both parties: on one side, there are organisations without financial services which can benefit from such arrangements and on the other, lenders can obtain consented access to valuable data.
CredoLab collects data directly from the customer’s phone with their consent. What differentiates CredoApp from all other solutions is that the collected data is completely anonymous metadata. This approach easily convinces customer to willingly share their data without worrying about potential exposure of personal and sensitive data, or any improbable but possible security breaches.
Gaining credit insights
Converting metadata into credit insights poses a huge challenge to lenders. Risk and marketing teams will need to optimize their collaborations, and lenders will need to learn new skills to create evolved risk models. CredoLab’s know how, expertise and experience does that for lenders. Insights can be gained from the most unlikely sources: for example, the number of contacts, how much storage is utilized, and the time of day that phone calls are made – these “features” can be entered into models to determine credit scores. These emerging financial technologies are drawing the attention of a number of lenders, many of which are interested in CredoLab’s new algorithms, models and data sources.
Once lenders have got hold of the necessary data, they have to know what to do with it. By its nature, non-traditional data is high in volume and often comes from disparate sources. For example, each mobile account can generate thousands of calls and texts per month, each with a diverse array of insight potential. Risk modellers therefore need to familiarise themselves with the new technologies enabling them to aggregate and analyse such metadata. If software isn’t up to date, huge volumes of data can overwhelm the system and make statistical analysis challenging. Recent developments, such as cloud computing, have improved the processing power available to lenders, bringing down costs as well as enabling actionable credit risk insights.
How can CredoLab help?
CredoLab is a digital risk management start-up, headquartered in Singapore, which has developed a credit scoring mobile app, called CredoApp. The software tracks the “anonymised digital footprints” of consumers and leverages predictive analytics to generate incredibly predictive digital credit scorecards. CredoLab aims to fill the void and provide financial inclusion to the under-banked population, and is able to improve both the availability of credit to those with no or limited banking history, as well as allowing a lender to reduce their cost of risk and increase their approval rate.
We don’t obtain any personal or sensitive data from the customer for their credit analysis: at a time when stakes are high on data privacy, this is sure to give customers peace of mind.
If you want to expand you business, lower your risk and serve the huge under-banked and unbanked population, and are keen to learn more about how our CredoApp solution can achieve that, drop me a message or visit http://www.credolab.com/.
Going digital: can meta-data help banks better manage credit risk?
“…at your fingertips” is a phrase commonly used in everyday conversation. However, when considered in its literal sense, there are few real life examples where this phrase is actually applicable. Nowhere is this phrase more applicable than in meta-data credit risk management. I want to discuss how the data collected from customer’s mobile phones can help banks make better credit decisions and smarter loan evaluations. Should banks be moving away from traditional ways of credit checks and scoring systems? CredoLab’s instantaneous, easy to launch, use and expand solution will convince of the answer.
Digital risk management
There are a number of trends in the current credit risk-management model, which are driving digital re-design. These can be summarized as:
- Changing customer expectations
- Tighter regulatory control
- Strong data management and advanced analytics
- FinTech start-ups causing traditional business model disruptions
- Increased pressure on costs and returns.
Digital risk describes all the digital factors that improve risk effectiveness and efficiency. This includes the automation of processes and decisions, and digitization of monitoring and early warning. Machine learning and artificial intelligence (AI), leverage automation, connectivity and digital decision-making for a more cost-efficient, easy and fast operation.
What is meta-data credit scoring?
Our smartphones leave an enormous digital footprint with tens thousands of data points that can be used to predict the behavior of the borrowers and their likeliness to default. CredoLab’s algorithms use this data to consistently develops highly accurate scorecards for consumer lenders. The digital scorecard can be used separately or in conjunction with traditional methods to create a unique meta-data footprint with incredibly predictive power. The solution allows lenders to gain greater control over their lending decisions, vastly expand their pool of qualified borrowers with little or no credit history and reduce the risk. Lending has historically been and, remains, the bank’s main source of revenue, so digital credit scoring is sure to benefit the bank, whilst providing a more efficient and fairer service to the customer.
Meta-data vs traditional credit scoring
Banks are beginning to respond to the trends mentioned, with some leading banks making headway by digitizing their risk processes. Rather than using the rigid, traditional credit system, where customers frequently have to wait for weeks for loan checks to be cleared, analyzing meta-data from mobile applications can take up to a few minutes or in the case of CredoApp is performed instantly.
Billions of people don’t have access to mainstream financial services, but the traditional approach requires them to have credit history creating a paradoxical vicious circle. Behavioral analytics in the traditional credit scoring system treats these individuals unfairly, and many are overlooked when it comes to getting a loan. Many companies are now focused on the method of “big data, small credit” (BDSC) – which often uses meta-data – to collect a wide array of alternative data to empower every customer.
Big data, small credit
So, what’s the impact of the digital revolution on consumers in emerging markets? Big data tools are transforming the credit-scoring industry, but there is no single rule to predict a borrower’s likelihood of repayment. Until recently, lenders and underwriters faced technological constraints that limited their ability to collect, store and analyze data about prospective clients. Increasingly, however, credit scorers are able to take advantage of a wide variety of non-traditional data, including information collected from social media, consumer’s retail spending histories and other data points obtained from public platforms. Availability of such data, comes at a time of growing demand for rapid access to financial services by those who have previously been overlooked by lenders due to a lack of formal credit history.
The rapidly growing digital footprints of people in emerging markets are enabling innovative lending startups, like CredoLab, to assess consumer risk instantly, easily and amazingly accurately in order to offer affordable loans to those who weren’t previously deemed creditworthy simply because of lack of data. The Omidyar BDSC Report found that BDSC services have the potential to help 325-580 million people gain access to formal credit for the first time, in the world’s six largest emerging economies – China, Brazil, India, Mexico, Indonesia and Turkey.
With consumers at the heart of the digital risk transformation, the report found that consumers care most about trust, transparency and data standards. Meta-data credit risk management will be the new norm in a few years’ time, so banks that are able offer this service now will enjoy a huge competitive advantage.
As a consumer lending start-up, CredoLab enables lenders to reduce risk, increase operational efficiency and enhance profitability, all through their proprietary mobile application, CredoApp. CredoApp uses a completely anonymized digital footprint from a customer’s mobile phone to help financial organizations make better credit decisions and tap into the enormous market of the unbanked population.
If you want to expand your business, lower your risk and serve the huge under-banked and unbanked population, and are keen to learn more about how our CredoApp solution can achieve that, drop me a message or visit http://www.credolab.com/.
CredoLab Featured in Fintech News SG on Why Asia Needs Alternative Credit Scoring
While progress has been made in expanding financial inclusion, there are still billions of people in the world who do not have access to basic banking services, including access to credit.
Between 2011 and 2014, the number of people worldwide having an account grew by 700 million between 2011 and 2014, according to the World Bank. Today, 62% of the world’s adult population has an account, up from 51% in 2011.
Yet, there is still a long way to go. The organization estimates that there are still about two billion unbanked people in the world. Countries in Africa and Asia have some of the highest rates of unbanked populations: 21% in China, 47% in India and 64% in Indonesia.
Being financially excluded means that you don’t have access to banking-type services of any description. The inability to obtain credit has created major barriers for people to overcome poverty by making it nearly impossible for individuals and small businesses to borrow or save money.
That being said, lending to the underbanked requires credit risk assessment and management that is as diverse as the universe of borrowers.
In emerging countries, credit assessment of individuals unknown to a lender is often subjective, time-consuming and expensive. In many instances, it involves home visits by loan officers to interview applicants and their neighbors.
Furthermore, credit bureau coverage may be patchy or non-existent, reflective of the fact that many consumers in these markets still have little to no history with financial institutions.
“The current lack of instruments for predicting consumer credit risk leaves billions of creditworthy emerging market customers without access to credit,” Peter Barcak, co-founder and CEO of CredoLab, told Fintechnews.sg.
In particular, the lack of data required by credit bureaus to allow accurate assessment, as well as limited know-how, are a real challenge for lenders in emerging economies.
“Bureau data tends to be out of date or incomplete. A majority of the alternative scoring providers use up-to-date current information, for instance, snapshots from a user’s mobile phone,” Barcak said.
“There will always be pockets of creditworthy people not within the bureau. Alternative scoring providers can potentially open up these demographics.”
Barcak’s venture, CredoLab, is a risk management startup headquartered in Singapore. The company has developed a credit scoring mobile app, called CredoApp. The software tracks the “anonymized digital footprints” of consumers and leverages on predictive analytics to generate their digital credit scorecards.
CredoLab harnesses technology and digital platforms to provide unbanked consumers in Asia with financial services.
Besides the obvious social impact, the market opportunity for the unbanked population is enormous. Accenture estimates that bringing unbanked adults and businesses into the formal banking sector could generate about US$380 billion in new revenues for banks.
CredoLab partners with lenders across Southeast Asia and integrates its digital scorecard into their existing credit scoring infrastructure.
“Some companies typically use multiple alternative data sources to provide additional insight and reasoning for their credit decisions – to say there is no space for alternative providers alongside bureau would be a false statement,” Barcak said.
CredoLab has ongoing operations in Singapore, Indonesia, the Philippines, Malaysia, Thailand, Vietnam, and Myanmar.
The company recently raised US$1 million to ramp up its product offerings and expand its operations. It is expected to generate more than a million credit scores by the end of the year and reach profitability by the end of 2017.
Read the Full Article Here
Singapore fintech startup CredoLab raises over US$1M to help unbanked consumers manage their credit
CredoLab said that the newly-raised capital — twice the amount it originally intended to raise — will be used to ramp up its product offerings and expand its operations to serve the underbanked population.
As part of the funding round, Fintonia Group Chairman & CEO Adrian Chng has joined CredoLab’s Board of Directors.
Founded in 2016, CredoLab offers a credit assessment mobile app called CredoApp. This software tracks the “anonymised digital footprints” of consumers and leverages on predictive analytics to generate their digital credit scorecards.
This solution is particularly useful in emerging market such as Indonesia, the Philippines, Malaysia, Thailand, Vietnam and Myanmar, where there is a significant unbanked demographic with no credit history.
Many of these unbanked consumers would, however, have at least have access to low cost smartphones. By generating a credit score using the CredoApp, they would thus be able to access loans from microfinance institutions and commercial lenders.
“By addressing the huge market demand for financing in emerging markets, CredoLab is seizing a leadership position in advancing credit access and filling the void created by the banking infrastructure and logistical challenges in the developing world,” said CredoLab Co-Founder and CEO Peter Barcak, in an official press statement.
CredoLab said it has more than 10 financial institutions region in its client base and is set to increase its client portfolio by more than two-fold in the next six months.
It is expected to generate more than a million credit scores by the end of the year and reach profitability by the end of 2017.
CredoLab Achieves Remarkable Results in Indonesia Pilot
Credolab completed a highly successful data collection pilot project with one of the biggest retail lenders in SE Asia. The 3 month trial was the first real life application of our visionary technology, and produced very promising results. The clients’ data collected through CredoApp, our state-of-the-art mobile app, showed an exceptionally high correlation with repayment behaviour, culminating in a truly remarkable Gini coefficient of 0.71. In addition to showcasing the tremendous potential of our technology, the pilot serves as an opportunity for us to further optimize our app. We look forward to discussing with you how we can help optimise your credit processes! Please contact Kris Emerton-Jones at: email@example.com for more details.
CredoApp is Now Live on Google Play Store in 7 Countries
As of today, CredoApp is available for download from the Google Play Store in 7 countries in the SE Asia region. The state-of-the-art app, which is instrumental in our push for a more efficient, cost-friendly, and rapid credit scoring process, can now be downloaded onto Android smartphones in Indonesia, Vietnam, Singapore, Philippines, Thailand, Malaysia, and Myanmar. This marks an important step forward in CredoLab’s quest to bring credit to the underbanked population of South East Asia.We look forward to discussing with you how we can help optimise your credit processes! Please contact Kris Emerton-Jones at: firstname.lastname@example.org for more details.
CredoLab has just launched our customised advisory services for banks in the areas of retail consumer risk management and operational improvement. Depending on our Partner’s needs, CredoLab can provide customised advisory services in the areas of retail consumer risk management and operational improvement. We look forward to discussing with you how we can help optimise your credit processes! Please contact Kris Emerton-Jones @ email@example.com for more details.