Airtime-Based Credit Scoring: The Key to Successful Customer Engagement and Growth
August 29, 2019
CredoLab's Chief Data Scientist on How Banks and Consumer Lenders Can Leverage Data Analytics for Business and Social Impact
While digital disruption makes inroads across industries enhancing every aspect of customer’s lives, it is still far from making a significant impact on the financially marginalized population. According to the World Bank Findex database, about 2 billion adults remain underbanked globally. India has the second largest unbanked population across the world, second only to China. The problem isn’t limited to developing countries. According to the US Consumer Financial Protection Bureau, 45 million people in the U.S do not have a credit history. Credit scoring approaches that use alternative data from unconventional sources are helping people stuck outside the system, build a credit history, and access mainstream financial resources. One such form of financial service that is growing in popularity is airtime credit.
Globally, Mobile Network Operators (MNOs) empower nearly six billion subscribers to not only communicate and access data, but also unlock a wide range of services through their digital platforms. This mobile ecosystem creates a digital identity for all, which can be further used to extend a range of financial services that would otherwise be unavailable to the underbanked. Dubbed as the new currency of the digital economy, the mobile identity market is expected to be worth USD 34 billion by 2022. The growing mobile identity market represents a huge opportunity for MNOs to leverage airtime-based credit scoring algorithms to financially empower those with poor credit history, while bolstering their own bottom line.
Creating new business models
In today’s hypercompetitive, multi-SIM markets, over 60% of MNOs’ prepaid customers churn within the first 30 days. With prepaid customers making daily decisions on which SIMs to recharge, MNOs need a proactive customer management strategy for their prepaid markets in order to deepen customer relationships and drive growth. Leveraging an airtime-based credit scoring algorithm could help them do just that. Here’s how.
1. Enabling mobile money platforms: While airtime credit initially started as an emergency-only service wherein MNOs extended a microloan to subscribers when they approached their zero-balance moments, it has morphed into a significant revenue generating channel today. Airtime-based credit scoring algorithms help MNOs better monetize their customer data to offer a wider range of products, including mobile money platforms either directly or in collaboration with banks. The algorithms leverage customer data points such as the amount of airtime a person uses, amount of mobile money that is circulated through their mobile wallets, the frequency of prepaid phone accounts top up, the distribution of mobile money transfers and so on, to create holistic credit profiles.
Take for instance, M-Shwari - a loan cum savings product wherein Safaricom, a Kenya-based MNO provides banks access to Know Your Customer (KYC) data and telco usage history. This helps create a ‘no-touch and low cost’ model of financial inclusion wherein MNOs and banks can widen reach to include previously unbanked population and accelerate the pace of lending, while reducing risk. At the same time, MNOs get to embed themselves deeper in the day-to-day lives of their customers, thus engaging them in a long and meaningful relationship.
2. Using airtime credit as digital cash: Another way for MNOs to leverage airtime credit is to promote it usage as digital cash to facilitate multiple services. For instance, allowing the exchange of good/services for an amount of airtime or enabling peer-to-peer transactions wherein people settle small debts/make informal payments to friends/family, etc. Such a solution would eliminate the role of traditional financial players as regulators of transactions, putting telcos in charge of authorizing borderless transactions, leading to superior revenues.
Expanding access to a wider set of financial services
Given their global footprint, close relationship with customers and access to extensive consumer data, MNOs have the opportunity to use their service platform to offer new products and services using airtime credit-based scoring.
As customers take and repay airtime credit over time, they strengthen their credit profiles, and in turn, boost their ability to access a wider set of financial services. Leading global telecommunications giant Telenor, for instance, utilizes its data to build predictive credit-scoring models and introduce new types of mobile credit products. Besides mobile money loans, these new products include emergency airtime top ups and handset financing. The company also uses these credit-scorecards to confidently increase credit limits for post-paid customers or convert a pre-paid customer without credit history into post-paid customers.
Forward-thinking MNOs that leverage airtime-based credit scoring models will not only build customer loyalty but also drive top line revenue growth through their ability to seamlessly create innovative products and services.