Have you ever thought of obtaining credit instantly on your smartphone, being offered an option to pay later on an e-commerce website with no need for a credit card or being able to get lower rates for loans? These financial innovations are already possible in many emerging markets such as Indonesia, Philippines, Mexico, Colombia, and now India.
What makes this possible? In India, a technology-focused government, data-oriented telecom companies, the emergence of affordable smartphones and increasing social media usage are converging to power the internet and create a pathway for the use of non-traditional techniques to improve financial inclusion and access to credit.
The difficulties of cost-effective and accurate credit scoring have been challenging the financial services industry for decades. Historically, credit bureaus were born to centralise the collection of individual financial data and then provide this information to financial institutions to base their decision making when assessing applicants for credit. For the last century, this information has been proven to be very accurate when a person has a significant credit history, but for the hundreds of millions of people who have either very little or non-existent credit histories, financial institutions have not had enough information to provide credit. This lack of access to credit lines and financing limits these individuals’ ability to take advantage of economic opportunities.
The digital world is enabling new business models that can address this challenge. Predictive algorithms combining big data and machine learning are using information provided by the consumer and digital data sources to accurately assess an applicant’s creditworthiness in real time with minimal or no human intervention. Recently, financial institutions have begun partnering with non-traditional credit scoring companies, who have gained new predictive insights by leveraging these technologies and provide credit scoring & identity verification in new and underserved markets.
Today these technology companies can capture thousands of data points, process the data through complex and often proprietary algorithms and return valuable information real time about an applicant to creditors. This structured and unstructured data is usually captured using sophisticated platforms which also ensure the applicant provides consent for the information being used. This data can include behavioural information from the application form itself, the applicant’s digital footprint and data from social, mobile and other digital information sources.
If implemented correctly, the data provided by these advanced new technologies creates an opportunity to allow hundreds of millions of Indians to be served by financial institutions, giving them increased access to life-changing capital and services.
The author is Country Director-India for Lenddo