With the use of alternative data and advanced analytics, they get their first engagement with the formal financial ecosystem, and will be able to leverage credit for personal and professional growth in the future.
By Katerina Folkman
Ramesh came to Noida from his hometown Etawah in UP to work in an auto accessories factory. He remits almost 80% of his Rs 10,000 monthly income to his family back home through an RBI-approved remittance provider. He has saved Rs 10,000 to buy a two-wheeler, but that costs Rs 50,000. So he is looking for a loan.
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Now, traditional lenders have always been wary of such customers. They would require a local address proof – but Ramesh’s Aadhaar shows only Etawah, and the rent agreement of his Noida house is neither in his name nor acceptable by the banks. They would require his bank statement as proof of income – but Ramesh gets his salary in cash and only has a passbook from the State Bank of India in Etawah. They would require him to show some credit history – but Ramesh has never availed a loan.
Ramesh, however, is an excellent customer with regular income and willingness to pay who deserves a loan. So what will fintechs or NBFCs like Clix Capital do differently, to be able to understand and approve Ramesh’s application? We use alternative data and analytics to validate his identity, ability and willingness to pay. For example, we verify his current address by installing our lending app on his Android phone. The app checks last several weeks of Ramesh’s location using Google API, with customer consent. Such geo data confirms his place of work and location of the rented house.
Next step is ability to pay. We will leverage his wallet usage history and remittance receipts to build his spending and income profile. We will further monitor this regularly post loan issuance to identify any early signs of stress. For customers with account salary deposit, lenders will also leverage Account Aggregator (AA) capabilities. AA is a Data Access Fiduciary approved by RBIs to share financial data across banks. Once a customer approves—an innovative lender can immediately access their bank accounts through API. Analytical models will read the data to confirm regular salary deposits and favourable spending/saving trends.
What about Ramesh’s future financial stability? Clix Capital has developed employability index to assess job opportunities for each loan applicant. This scorecard is built based on extensive census research data, municipal records, various central/state government economic surveys and other third party data points coupled with individual characteristics like education, age, etc., showing stable employment trends of customers migrating from specific Tier II/III cities to urban centres. Yes, Ramesh has got “High Employability Score”.
But how about willingness to pay? The best assessment for such ‘New To Credit’ customers is a psychometric questionnaire. Ramesh will be shown a series of pictorial situational questions on the app, using slider to select the best answer according to his judgement. The psychometric score would be able to confirm his integrity and intention to pay on time. And yes, the science behind is smart enough, so it is not possible to cheat on this test.
So if Ramesh came to the right place – to an innovative NBFC which deploys advanced analytics and AI, and digitally connects to alternative online data sources – he gets ‘High Potential-Low Risk’ score and gets his two-wheeler loan approved instantly.
The opportunity in such segments of potentially good customers is huge. Even if we narrow down to urban early jobbers and young salaried like Ramesh, the target population is at least 70 million. With the use of alternative data and advanced analytics, they get their first engagement with the formal financial ecosystem, and will be able to leverage credit for personal and professional growth in the future.
The writer is head of analytics at Clix Capital