Need a loan but you have zero or poor credit history? Now you can put your online activities via desktop, tablet or mobile to good use and possibly get a Yes to your application.
Traditional lending companies such as banks not only collect personal information from loan applicants to help them decide whether to approve or decline. They also have a scoring model to check if you have the capacity to pay. They look at your income, assets you own, and your current liabilities or loan payments you are still making. Plus they look at your credit history and check into debts you left unpaid, or if you have any experience with credit.
The irony here is that most people applying for loans are those whose income are not enough to cover their needs (and possibly wants), with limited or no assets, and several current liabilities. Worse, they may have missed paying off a credit card or utility bill sometime in the past when they went through a rough patch. There are also those with zero experience with credit, including fresh graduates who are looking for work, or just started working.
If they cannot access credit from regulated companies like banks, they fall prey to informal lenders where the interest rates are much too high and missed payments can lead to the debt ballooning beyond the debtor’s ability to pay.
Changing the way we look at credit
Is there a middle ground between these two extremes? That’s where fintech company CredoLab comes in.
Launched in 2016, the Singapore-based firm, now with presence in 15 countries, aims to change the way the world looks at credit.
According to Shaun Scheepers, Regional Sales Director for Asia, CredoLab is stepping up the game “by providing lenders access to a fresh approach to assess risk -- by using alternative data. Through our embedded scoring solution, businesses can convert the customers’ smartphone metadata or web-behavioral data into highly predictive indicators of the applicant’s possible delinquency in real time.”
Before we lose you in technical jargon, we asked Shaun to explain this in simpler terms.
Good news for gig workers and fresh grads
“If you are a gig worker with no fixed monthly pay or a fresh graduate, you are automatically at a disadvantage to get your credit request approved,” explains Scheepers.
Let’s name our gig-worker Juan. He is driven and has the potential to start his own business. Scheepers says that the traditional credit assessment system will most likely reject Juan’s loan application owing to little information on his financial health. “CredoLab levels the playing field for applicants like Juan. By taking into consideration his behavioral data and his willingness to pay back the loan, we can provide a strong case for him, leading to a higher probability of his approval.”
If Juan approaches a bank or any lender that uses CredoLab’s embedded scoring technology, he will be asked for permission to share non-personal data from his web browsing history. Once he says yes for that one-time access, “within seconds his credit score is generated and sent to the lender. If his score falls in the range that indicates he is a creditworthy customer, and he meets the other credit policy rules of the lender, he is instantly approved,” explains Scheepers. He further assures that “CredoLab only uses first-party consented data, so the end-user is always in control of data that is accessed.”
And if you think your prepaid phone plan puts you at a disadvantage, think again. “We look at the smartphone metadata, not the network or the subscription plan,” clarifies Scheepers.
So what exactly is metadata? CredoLab, if given access to your smartphone, will look at as many as 50,000 data points and they can include checking your calendar (e.g. how many events has been planned on a weekday vs a weekend, but not what the event is or who are participating), storage (like how many media files are there vs documents, without looking at content of files), and contacts (not the actual contact information but whether the contacts are grouped or not). All these in combination will give CredoLab and its lender partner behavioral information on the customer.
Post-COVID-19 credit recovery
Beyond getting loans approved for Juan and people like him, CredoLab boldly claims their alternate credit score can uplift an entire population, quite timely as economies globally try to recover from the financial devastation wrought by COVID-19.
“When we look at traditional credit scoring in the Philippines, most financial institutions generate credit scores based on only a handful of personal attributes. At CredoLab, we’re opening up financial opportunities for anyone who owns a smartphone even in the absence of credit history or credit bureau data,” explains Scheepers.
Match made in Internet heaven
Considering the Filipinos’ growing love affair with mobile phones and anything web-based, this could be a match made in Internet heaven.
Scheepers makes his case by pointing out that “in 2019, around 57.6 percent of the population in the Philippines used a smartphone. By 2025, it is projected that about 77.1 percent of the entire population would be using smartphones. By allowing more users to confidently access lending, more are able to pursue their financial aspirations without compromising their privacy.”
CredoLab is gaining support in countries like the Philippines and Indonesia with a large pool of unbanked customers.
Here at home, they are working with digital-only bank CIMB, where CredoLab played a key role in moving the customer journey online and simplifying the onboarding process. “In just 10 months of its launch, CIMB gained 1 million customers, and in 3 months of launching their personal loan product, they saw 50,000 customer applications. When the pandemic hit, CIMB saw the average balance per customer and average cash-in per customer grow by 350% and 400%. By working closely with financial partners like CIMB, we’re able to promote financial literacy and encourage greater adoption of fintech solutions, helping Filipinos gain more confidence in their financial decisions.”
Scheepers adds that “one of Indonesia’s top banks saw an 85% rejection rate and low predictability of their existing underwriting process prior to working with us. Through our customized credit scoring algorithm, the bank was able to analyze customer smartphone metadata, resulting in a 107% increase in approval rates. This meant more Indonesians were able to access credit scores and financial solutions, all while safeguarding their privacy.”
By giving its financial partners an added layer of behavioral insights, CredoLab is helping open more lines of credit to the unbanked and the underbanked “so our clients can take a confident approach to “yes” more often,” concludes Scheepers.
Disclaimer: The views in this blog are those of the blogger and do not necessarily reflect the views of ABS-CBN Corp.