IBS Journal May 2018
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in the short term, they carry an inherent high risk. To cater for this market, there are two main impediments that get in the way, and in general terms are seen as a shortcoming throughout the whole of the lending landscape.
The first one has to do with data – but this is a complicated area. Access to the right kind of data, alongside the appropriate utilisation of it, can increment both the efficiency and the accuracy of risk assessment processes.
The second point is automation, which although is widely conceived as being applied in risk assessment, actually affects many stages of the lending process, enhancing efficiency and speed of delivery. Take Duologi, a finance house that provides financial products at retailers’ point of sale. Stuart Taylor, director of sales and marketing at Duologi, remarks on the importance of artificial intelligence in their business: risk assessment, fraud detection, book management and forecasts, and customer engagement.
If these two areas are updated, and we see companies enlarge their investment and dedication to tech that apply directly, Eugene Danilkis, CEO at Mambu, believes that the cost of microlending will reduce considerably, even more than we have seen in the past few years, and thus will reach a wider demographic. Digital transformation reduces the operational risk and cost of most activities, if not all, involved in the process, while the interference of people at any point throughout tends to do just the opposite.
An example of companies that provide the technology to enhance the loan origination process is Divido. As a technology supplier, Divido builds and maintains the technology that allows lenders to reach customers who may need a loan at point of sale. As Christer Holloman, co-founder and CEO, tells us, the bank’s ability to be at the checkout when a customer may need them is giving these retailers and lenders an edge, as well as allowing customers to access to services and products through the financial products offered by the banks.
New frontiers
This opens a new realm of possibilities beyond the geographies in which lending is already an established industry. Economically marginalised communities, or those that would be subprime borrowers and traditionally denied a loan, can now apply and be granted such loans, as lenders have more data, more tools and lower costs, thus being able to mitigate the risk. But outside developed geographies, emerging markets are also benefitting from this, throughout many parts of Africa and Asia, as lenders are finding ways to gather individuals’ data.
The shift in the risk assessment process has been remarkable, and it has been a by-product of the sources and type of data that companies are now utilising. The use of data has always helped to reduce risk, but traditional lenders who have based their assessment in the information provided by credit bureaus – that being credit scores – have played the safest card available. Credit scores are a reliable
Emerging markets such as Africa are benefitting from the ability to gather data about potential borrowers
option indeed, which allows companies to be sure they are taking zero chances when lending money. Holloman says that for many traditional lenders (aka banks), credit ratings are the tried and tested route when it comes to risk assessment. Providing subprime loans based on social media behaviour is hard to justify in court, he argues, unlike credit ratings. But credit scores don’t tell the whole picture.
Alternative data companies have been looking at other data channels, such as social media, network creditworthiness, past employment history, online and browser behaviours. Data companies have realised that there are many ways to profile a potential customer, and they are getting increasingly creative with the ways they do so – even for the commercial side. It is not only a matter of which data we look at, but the way in which we use and access this data. Jacqui Morcombe, global solutions lead at Finastra, explains that many banks throughout the world still use Excel spreadsheets to store and manage data, which is a highly inefficient and unsophisticated method.
“The world beyond credit scoring is much more exciting, but when it comes to commercial lending, banks still have many issues,” Morcombe says. “Particularly when it comes to syndicate loans, for example, which are complex in nature; data needs to be ready and accessible. New systems are revamping the way we manage data, including providing market insights and the ability to control this data.”
Tamas Erni, CEO at Loxon, says: “It is true that there is less data in business lending, but there is still a lot of data that banks aren’t using.” He says that business lending companies would have the possibility of identifying non-customers and potential leads, as well as receiving insights in current customers if they were able to sufficiently leverage the data from payments and transactions records, corporate databases, balance sheets and so on.
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