The Unbanked: How mobile phone data can replace a credit history
How mobile phone data can replace a credit history
By Raina Korsak
More than two billion of the world’s adults don’t use banks to save or borrow money, and 39% of the world’s population hasn’t got a bank account.
According to the McKinsey, the most affected regions are Africa, Latin America, and the Middle East (about 65-80% of the adult population are unbanked). However; even in the USA with just an 8% of the unbanked adults, about 50 million consumers are considered underbanked, according to Global Findex. The reason among others is the lack of credit histories.
Experts blame the diversity of bank scoring systems: almost every financial organization operates its own system for assessing the borrower’s credit score, and the criteria may vary significantly. Not every country supports credit reference agencies but in case it does this cause some certain problems (credit costs increasing, delays in data processing, customers’ unwillingness to share their credit information, and so on). Obviously, countries use different credit scoring systems, so the complexity of reporting varies in each country with their respective regulations.
This creates an endless circle – if you need credit, you need a credit score, and to get a credit score you need credit. Banks usually approve loans just for the third of unbanked, – and lose a significant part of their target audience. The majority (59%) of this population are found in emerging markets; which are fast-growing and lucrative but not easy because of higher risk, national specifics, and local regulations.
Banks can solve this problem spending money on market research, simplifying a bank account opening procedure, and trying to come up with alternative ways to assess a credit score. The recent emergence of neural networks offered the market one more tool – a mobile phone.
MicroMoney’s Solution for the Unbanked
In the Southeast Asia, the fintech company MicroMoney (founded in 2015) now provides lending services for people with no credit history and bases a potential borrower’s interest rate on the data collected from a mobile phone. A customer should download the mobile application, complete the loan application there and agree to process the personal data within the app.
“A phone can tell a lot more about customers than they agree to tell on their own,” the co-founder of MicroMoney Anton Dziatkovsky said. Moreover, an access to a mobile phone will give more diverse and reliable information than a passport or other papers can.”
The process is as follows: the Big Data platform drives all the data received from the phone through neural networks, analyzes the result, and evaluate a customer’s creditworthiness. Eventually, a client gets credit services with no collaterals or papers required. That is completely new for Asian countries where a customer should bring at least five certificates including the property owner’s letter and a person to vouch.
All reliable customers are included into the most valuable list with options to select certain segments (age, sex, profession, loan purpose) available for any other businesses, and a person supplies primary needs and gets a good credit rate.
In fact, MicroMoney expects to form a legal market for the credit histories creation from scratch and their further support. After all, the absence of credit history does not mean that the customer is not creditworthy, as unserved doesn’t mean unservable.
How Financial Services Companies can serve the Unbanked
Many financial companies have learned to use alternative means to penetrate this market. For example, in the UK a bank during mortgage availability assessment can examine all of your purchases and check-ins in pubs within the year to determine your alcohol expenses.
In Mexico, Banco Azteca sends its agents to the homes of borrowers to take an inventory of stereos, TVs and other appliances they possess to support their loan application. Therefore, any software solutions that are able to accumulate and analyze information from all these additional sources are predictable for the fintech market.
In Kenya, for example, financial service M-Pesa lets customers store, transfer and send money via simple text messages; and one of Barclays’ services allow customers to use an app to open accounts, apply for loans and receive funds. The company chose the mobile phone because of a high level of smartphones’ penetration, even in countries with a low level of banking services distribution.
For example, in Africa, 80% of the population does not have a bank account but 63 of 100 people use mobile phones. This creates a far greater market share because smartphones are far more popular than laptop or desktop computers in Africa. Finally, the practically equal capabilities of smartphones’ and PCs processors and significant progress in financial-services mobilization and cloud services, allows Big Data systems to analyze all these data.
How MicroMoney hopes to Cash in on the Unbanked’s Credit Histories
Clear and full information about a person based on the analysis of a customer’s financial transactions, purchases and searches in search engines, career, interests, social networks accounts, travel notes, family status, penalties received and so on. According to Anton Dziatkovskii, this content sounds more truthful and allows predicting a customer’s behavior to avoid excessive risks.
However, the most valuable thing in this process is full and diverse information about people who need loans and, more importantly, people who give them back. MicroMoney management assures that transparent credit history will expand the opportunities of the financial market significantly.
“As soon as we finalize our credit histories product, we expect a surge of interest from banks, financial and insurance companies, as, in fact, we will undertake the most part of risks,” – Anton Dziatkovsky said.
The forecasts for such software looks interesting as financial companies are able to reduce their risks to enter Asia, Africa, the Middle East, and the other emerging markets. This may cause lending rates to decrease; and increase competition and raise the quality of loan services, as access to the same credit histories would be available for many players. That will probably push some new forms of financial services, e.g. cash using (to open an account, to support a loan application, etc.), or increase the number of automatic teller machines (ATMS) because cash wages are natural for emerging markets.
MicroMoney is a fintech company that operates as a charity organization in order to achieve its goals of helping the two billion unbanked people to become a part the world’s economy, to start small businesses, and to get medical care and education.
MicroMoney Generated $1 Million from Token Swaps
6 October, Singapore – Crypto funds and “whales” generated almost $1 million worth of token swaps with MicroMoney, a global fintech-blockchain company, and lending services provider, as its AMM token pre-distribution is ramping up, paving the way to the actual token swap valued at $30 million.
Kicked off on 15 September, AMM token pre-distribution has a minimum swap threshold valued at $10,000 and a soft cap of swaps valued at $2 million. The pre-distribution had generated $930,000 worth of AMM transactions by 21 September. The actual token swap is scheduled to start on 18 October, with a soft target of $15 million worth of swaps, and a $30 million hard cap.
