“…at your fingertips” is a phrase commonly used in everyday conversation. However, when considered in its literal sense, there are few real life examples where this phrase is actually applicable. Nowhere is this phrase more applicable than in meta-data credit risk management. I want to discuss how the data collected from customer’s mobile phones can help banks make better credit decisions and smarter loan evaluations. Should banks be moving away from traditional ways of credit checks and scoring systems? CredoLab’s instantaneous, easy to launch, use and expand solution will convince of the answer.

Digital risk management

There are a number of trends in the current credit risk-management model, which are driving digital re-design. These can be summarized as:

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- Changing customer expectations

- Tighter regulatory control

- Strong data management and advanced analytics

- FinTech start-ups causing traditional business model disruptions

- Increased pressure on costs and returns.

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Digital risk describes all the digital factors that improve risk effectiveness and efficiency. This includes the automation of processes and decisions, and digitization of monitoring and early warning. Machine learning and artificial intelligence (AI), leverage automation, connectivity and digital decision-making for a more cost-efficient, easy and fast operation.

What is meta-data credit scoring?

Our smartphones leave an enormous digital footprint with tens thousands of data points that can be used to predict the behavior of the borrowers and their likeliness to default. CredoLab’s algorithms use this data to consistently develops highly accurate scorecards for consumer lenders. The digital scorecard can be used separately or in conjunction with traditional methods to create a unique meta-data footprint with incredibly predictive power. The solution allows lenders to gain greater control over their lending decisions, vastly expand their pool of qualified borrowers with little or no credit history and reduce the risk. Lending has historically been and, remains, the bank’s main source of revenue, so digital credit scoring is sure to benefit the bank, whilst providing a more efficient and fairer service to the customer.

Meta-data vs traditional credit scoring

Banks are beginning to respond to the trends mentioned, with some leading banks making headway by digitizing their risk processes. Rather than using the rigid, traditional credit system, where customers frequently have to wait for weeks for loan checks to be cleared, analyzing meta-data from mobile applications can take up to a few minutes or in the case of CredoApp is performed instantly.

Billions of people don’t have access to mainstream financial services, but the traditional approach requires them to have credit history creating a paradoxical vicious circle. Behavioral analytics in the traditional credit scoring system treats these individuals unfairly, and many are overlooked when it comes to getting a loan. Many companies are now focused on the method of “big data, small credit” (BDSC) – which often uses meta-data – to collect a wide array of alternative data to empower every customer.

Big data, small credit

So, what’s the impact of the digital revolution on consumers in emerging markets? Big data tools are transforming the credit-scoring industry, but there is no single rule to predict a borrower’s likelihood of repayment. Until recently, lenders and underwriters faced technological constraints that limited their ability to collect, store and analyze data about prospective clients. Increasingly, however, credit scorers are able to take advantage of a wide variety of non-traditional data, including information collected from social media, consumer’s retail spending histories and other data points obtained from public platforms. Availability of such data, comes at a time of growing demand for rapid access to financial services by those who have previously been overlooked by lenders due to a lack of formal credit history.

The rapidly growing digital footprints of people in emerging markets are enabling innovative lending startups, like CredoLab, to assess consumer risk instantly, easily and amazingly accurately in order to offer affordable loans to those who weren’t previously deemed creditworthy simply because of lack of data. The Omidyar BDSC Report found that BDSC services have the potential to help 325-580 million people gain access to formal credit for the first time, in the world’s six largest emerging economies – China, Brazil, India, Mexico, Indonesia and Turkey. 

With consumers at the heart of the digital risk transformation, the report found that consumers care most about trust, transparency and data standards. Meta-data credit risk management will be the new norm in a few years’ time, so banks that are able offer this service now will enjoy a huge competitive advantage.

As a consumer lending start-up, CredoLab enables lenders to reduce risk, increase operational efficiency and enhance profitability, all through their proprietary mobile application, CredoApp. CredoApp uses a completely anonymized digital footprint from a customer’s mobile phone to help financial organizations make better credit decisions and tap into the enormous market of the unbanked population. 

If you want to expand your business, lower your risk and serve the huge under-banked and unbanked population, and are keen to learn more about how our CredoApp solution can achieve that, drop in a word and we'll get in touch.