More than 2.5 billion 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 15.6 million people still don’t have an access to loan services and 51.1 million consumers are considered underbanked, according to Global Findex. The reasons among others are the lack of a credit history and poor credit rating.
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 — lenders provide a loan to a person without a credit history quite reluctantly, so a customer is not able to start it. Banks usually approve loans just for the third of unbanked, — and lose a significant part of their target audience. According to World bank, the largest part of unserved are people from 25 to 64 years old, mostly poor who live on less than $5 a day, 35% are urban residents. The majority (59%) of this population found in low- and middle-income emerging markets, which are fast-growing and lucrative but not easy because of higher risk, national specifics, and local regulations.
Banks solve this problem spending money on markets research, simplifying a bank account opening procedure, and trying to come up with alternative ways to assess a credit score. The recent hype of neural network offered the market one more tool — a mobile phone. In the Southeast Asia (in such countries, for example, as Cambodia and Myanmar), the fintech start-up MicroMoney (founded in 2015) now provides micro-financing services for people with an empty credit history and assesses the potential borrower’s score rate based on data collected from the person’s phone. A customer should download the mobile application and sign the processing of personal data agreement. ”A phone can tell a lot more about customers than they agree to tell by their own. Moreover, an access to a mobile phone will give more diverse and reliable information than a passport or other papers can,” says the founder of MicroMoney Anton Dziatkovskii.
The process is quite simple for a lender: the Big Data platform drives all the data received from the phone through neural networks, analyzes the result, and evaluate a customer’s trustworthiness. Eventually, a client gets his credit services with no collaterals required. That is completely new for Asian countries where a customer should bring at least five certificates including the property owner’s letter.
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. Many financial companies learned to use alternative ways to explore it. 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 fintech market.
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. So, in Kenya, for example, financial service M-Pesa lets customers store, transfer and send money via simple text messages and one of Barclays’ services allows customers to use an app to open accounts, apply for loans and receive funds. Secondly, this is a higher popularity of smartphones above laptops and computers. Finally, it’s practically equal capabilities of smartphones’ and PCs processors and features along with significant progress in financial services mobilization, cloud services, and Big Data systems to analyze all these data.
Clear and full information about a person based on the analysis of a customer’s card operation and purchases (from payment via Apple Pay to Amazon orders and searches), career (e.g. from job portals and social media), interests, social networks accounts (confirming that this particular person is real), 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 Dziatkovskii says.
The forecasts for such software looks interesting as financial companies are able to reduce their risks to enter Asia, Africa, and the Middle East markets. This may cause lending rates decreasing and higher competition for 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.), because wages in cash are natural for emerging markets.
MicroMoney is a fintech company but introduces as a charity organization in some way as its goal is to give a chance to 2.5 billion of underbanked to become a part of banking economy, to start small businesses, and to get medical care and education.
