Aug 18, 2017

In most emerging market countries where credit assessment is known to be subjective, time-consuming and expensive, far fewer people have any credit history and thus have no credit score at all. This makes it nearly impossible for them to be included in the formal financial system, leaving them “unbanked”.

The World Bank estimates that about two billion people in the world still lack access to banking-type services of any description. Without the ability to obtain credit, it has created major barriers for people to overcome poverty.

Several startup lenders over the past few years have looked to use alternative data sources to help billions of creditworthy emerging market customers without access to credit. Besides the social impact, they recognized the enormous market opportunity of the unbanked population. Accenture estimates that bringing unbanked adults and businesses into the formal banking sector could generate about $380 billion in new revenues for banks.

AsiaKredit, among other startup companies, utilizes an everyday item and transforms it into an effective kind of credit scoring – and this item is our beloved smartphones. Unlike the traditional practice of banks and other lending institutions that require very tedious application requirements like proof of address, pay slips, bureau hits, etc., startup lenders have written algorithms that take into account non-traditional variables like cellphone data, social media use and the characteristic of a user’s phone to predict credit worthiness.

This artificial intelligence-powered credit scoring system opens up a huge demographics of creditworthy people not within the bureau. Considering the high mobile penetration in developing countries, it makes perfect sense to look into the mobile and social data of the unbanked sector as an alternate way of predicting their eligibility to loan.

The market truly is changing. In the future, we can expect smartphones to not only be an instrument for socializing and entertainment but also as a channel for lenders to enter into new market segments that couldn’t be served before.