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How to Maximize Credit Risk Decisioning ROI in Latin America


December 6, 2022 | Jonathan Pryer

Balancing Approvals with Default Risk

The Latin America region continues to be an area ripe with opportunities for growth – despite the challenges faced thanks to the current economic landscape. Argentina is facing the worst inflation in the region, Colombia’s peso is falling, interest rates in Brazil have risen to 13%, and in Mexico, fewer new loans are being originated. But through the pressure of up and down economic cycles, innovation flourishes. And the expected value of Latin America’s embedded lending industry continues to rise, predicted to reach $7,106.3 million by 2029.

As is the case elsewhere in the world, fintechs in Latin America continue to thrive, offering creative ways to engage consumers and upwards of 40% of investment capital in the region last year went into fintechs. But despite the positive signs, the inflation rate across the region has predicted to average out around 8%+ in 2022 and there’s been an $8-10 billion increase in default/non-performing loans.

So how does a lender or financial services provider in the region balance loan approvals and growth with more conservative risk appetites and default risk? How can financial institutions respond to market volatility efficiently and still maintain profitability? By supercharging your risk decisioning strategy. Read on to discover how to choose the right technology to:

  • Minimize Risk
  • Power Profitability
  • Maximize Agility

How to Supercharge Your Risk Strategy

Maximizing your credit risk strategy to mitigate risk and ensure profitability, while remaining agile enough to shift as market needs demand sounds daunting. There are some critical components to consider that incorporate these needs into a successful lending strategy – and they all have to do with data, and the technology that supports a robust, streamlined data strategy.

  • Access Data
  • Analyze Data
  • Action Data

Access Data: Ensure that you have access to a wide variety of data sources and types across identity, fraud, and credit. Examples include KYC for onboarding, document verification, PEPs/sanctions, email/mobile/device data, social validation, bureau and business data, open banking and alternative data sources like rent payments, utilities, and social media. Streamline your data strategy by looking for a platform that enables all-in-one data access via a single API, allowing you to simplify your data supply chain and have all of your integrations managed through one contract.

Analyze Data: Use advanced analytics like artificial intelligence and machine learning to analyze those data sources and optimize your decisioning accuracy across the customer lifecycle. AutoML (which according to Provenir data scientists performs 7% better than Logistic Regression) can help you improve accuracy and find the right balance between acceptance and default rates to meet your risk plans more efficiently. And you can easily adjust those acceptance/default rates as your strategy adapts to changing market conditions and risk appetites.

Action Data: Use the data you’ve analyzed and take action by responding agilely and adapting easily to risk across your customer decisioning processes. Look for technology that ensures your data remains accessible by easily integrating it into your decisioning processes. Be sure your solution is scalable and can easily grow with you as your strategy expands or reacts to market conditions. And be sure the technology you choose is user-friendly – look for a no-code user interface that allows you to launch, learn and iterate without reliance on vendors or your IT team.

Ensuring Business Agility

Choosing the right technology ensures business agility, allowing you to easily adapt and respond to evolving consumer expectations (because whether in Latin America or elsewhere in the world, we all know the consumer experience is more important than ever). But even more critical than that, particularly given the economic uncertainty and market volatility we outlined earlier, the right data and decisioning technology allows you to also adapt and respond to market changes and fluctuations in demand.

Enabling business agility means that you can properly balance your business growth with risk – and re-evaluate as market conditions change. If the economy strengthens and inflation decreases? Maybe that means you can comfortably expand your risk appetite or launch new products in new markets. If the downturn continues or a full-blown recession occurs, you can easily tighten your risk tolerances further and integrate additional data sources to further optimize your risk decisions. Above all else, business agility ensures that you can maintain profitability, even in the face of market volatility.

  • Balance growth with risk: Access and analyze alternative data for deeper insights at customer onboarding and beyond.
  • Respond to market volatility: Make changes in real time and deploy updated risk strategies on your timeline.
  • Maintain profitability: Support robust decisioning and adjust your acceptance strategy as needed.

It’s clear that the global economic landscape remains uncertain and Latin America is no exception. After facing previous setbacks, including the COVID-19 pandemic and the invasion of Ukraine, the tightening of global financial conditions is another obstacle for lenders and financial services providers in the region to grapple with. As the International Monetary Fund outlines, the balancing act continues. “Monetary policy should stay the course and not ease prematurely. Setting monetary policy amid high uncertainty is challenging… and with dire social needs in the region, policies to reduce debt and deficits can only be effective and durable if they are inclusive… Getting this balancing act right is key to achieving inclusive and sustainable growth.”