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Ten Fintechs Using Alternative Data for Financial Inclusion

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October 19, 2022 | Allison Karavos

Ensuring the Underbanked and Underserved Have Access to Credit

At one point, it was impossible for people to buy things without having cash in hand, right then and there. And then dawned the age of credit. While credit has taken many forms (layaway plans and credit cards, instalment plans and payday loans, mortgages and Buy Now, Pay Later products), one thing has remained constant: to get credit, you need to qualify for it.

As fintechs and credit providers evolve, so has the way lenders handle their credit risk decisioning. A traditional credit score (based on things like credit history, payment history and debt ratio) is no longer the only way to evaluate creditworthiness – and, it naturally precludes a large number of people who may not have much of a credit history to evaluate (i.e. minorities, recent immigrants, younger consumers, the financially underserved and others who are new to credit).

This is where alternative data comes in. A broad term that essentially refers to all credit data not currently reported via traditional credit scores, this type of data strengthens a person’s ‘profile’ and provides a more robust, comprehensive view of the risk associated with lending to them. The types of alternative data keep growing, but the term includes things like rental payments, utility records, social media presence, telco data and open banking info.

Financial Inclusion and Supporting SMEs

Using alternative data and deeming more people creditworthy is clearly good for business—it means organizations can more accurately predict risk and say yes to more people and enables lenders to grow and scale their business in a way that traditional data might not allow. But there’s more to it than that. Not only is alternative data good for business, it’s good for their consumers also. Companies all over the world are finding unique and inspiring ways to use alternative data to promote greater financial inclusion for thin-file/no-file clients (also known as the underbanked/unbanked), and to support greater access to credit for SMEs/MSMEs.

While this list is in no way comprehensive (there’s just too many amazing organizations doing awesome things) – here are ten unique companies using alternative data for the greater good.

  1. Bankly – In Nigeria, Bankly helps their users digitize and grow their cash in a safe, sustainable manner. Using technology and human touchpoints to digitize cash, they are able to generate data to create a digital/financial identity, which ensures their thin-file customers gain access to broader financial services including credit and insurance. Seventy-five percent of their users identify as underbanked, including such underserved populations as farmers, market traders, artisans and transport workers who are often paid in cash and can’t easily access traditional banking services.
  2. Davinta – Indian-based Davinta is an AI-based digital platform focused on offering credit and other financial products to people living in rural areas. The company leverages data from both traditional and alternative channels to recommend tailored financial products to their customers. To date, Davinta has acquired nearly 15,000 registered users, the vast majority (12,000) of which are women. As they say, they are not just another financial inclusion enterprise, but endeavor to “create wholesome social inclusion of the larger Indian society towards equal life opportunities.”
  3. Esusu – This American company uses rental payment data to help underserved populations build credit history. Serving low to moderate income households in the U.S., their proprietary platform reports rent payments to the three major credit bureaus in the region, allowing customers to build credit and unlocking future opportunities that may have otherwise been out of reach.
  4. Fairbanc – Headquartered in the United States but operating in Indonesia, Fairbanc offers a highly-scalable closed-loop credit platform for micro-merchants, enabling them to access the supply chain and more easily purchase fast-moving consumer goods. With a focus on financial inclusion for women, Fairbanc has access to a customer base of 650,000 unbanked micro-merchants in Indonesia, with nearly 260,000 of them being women. Their AI/ML platform analyzes transaction data and history to grant instant digital credit lines; and with their ‘Pay Later’ API integrated directly into Unilever’s order-taking tables, merchants need only a basic phone to participate.
  5. Fundfina – Operating in India, Fundfina is a financial marketplace powered by open banking architecture and machine learning analytics. Focused on MSMEs, the organization partners with local financial institutions to serve more than 150,000 customers across India, who would otherwise find it difficult to access traditional credit thanks to a lack of credit history. Combating the slow, complex lending process that is typical in India, Fundfina enables thin-file credit assessments through its proprietary digital engine (they’ve developed their own credit scoring method, TrueScore, looking at transactional data and payment history), curating the most appropriate financial products and even offering cashflow management tools to promote financial literacy.
  6. First Circle – One of the first fintech companies to be licensed by the Securities and Exchange Commission (SEC) in the Philippines, First Circle was founded to empower SMEs by helping to bridge the credit gap found for small businesses in the region. With various growth programs available, revolving credit lines, and mobile-first applications processes, First Circle aims to help customers who often have no credit data or fixed collateral available, many who have been forced to work with predatory lenders in the past.
  7. Oriente – Based in Hong Kong, Oriente has built a digital-first infrastructure designed to ignite economic opportunity for unbanked consumers and underserved merchants. Using real-time alternative data and insights, Oriente enables thousands of merchants to increase conversion rates while lowering risks. Their proprietary identity infrastructure uses AI and machine learning to make it hassle-free for unbanked consumers to get digital credit, and even enables them to build their credit profile if they pay on time.
  8. Paycode – Designed for those in remote, rural areas, South Africa’s Paycode provides financial services technology solutions to unbanked citizens, using biometric data collection for identity verification and to securely authenticate banking transactions. By partnering with local financial institutions, their complete alternative banking and payment platform has been able to create low-cost bank accounts for first-time users, with over 4 million end-users across 8 countries so far.
  9. TiendaPago – An innovative fintech operating in Mexico and Peru, TiendaPago targets ‘Mom and Pop’ businesses for financial inclusion, providing closed-loop working capital financing. Their mobile-based platform uses data related to inventory purchases to assess creditworthiness of merchants, ensuring that merchants can pay distributors for the correct amount of inventory they need to adequately provide for their customers and grow their business. Merchants typically have limited cash funds available to pay distributors, resulting in higher price points for inventory and limiting sales.
  10. ZigWay – Based in Myanmar, Zigway aims to help low-income families gain more access to household essentials in an affordable way. Offering a monthly subscription service that enables households to purchase quality staples like rice and cooking oil in bulk, they provide savings of up to 20 percent for participants. Using a proprietary, machine learning-based credit scoring model, ZigWay is able to offer participants flexible payment plants. They even promote accessibility and inclusion by empowering ‘Super Users’ to help register their neighbors, request services and make payments on their behalf. To date, they’ve piloted their services with over 500 customers, delivering enough food for over a million meals.

The story of alternative data – what it means, how it’s utilized, who uses it – will keep changing and evolving as more and more fintechs and data providers find unique ways to incorporate it in their risk decisioning processes. That is, if they can efficiently access it. When we surveyed 400 fintech decision-makers globally, the stats on using alternative data were pretty staggering:

  • 60% said access to alternative data sources is limited and 74% said data of any kind is not easily accessible, while 60% found it a challenge that they don’t have a centralized view of data across the customer lifecycle
  • 70% said data not being easily integrated into their decisioning solution was an impediment to using alternative data, and 51% said it simply wasn’t accessible in their organization

But the value of using alternative data for credit decisioning is clear – not only does it enable a more complete view of your customers, it also allows for greater financial inclusion, better access to credit for SMEs/MSMEs, and it can help you grow your business in ways you may never have imagined. If you find it challenging and costly to select, access, and use the right data at the right time to make accurate, inclusive decisions, check out how Provenir Data can help. Take control of your data, all from one centralized, easy-to-access global data platform, and never worry about how to integrate alternative data sources again.