How CredoLab’s Digital Data Scoring is Driving Financial Inclusion

Peter Barcak, Co-founder and CEO of CredoLab

CredoLab, based in Singapore, partners with banks and retail lenders to improve financial access in unbanked populations, through alternative data use and collation of mobile touch points

Alice sells fruits from office to office in Nairobi, Kenya, but envisions setting up her own grocery shop. She has a secondary school certificate, no credit history and minimal chance of winning approval for a bank loan to start her business.

Nonetheless, she owns a mobile phone.

It turns out that given the many day-to-day functionalities Alice, or anyone in Kenya has with their mobile phones, caries out with their mobile phones today it can truly paint a vivid picture of the person’s behaviour including whether or not they would repay a loan. How many messages does she send in a day? What kind of email apps does she use? What other apps does she have installed on her phone?

The World Bank Global Findex Database reports that close to 2 billion adults are unbanked. The problem is not restricted to emerging economies like Kenya and its Asian peers. In the United States, 45 million people do not have a credit history, according to the US Consumer Financial Protection Bureau. With hundreds of millions of potential customers, bank and non-bank lenders have begun to study this phenomenon keenly.

New approaches by Fintech companies are currently formulating alternative sets of information to better predict human behavior and their credit worthiness. CredoLab, established in 2016, in Singapore has powered almost USD 1 billion in loans issued after analyzing about 1 trillion data points across 16 countries. The company is backed up by funders such as Fintonia Group, FORUM, and Walden International. Peter Barcak, Co-founder and CEO of CredoLab exemplifies Alice’s story on an exceedingly numerical line of work.

CredoLab develops digital scorecards for banks, consumer finance companies, auto lenders, online and mobile lenders, insurance companies, and retailers from smartphone device metadata. Their technology crunches over 1 million features from opt-in smartphone metadata to find the most predictive behavioural patterns before converting them into credit scores. These enable any lender to make the most granular assessments possible of their applicants. “With an aggregate of 16 million application downloads, our clients have seen 20 per cent higher new-to-bank customer approvals, up to 15 per cent reduction in non-performing loans, and up to 22 per cent dip in fraud rate,” says Barcak in an exclusive interview with StartUp Magazine.

You need a credit score to participate in an economy, but what about people who are new to credit and banking? How do they get a credit score? How can they start a business when they can’t borrow money to do so?

A fair percentage of people in emerging economies remain neglected by the financial sector and are invisible to lenders because of a lack of comprehensive data for risk assessment, says Barcak adding that, “Traditional credit scoring is simply inadequate and cannot capture new entrants of people who are migrating into middle income. As a result, options for the underbanked are limited, and many turn to informal money lending with excessive interest rates.”

Among the underbanked, the absence of transactional data such as bill or credit card payments prove to be a challenge when it comes to credit-scoring. Since there is no transactional data to indicate the ability of underbanked users to make loan repayments, Credolab measures the users’ willingness to repay with their mobile phones as proxy. “Nearly everyone today is using a mobile phone. It is a rich source of information that can be used for predictive analysis,” explains Barcak.

CredoLab develops a digital credit score card based on user’s mobile metadata. However, personal identifiable information is not used in assessments. “The idea is to preserve the privacy of users and we only access data for the sole purpose of accessing their credit worthiness,” Barcak clarifies.

Having spent more than 18 years in the banking industry trying to understand the risk nature of customers prior to setting up CredoLab in 2016, he says that financial institutions struggled to assess customers’ credit worthiness with traditional data points.

Alternative credit scoring is a great way to introduce new customers to the credit and financing landscape. “Increased penetration of mobile phones perhaps means that many people have digital footprints that can be harnessed and increase their potential to responsible access of loan products and good pricing.”

The firm works with banks and non-bank lenders to improve financial inclusion and access to credit for consumer and small businesses left out of the traditional financial system. “Banks and other lenders can integrate into our systems and draw customer insights in a secure, transparent and cost-effective manner, keep their risk minimum and check fraud. Our solutions which can be accessed within seconds enables lenders to make faster credit decisions. This gives them comparative advantage over their peers in the market,” says the executive.

Credit scoring has moved beyond the traditional ways of doing things to include understanding and interpreting consumer behavior through a combination of traditional and smartphone data points. “This is a new trend and we see it as a huge opportunity for credit bureaus as well. We are looking to engage with credit bureaus and develop augmented credit decisioning by making use of traditional data scoring and our next generation of digital data analysis so that they can increase the quality of data for their clients,” reveals Barcak.

The firm which recently launched its operation in Kenya, has set eyes across other emerging markets on the continent and is lined to drive financial inclusion by scoring more people, especially those who are new to banking and credit.

Despite its impressive growth, the CEO admits that some markets are very slow and conservative in adopting new innovations. “Getting a contract done can sometimes take longer than we had initially projected. Fortunately, this is changing as banks and other financial sector players are looking for new ways of doing things efficiently and effectively which is our selling point.”

Going forward, he projects that the penetration and use of mobile phones will grow significantly and open the industry to many opportunities. “We had that projection when we started up and I can confidently say that we are on the right path. Mobile phone usage has increased significantly presenting us with a substantial source of data collection to draw consumers insights.”

Ultimately, CredoLab hopes to make use of digital data scoring solutions to drive real economic growth across many verticals. “We are looking to diversify our clientele. You will see a lot of companies in e-commerce, online booking, ride hailing, travel, insurance or retailers leverage on our analytics solutions as a service for them. We are not going to simply score customers for credit risk assessment, but analyze customer behaviours and match them with insurance products and banking products so that the large database owners can monetize the data,” he ends.