In an increasingly digital world, the Internet’s growth leaves traces of simple and easy-to-access information about almost everyone in the world—traces that many label as “digital footprints.” Even without writing content about oneself, providing social network data, or uploading financial information, the simple act of accessing or registering on a webpage leaves valuable information about an individual—to the point that it can be used for an innovative way of determining the creditworthiness of an individual.
In other words, the world is becoming more and more open to the opportunities presented by digital credit scoring.
What is Digital Credit Scoring?
Digital credit scoring is a technology that allows instantaneous loan approvals and disbursements—often backed by alternative data. Data collected from digital channels can be used to evaluate and rank potential borrowers to determine their likelihood of repaying a loan. As the adoption of digital mediums in the Philippines increases with each passing day, alternative data such as telco data can be an invaluable source of information for unbanked citizens who wish to apply for banking products.
In the Philippines alone, out of a total adult population of 72 million, the number of unbanked adults is estimated at 51.2 million. This means up to 71% of Filipino adults don’t have access to loan or banking products.
Digital credit scoring can then help financial institutions determine the creditworthiness of such individuals. Moreover, the use of digital scoring can be combined with traditional data to accurately predict consumer behavior and their ability to repay the loan.
As a simple example of digital credit scoring in the Philippines, telecommunication providers capture various data points on telco usage and trace information related to call destinations, top-up patterns, voice and mobile data usage, duration of calls, and other types of data. When all of these factors are analyzed together with other consumer data like bill paying history, they can provide a comprehensive picture of an individual’s creditworthiness.
Benefits of Digital Credit Scoring
With more and more consumers using smartphones and spending more time online, it’s inevitable that creating unique scorecards based on their digital footprints will become the innovative way for credit scoring. Here are just some of the benefits that digital credit scoring can offer to banks, lending companies, and other financial institutions.
Accurately assess borrowers for various credit products
Traditional scorecards leverage an individual’s salary information and data from sources such as utility bills and credit bureaus to assess creditworthiness. Even when all of this data is readily available, it doesn’t paint a complete and accurate picture of a borrower’s intent and ability to pay off loans.
Digital credit scoring uses telco data built on over 400 various telco variables to evaluate credit applications. As a result, they are predictive in assessing a customer’s ability and willingness to pay, making it easy for companies to offer loan products to more customers—even those with seemingly thin credit histories. In this context, telco usage can be a great indicator of a person’s lifestyle and economic activity. A user with a prepaid SIM card who makes regular phone calls and uses large amounts of data is an indicator that the user has enough money to recharge their plan, and that their income is sufficient to maintain their daily smartphone habits.
Boost customer experience
For many consumers, credit scores are unclear data points, which makes it hard for them to understand the factors on which their creditworthiness is judged. With digital credit scoring, banks look at numbers and data, providing an objective look at predicting insights into borrower behavior.
Financial institutions can also leverage digital credit scoring to verify the authenticity of the information provided by applicants without requiring physical investigation. This significantly helps in reducing loan or credit processing time.
Serve the unbanked and underbanked
Digital credit scoring is a solution that makes credit lines for the unbanked faster, easier, and credit worthy. While the common and traditional way of evaluating creditworthiness is through an individual’s credit history, this is simply not possible for the unbanked. They rely on cash, do not have a traceable financial history, and have thin credit files.
Therefore, banks can turn to digital credit scoring where they can analyze various behavioral attributes. This digital scoring system also relies on factors that are easily traceable and available for everyone—the phones they use, the behavior of customers with their telco operators, and social media data. In time, the digital credit scoring method can turn unbanked individuals with non-existing credit files into regular bank clients.
FinScore: Leading the Rise of Digital Scoring in the Philippines
Understanding the importance of digital credit scoring for consumer lending is of significant importance, especially in developing countries such as the Philippines. This is a vision that FinScore has had since the beginning of our company and we are still dedicated to transforming the way credit scoring works in the country by promoting the use of alternative data for credit scoring.
FinScore is an alternative credit scoring company powered by advanced analytics and telco data. Our digital credit scoring models help banks, lending companies, and financial institutions increase approval rates, providing innovative scoring solutions that benefit both companies and consumers.
For more information and inquiries about our digital scoring tools, don’t hesitate to contact us today.