In the popular science bestseller, Sapiens: A Brief History of Humankind, Yuval Noah Harari argues that “today, most money is just electronic data. The sum total of money in the world is about US$60 trillion, yet the sum total of coins and banknotes is less than US$6 trillion. More than 90 per cent of all money – more than US$50 trillion appearing in our accounts – exists only on computer servers”.
He goes on to articulate how, “thanks to money, even people who don’t know each other and don’t trust each other can nevertheless cooperate effectively”.
Yet, this pandemic exposed the huge gulf in how individuals and businesses have access to this money or, as he puts it, “electronic data”.
The consequences can be severe and far-reaching – affecting an individual’s education, social security, health, housing and a business’s ability to merely survive, let alone grow.
At the recently concluded Singapore Fintech Festival, I had the privilege of being a part of a panel discussion focused on the impact of financial inclusion in South-east Asia, along with representatives from Mastercard and Grab.
The conversation focused on the growing need for increased access to financial products and services regardless of an individual’s economic situation, how to negate the significant imbalances that exist in the South-east Asian markets, and the role that alternative data can play in alleviating this situation.
Today, financial exclusion is a result of having little to no credit history or identity information that render a large majority of the people in our region, “credit invisible”.
Lenders consider this population category as “high risk”, resulting in higher borrowing costs when they require credit the most. This form of confirmation bias and cognitive dissonance needs to change.
In the view of Winnie Wong, Mastercard’s country manager for Vietnam, Cambodia and Laos, most lending products are geared more towards the needs of larger businesses. “SMEs/MSMEs primarily deal in cash and do not have robust book-keeping, resulting in a lack of adequate cash flow data which form a critical part of the credit assessment process,” she noted.
“However, there are pathways to credit that can be created by unlocking the potential of alternative data. Underwriting models that include alternative data can increase lending volumes, approval rates, lower interest rates and improve accuracy of default predictions, thereby opening up access to financial services for many.”
Ms Wong spoke during the session on how achieving financial inclusion requires providing easy and equitable access to financial services and also creating a guided journey to financial security for consumers and businesses of all sizes.
Ensuring that money (electronic data) does not discriminate
Today, these individuals and small and medium-sized businesses (SMEs) are largely overlooked due to ineligibility issues rather than their ability to repay the debt.
Thankfully, we are seeing an increasing momentum in the region with businesses embracing the potential of non-traditional data sources to build credit scores that marry traditional financial and identity data with that from alternative sources such as telco, utility and e-commerce transactions.
Grab today empowers over nine million micro-entrepreneurs through their super app ecosystem. Ankur Mehrotra, managing director and head of lending at Grab Financial Group reinforced how the company’s mission is really to “enable social economic advancement in Southeast Asia, with simple and transparent access to credit, delivered responsibly”.
So, how does one enable seamless access to credit in our region, considering there are inherent complexities involved in managing the diversities of the different economies within our regional economic bloc? Different profiles of alternative data exists in the individual markets.
While credit penetration is a pain point, our region has a high level of digital and mobile penetration. As per the latest e-Conomy Report, “Internet usage in South-east Asia continues to multiply, with 40 million new users this year alone”.
Using alternative data and leveraging the power of digital can help build credit profiles faster, and secure customer authentication in today’s hyper-connected world. This will lead to initial access to banking, with insurance inclusion being the next natural step, and the end game being total credit inclusion.
For businesses that aspire to bring the “credit invisible” into the mainstream financial fold, there are four fundamental steps involved.
Securing the right set of data stack for each country is the first step in the puzzle.
The second step is to invest in and deploy the right analytical models to make sense of these disparate data sources.
The third step to ensure that this is digitalised and hence platforms play a pivotal role.
The fourth step, and the pivotal focus, is to getting different businesses or “data owners” to come together, collaborate and partner. Therein lies the real opportunity to make the credit economy work for all of us.
These four steps are possibly the most mission-critical constructs to help create the ecosystem that will enable the ability to harness alternate data and decode the financial inclusion gordian knot.
Businesses must come together to put the pieces together
However, if I were to pick up one decisive factor for success, it would the last point about partnerships and collaborative models. Look at how credit bureaus went mainstream and modernised to help both the lender and the borrower.
The success of that industry cannot just be attributed to how they went about collecting, aggregating, synthesising and analysing an enormous volume of data, but also to banks and consumers who were willing to part with that data. They were willing to collaborate and share.
The public sector also plays a central role in driving financial inclusion by helping to remove supply-side and demand-side barriers, create robust frameworks and infrastructure.
There is also increasing regulatory comfort and acceptance in the use of alternative data. For example, the Monetary Authority of Singapore (MAS), with the launch of Veritas, has put in a framework for financial institutions “to promote the responsible adoption of Artificial Intelligence and Data Analytics” to drive fairness metrics in credit scoring and customer marketing.
Another key movement is APIX – an initiative of the Asean Financial Innovation Network, a not-for-profit entity that was jointly formed by the MAS, the World Bank Group’s International Finance Corporation and the Asean Bankers Association. It is a global, open-architecture platform that supports financial innovation and inclusion in Asean and around the world.
Leveraging these initiatives and adding and adopting new sources of data would strengthen our collective understanding of one’s financial position and help us to make more insights-driven lending decisions.
Businesses and consumers will also be motivated to share more data that will, in turn, benefit them, making mainstream financial products more accessible and affordable for everyone, ensuring a fairer consumer and business experience and result in true, holistic economic growth. Because grow we must.
The need to constantly increase the ‘global pie’
Harari, in his bestseller, lays out how “if the global pie stayed the same size, there was no margin for credit. Credit is the difference between today’s pie and tomorrow’s pie”.
If there is no credit or if one finds it difficult to access credit, businesses languish, societies deteriorate and economies stagnate. Credit creates real economic growth and helps constantly increase the pie, harnessing the winds of change to everyone’s advantage.
South-east Asia’s Internet economy is expected to be on track to cross US$300 billion by 2025, according the e-Conomy Report.
To realise this growth and to transform the fortune and future of millions in the region, we need to come together and share data – in an ethical and harmonious manner, with consent, and in accordance with individual market frameworks and data privacy regulations.
That data can be our Archimedean point – an immovable lift-off point to driving financial inclusion and security in South-east Asia.