First Access featured in MasterCard Advisory Services Publication

“In developing markets, credit assessment of individuals unknown to a lender is often subjective, time consuming and expensive, potentially involving home visits by loan officers to interview applicants and their neighbors. Credit bureau coverage may be patchy or non-existent, reflective of the fact that many consumers in these markets have little or no history with financial institutions. In such environments, some lenders instead focus on cross-selling to existing customers or catering to those for whom credit history information is more readily accessible (typically, the more affluent). As a result, non- customers may be shut off from credit or face higher than necessary borrowing costs as lender costs are passed along to borrowers in the form of higher interest rates and fees. The main alternative for most in such circumstances is to borrow from friends and family…

A fundamental issue is that underwriting processes in both high income and developing markets rely heavily on financial data inputs for the consumer. For many individuals globally, these “traditional data” inputs are simply unavailable for underwriting purposes, serving as an obstacle to consumer credit and one that impedes financial inclusion in both high income and developing markets.

However, promising substitutes for traditional measures of credit risk are emerging. So-called “alternative data” from prepaid mobile-phone information, psychometric testing, social media activity and records of online transactions offer new approaches to risk assessment. Between them, they provide four distinct paths to financial inclusion: 

Mobile prepaid. An estimated 1.6 billion of the 2.5 billion “financially excluded” have mobile phones, most of them prepaid. Several risk-solution providers — Cignifi, First Access and MasterCard Advisors among them — have developed models showing that prepaid-mobile history and phone usage are predictive of ability — and willingness — to repay loans. Just a few months of mobile data for an individual can provide a sufficient sample…

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