How Alternative Data Can Help Fintech Lenders Ensure Loan Repayment

How Alternative Data Can Help Fintech Lenders Ensure Loan Repayment

Despite challenges brought about by the pandemic, credit providers across Southeast Asia are looking optimistic. The e-Conomy SEA 2021 report by Google, Temasek, and Bain says lenders across the region are regaining their confidence in 2021 after many of them decreased disbursements in the past year amid fears of non-performing loans (NPLs).


In Indonesia, the Financial Services Authority (OJK) says fintech lending grew significantly amid the pandemic, with the value of outstanding loans at IDR 26 trillion (US$ 1.8 billion) as of August 2021, an increase of 115.1% year-on-year. 


The news is a welcome development given the immense potential of digital lending services in a region where many are still financially excluded. For individuals who have little to no credit history, alternative data is transforming credit lending assessments, which we discussed in our previous article.


Boom of digital lenders in Indonesia


The Asia-Pacific (APAC) region, which is dominated by mobile-first and mobile-only users, is adopting fintech solutions at an astonishing rate based on the sheer number of finance-related apps, according to a report by apps analytics firm AppsFlyer. In 2019, nearly half of all finance apps in APAC were money-lending apps.


Indonesia ranks third–below India and Brazil–in the number of installs of finance apps from January 2019 to March 2021 with 400 million downloads, notes the same report.


Fintech solutions are not only necessary in developing economies as a way to encourage financial inclusion, they are also diverse. There are Buy Now, Pay Later (BNPL) and peer-to-peer (P2P) lending schemes to help thin-file Indonesians gain access to financial services. Fintech firms are allowing more customers to avail of affordable loans, with much consideration given to fast approvals and lessening friction in the customer journey.


Still, it’s a double-edged sword. On the one hand, fintech firms are making it relatively easier for individuals to get a loan, especially in fintech-friendly markets like Indonesia. On the other hand, they are also left vulnerable to those who have no intention of paying back their loans.


Fraud checks and challenges for fintech firms


As digital adoption accelerates, the challenge for lenders continues to grow. Alternative lenders must not only determine the capacity, but perhaps more pressingly, the intention to pay back the loan. And it has to be done in a quick, cost-effective way with minimum friction to the customer journey.


Experian’s 2021 Global Identify Fraud Report highlights the need to keep fraud checks “fast and seamless” as consumers surveyed consistently said that they would abandon a transaction if they had to wait for more than 30 seconds.


To reduce the risk of fraud, lenders need to run verification checks to know if the person is who they say they are. After all, if a person is aiming to defraud a lender, they would use either stolen or fabricated credentials—including a fake address. Experian’s address verification service helps confirm if the information given by the applicant is real and accurate.


Telco data can be powerful in detecting fraud, especially since one has to provide a phone number with any credit application. Any person intending to flee from their financial obligation would most likely use a “burner” SIM card which they use specifically for fraudulent activities.


Experian uses telco data to determine whether a SIM card exhibits real user behaviour, such as regular calling patterns, geo pings, or consistent data usage. On the contrary, a SIM card being used to commit fraud would show sporadic use, with data consumed in tight clusters, say, for only two hours at night while being inactive for the rest of the day.


A SIM card can unlock a wealth of information about a person’s intentions and can warn you about suspicious usage that warrants further investigation. To be sure, there is not one absolute, clear cut way to tell whether a person intends to commit fraud by looking at SIM card data alone. There are a number of factors at play and it is important to harness the power of alternative data to make better, more informed decisions.


Working together toward financial inclusion


Today, there are tools available to help you quickly identify whether a particular borrower has a higher propensity to commit fraud. Experian’s alternative data solutions help not only in fraud detection, but in credit scoring as well.


As a global information services company, Experian can work together with fintechs to leverage the massive potential of financial inclusion in Indonesia, helping more customers get much-needed access to affordable credit. In turn, fintech companies can maximise approval rates while lending responsibly and competitively.


Learn more about how Experian PowerScore can help you overcome the challenges of assessing your customers so you can focus on achieving your goals and delivering an excellent customer journey.


This article is part of a special blog series on financial inclusion in Indonesia.

Read full article


By Experian 12/28/2021

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