The new-to-credit customers getting into the known credit system broadly consists of two groups including youthful, digitally native sector along with the unorganized sector that includes micro, small & medium enterprises which have already started shifting away from the unrecognized or unofficial credit segment.
A rising number of new-to-credit clients
Credit information companies have only been authorized for collecting credit data from the banks so as to form the client’s credit score. However, due to the deficit of credit history of the new-to-credit sector makes it hard for the credit bureaus to score the mortgagors.
Credit bureaus have observed an alteration within the consumption patterns coupled with the discretionary expenditure of consumers. For instance, there is a significant rise been noticed in loans for consumer durables as well as a small number of personal loans, amongst others.
As per the data of information services company Experian India, more than 40% of the loans for consumer durables now taken by new-to-credit clients. The micro, small & medium enterprises sector has also seen an elevation in the number of new-to-credit clients’ mortgagors owing to their rising formalization as well as financial inclusion. Further, recent data by credit information company TransUnion CIBIL states that the number of new-to-credit borrowers augmented by almost 73 percent only within the first half of 2018.
A requirement for an Alternative Data Source
Credit bureaus suppose that the credit information companies require accessing an alternative data source so as to evaluate the creditworthiness of those individuals who probably not yet have any footprint in the organized credit segment.
According to an expert, the last decade has seen the entry of almost 300 billion Indians in the organized financial credit system; moreover, the retail industry only has seen an increase of approximately 30%. All this is an indication of massive potential in the integrating technology along with the backend processes including the processing of loan and credit underwriting. Furthermore, leveraging technology can widely assist money mongers to not only target over-improved growth in terms of lending but also to enhance the quality of credit management by the fintech companies.
Also, the Indian credit reporting system is in line with the practices all across the globe, ought to let the credit information companies evaluate all the non-lender information that is essential for determining the creditworthiness of mortgagors, for instance, insurance premiums, utility bills, and other related data. Currently, there are nearly four companies dealing with credit information across India i.e. Experian, CIBIL, Equifax as well as CRIF Highmark.
Analyzing Custom data
Officials at credit bureaus believe that the rising requirement for alternative data sets, the difficulty of assessing the creditworthiness of new-to-credit clients as well as the swift growth in online lending has led towards the growing demand for analyzing the custom data.
Moreover, over the spell of several years, the acceptance, as well as understanding of analytical models, has been improved within the industry. Nowadays, credit bureaus provide analytical solutions to novel customers, also for new difficulties in their business. Besides, analytics is no longer restricted to risk modeling. There are even more superior use cases such as complete lifecycle management of the customer or else supply chain management. Moreover, these bureaus have started investing in advanced skills including; machine learning so as to elevate the accuracy & analytical power of the models.
Alternative Data Associations
Even though credit bureaus have been continuously pushing for the access of alternative data sources, but there has been no development up till now I this ground. Therefore, bureaus are compelled to structure multiple associations so as to leverage alternative data.
Equifax- India has got a separate analytics firm known as Equifax Analytics with the help of which it usually enters into associations with the fintech companies. Recently, it has entered into 2 alternative data associations with the fintech company Account Score in order to offer the asset side data of customers as well as with the payments gateway company PayU so that it can offer online transaction data of customers, but both only after the consent of the customers.
Aware of her elements, Neha writes the best articles across industries including electronics & semiconductors, automotive & transportation and food & beverages. Being from the finance background she has the ability to understand the dynamics of every industry and analyze the news updates to form insightful articles. Neha is an energetic person interested in music, travel, and entertainment. Since past 5 years, she written extensively on sectors like technology, finance and healthcare.
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