Credit bureaus turn to data analytics to provide holistic credit scores

With the growing demand for credit from new-to-credit (NTC) customers, credit bureaus are increasingly focusing on custom data analytics and alternative data partnerships with fintech companies. The NTC customers entering the formal credit system broadly comprise two groups — the young, digitally native segment and the unorganised segment, including micro, small and medium enterprises (MSMEs), which is moving away from the informal credit sector.

Growth of NTC customers

Credit information companies (CICs) are only authorised to collect credit data from banks in order to form the customer’s credit score. But the lack of credit history of the NTC segment makes it difficult for credit bureaus to score the borrowers.

Credit bureaus have seen a change in consumption patterns and discretionary spends of consumers. For example, there has been a rapid growth in loans for consumer durables and small personal loans, among others. 

According to information services company Experian India, nearly 40 per cent of the loans for consumer durables now go to NTC customers. The MSME segment saw an acceleration in the number of NTC borrowers due to their growing formalisation and financial inclusion. A report by credit information company TransUnion CIBIL says the number of NTC borrowers rose by 73 per cent in the first half of 2018 over the previous year. 

Need for alternative data sources 

Credit bureaus believe that CICs need access to alternative data sources in order to assess the creditworthiness of those who may not yet have a footprint in the formal credit sector. 

“In the last decade 300 million Indians have been included in the organised financial credit system where the retail industry has seen a growth of 30 per cent. This indicates the massive potential in integrating technology with back-end processes such as loan processing and credit underwriting. Leveraging technology extensively can help lenders to not only target higher growth in lending, but also improve the quality of credit managed by financial institutions,” said Harshala Chandorkar, COO, TransUnion CIBIL. 

She added that the credit reporting system in India, in line with practices across the world, should allow the CICs to access all non-lender data useful for determining the creditworthiness of a borrower, such as utility bills, insurance premiums and so on. Currently, four CICs operate in India — CIBIL, Experian, Equifax and CRIF Highmark.

Custom data analysis

Officials at credit bureaus said that the growing need for alternative data sets, the complexity of assessing the creditworthiness of NTC customers as well as the rapid rise in online lending have led to the increased demand for custom data analysis.

“Over the years, the acceptance and understanding of analytical models has improved in the industry. We are now providing analytical solutions to newer clients and for new business problems,” said Sathya Kalyanasundaram, Country Managing Director, Experian India. “Analytics is no longer limited to risk modelling. There are more advanced use cases like complete customer lifecycle management or supply chain management. We are also investing in newer capabilities like machine learning to increase the accuracy and predictive power of our models,” he added.

Adds Manu Sehgal, Business Development Leader, Emerging Markets, at Equifax, “Digital lending has a stronger need for data analytics since the lender and borrower are not meeting face to face. There needs to be verification and fraud prevention, but these borrowers often lack credit history.” 

Alternative data partnerships

Although credit bureaus have been pushing for access to alternative sources of data, there has been no progress on this so far. Hence, bureaus are forced to form multiple partnerships in order to leverage alternative data. 

Equifax India has a separate analytics firm called Equifax Analytics through which it enters into partnerships with fintech companies. It has entered into two alternative data partnerships — with fintech company Account Score to provide the asset side data of consumers and with payments company PayU to provide online transaction data of customers, both with the consent of the consumers. 

In March CRIF Highmark partnered with alternative data analytics firm CreditVidya to offer lenders comprehensive credit scores. The partnership will provide holistic data analytics to target NTC customers for banks, non-banking finance companies and credit marketplaces.

This month private lender RBL Bank expanded its existing partnership with CreditVidya, hoping to leverage the latter’s big data underwriting platform across its credit card and mobile banking apps.

Hrushikesh Mehta, Country Manager — India, ClearScore, said that credit bureaus work with fintechs in order to facilitate credit penetration. “They work together to create underwriting models based on alternative data and fintechs help to create products to serve the NTC segment in a risk-controlled fashion.”