The secret sauce of banking the underbanked
The borrower’s market has changed over the course of our history. Traditional lenders have been swapped by better infrastructure who standardized interest rates with guidelines. Globally, the first stage of lenders were local moneylenders. Under their reign, interest rates skyrocketed with severe repercussions in cases of bad debt.
The next generation saw the formalization of lending where banks started underwriting loans against collaterals and proper background checks. This infrastructure sustained for years before the next generation of lending came into place.
The digital lenders providing digital financial services (DFS)
It is the era we’re living in today. Digital lenders identified the missing links in the banking industries of emerging markets:
These new to credit segments can constitute anybody who has never taken a loan from a formal institution be it, a 22 years old millennial in a cosmopolitan city such as Kigali or a single mother of three selling vegetables at a local market of Nigeria. It can also be SMEs and MSMEs whose unmet need for credit in developing economies amounts to almost USD $8.1 trillion or about 40 percent of GDP.
Digital lenders can approve and disburse loans to this segment of the market within seconds. However, it takes an army of industries, new gen technology and enormous amounts of data variables to make this possible.
Yabx has been operating in 20+ developing markets across different time zones by building a robust, multi-dimensional infrastructure, and we believe the following is the secret sauce behind successfully banking the underbanked:
“Almost 60% of banks and credit unions entered into at least one fintech partnership over the past three years, according to?Cornerstone Advisors. The average number of bank/fintech partnerships per year doubled to 2.5 in 2021 from 1.3 just two years earlier”
2) ML running over 10000+ features and variables: AI/ML run on alternate data sets and scoring engines build detailed financial identities by running over thousands of features and variables. These automated algorithms build financial behavioral models that help us detect risks and fraud. It also builds personalized financial products for each borrower so that we promote financial inclusivity while ensuring less bad debt.
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Our digital loan products range from $15 to $500 and can be used for payment of utility bills, school fees, smartphone finance, SME credit, etc., These loans are extended based on individual credit scores, determined by leveraging advanced analytics.
We already have mentioned two of the main ingredients that go into building a financially inclusive product. However, the secret sauce is what’s coming next:
3) A Universally Adaptable Platform: A platform is the single meeting point for all the factors mentioned above ranging from the bank, to our partners and finally the end customers. A platform that can run on any channel of communication is the most innovative aspect of a fintech product.
The entire process of customer origination and servicing should be adaptable on any channel that exists on the planet be it the bank’s own digital banking app, website, embedded options in third-party apps and even on USSD- the channel that only supports the evergreen superstar- SMS.
The smartphone penetration in Africa is anywhere between 30 to 35 percent, depending on certain geographies. Owing to the lack of smartphones, 90 percent of the origination and fulfillment of loans in Africa is executed through the unstructured supplementary service data (USSD) channel. This is how our journey begins with the customer and, we gradually upgrade them to smartphone users.
-Akash Pandey, AVP at Yabx
Conclusion:
So, a quick TL;DR
1.?????Strategic Partnerships
2.?????Automated Algorithms
3.?????A Universal Platform
Reducing operational costs and time by leveraging alternate digital footprints and running automated algorithms on a universally adaptable platform (with smart human minds, ofc) is what we need to attend to the essential need of banking the unbanked.