Good morning to you all. My presentation today is about advancing credit services through the application of credit bureau technology. I hope you will enjoy this presentation. I know the following slide does not have anything to do with credit technology, but its just some humour to show just how great technology is.
Technology is the application of science or knowledge to commerce and industry, and is present everywhere...even right here in this room, for example our cell phones...and even in animals and animals life.
I would like to start off my presentation by linking what is being discussed when the G20 countries summit meetings to Credit. This is that financial inclusion is high on the G20 development agenda. Read off from slide...
It suggests that the overriding reason for all this, is to expand financial services. Since 2,7 billion people do not have access to basic financial services. The map shows percent of households with a deposit or loan account in an institution (banks, savings banks, MFIs). Just look at the sub-saharan region that we are familiar with – only 12% of the people have access to financial services. Even the Middle East and North Africa only has 35% access.
Lack of access to financial services provides huge opportunities to us all in this room, however when we want to advance financial inclusion, it should be done responsibly and responsibly is the key to successful and sustainable initiatives. Read off slide...
Lets have a look at some of these technologies that can be used to increase access to finance. Technology in banking and credit is no longer the stuff of science fiction. Modern technologies used in credit i.e. Computers, software, data, information, analytics, scoring allows credit to be underwritten, approved and paid out in minutes.
Modern technologies allows credit services to use a diverse range of delivery channels. Let have a look at some of these. The internet make for a great delivery channel for credit services. In the entire African continent, there are 100 million people online this year. The grow of people online in Africa have grown by roughly 2300 percent from the year 2000.
Credit services via ATMs.It is estimated that here are currently over 1.8 million ATMs in use in the world, however, we have yet to reach high numbersin Africa. But none the less, it still makes for a great credit services delivery channel, especially for South Africa, where we have a high number of ATMs.
Point of sales devices are much more widely used than ATMS. And are great delivery channels. Certain countries have dramatically increased the number of point of sales devices, this year especially, such a Kenya. Think this was in anticipation of increased tourism due the 2010 world football cup. POS of sales devises are every where - in urban and rural areas.
Millions are part of the telecommunications grid – using mobile telephone technology creates a new opportunity to increase outreach cost effectively. Africa, is currently the fastest growing mobile phone market in the world. And over the past five years the continent's mobile phone usage has increased at an annual rate of 65 percent - twice the global average. And is still growing. There are ongoing investments in this area in Africa. South Africa is close to a 100% concentration rate.
To Address The Needs Of The Unbanked And Underserved Individuals And Firms, Financial Inclusion Needs To Be Holistic. We need to provide provide the correct mix of products, features and channels. Read off slide...For the rest this presentation we will focus on credit bureau technologies, which from part of the required financial infrastructure to be able to increase access to financial servcies.
Information On Individuals And SME’s Are Core To Credit Bureaus.The information can be classified into three segments. First Traditional data - loan/repayment, public record and credit inquiry. In SA this is pooled credit agreements from the CPA and NLR, judgments, debt restructuring, and previous enquires done by members of the credit bureau.
Raw credit data can be very useful in, however, the lender needs significant time, resources, and expertise to analyze and interpret the data. Credit bureaus use various techniques and technologies to create value added services, ranging for risk scores to software for automated underwriting. These valued added services enables lenders to make use of the various delivery channels (internet, POS, ATMs, mobile phones, etc). These value added services mirror the credit life cycle adopted by most lenders when managing customers. Read off the slide – the credit life cycle and the VAPs...
In the next few slides, I am going to go deeper into some of these VAPs. Starting off with the Credit Bureau Risk Score . The key advantage of credit bureau scoring is the bureau’s ability to establish a quantifiable measure of risk in what is otherwise a highly subjective process.Read off the slide...
Key driver of profitability in mass market lending environments, such as consumer loans and credit cards, is the ability to keep the cost of new business acquisition to a minimum. Many financial institutions have turned to automated application processing systems as a means of streamlining the credit-granting process. Many examples of such systems exist, but the common design incorporates several fundamental features: Electronic Data Capture, Decision Rules Engine, and Decision output.
Monitoring and maintaining credit quality is a task that all lenders undertake but one that has taken on more prominence in recent years with the introduction of Basel II. Even without the requirements of Basel II - Monitoring and maintaining accounts is an important task. Typical VAPS provided by credit bureaus for account management includes...Read off slide points 1-3...
I'm going to go deeper into one of the technologies to do with account management – to do with monitoring. This is what we called an Event Driven Notification Application. Read off the slide...
Credit bureausprovide varioustechnologies for collections. Read off the slide...
Biometric fingerprint technology is become more widely used in credit services as it can provide secure automated methods confirm an identity based on unique physical or behavioural traits. Just to point out how we have applied this technology....We have Biometric fingerprint technology is used as part of our loan administration software to indentify borrowers when underwriting loans. Users of the software are also identified via Biometric fingerprint technology and for our business in Uganda - biometric fingerprint technology is used to indentify all the borrowers in that country and it is also linked the credit bureau files.
I am almost done...the next 2 slides give information on who Compuscan is and what we do...read off the slide...
I hope you enjoyed this presentation, and that you are successful in increasing outreach, and booking many more customers...but remember to do it in a responsible method so that it is sustainable. Thank you.
Advancing credit services through the application of credit bureau technology
Advancing Credit Services Through TheApplication Of Credit Bureau Technology ByFrank Lenisa, Marketing Director, Compuscan
Financial Inclusion Is High On The G20Development Agenda G 20 Pittsburgh Summit communiqué September 2009 We commit to improving access to financial services. We will up scale successful models of small and medium enterprise (SME) financing G20 Toronto Summit communiqué June 2010 We have launched the SME finance challenge fund G20 Korea Summit November 2010 Financial inclusion one of the key items on the G 20 development agenda Financial inclusion is to be framed as an multi-year commitment
2,7 Billion People Do Not Have Access To Basic Financial ServicesSource: WBG Financial Access 2009. Map shows percent of households with a deposit or loanaccount in an institution (banks, savings banks, MFIs)
Advancing Financial Inclusion In A ResponsibleFashion Will Be Key To Successful AndSustainable Initiatives UNIQUE OPPORTUNIITY TO MAKE PROGRESSSS 1. Financial institutions have the Financial inclusion interest and incentives to strengthen- Creates the demand for responsible finance to be their contribution to economic growth delivered responsibly through financial access and responsible financial products and services. 2. Memory of the financial crisis is still fresh and working on (re) building accessible and responsible financial systems is critical Responsible finance - Financial inclusion and responsible finance are 3. International community interest to complementary goals . Responsible finance address these areas is high: G-20 contributes to financial inclusion by enhancing trust Communiqué on Financial Inclusion and strengthening competition 4. Technology provides opportunity to increase outreach like never before
Advantages Of Technology – Credit Services InMinutes
Advantages Of Technology – Credit Services ViaThe Internet
Advantages Of Technology – Credit Services ViaATM Cash where you need it, when you need it Apply for you loan now – its easy – payout within minutes
Advantages Of Technology – Credit Services ViaPOS Terminals
Advantages Of Technology – Credit Services ViaMobile Phone Millions are part of the telecommunications grid – using mobile telephone technology and creating a new opportunity to increase outreach cost effectively
To Address The Needs Of The Unbanked And Underserved Individuals And Firms, Financial Inclusion Needs To Be Holistic KEY DIMENSIONS OF FINANCIAL INCLUSION PRODUCTS FEATURES CHANNELS• Payments (ATM/debit • Affordability (costs, • Access points: Banking cards, government minimum requirements, beyond branches payments, remittances, e- fees) payments) Savings (savings • Financial Infrastructure: account, checking/current • Availability and Payment and settlement account, pensions, youth Convenience (days to systems, credit reporting, savings, program savings) complete transaction, collateral registries documents required,• Insurance (life, health, physical proximity) • Institutions: banks / property, micro insurance, nonbanks, insurance agriculture) • Quality (price companies, pension funds, transparency , fair credit cooperatives, MFIs• Credit (personal, consumer, disclosure, responsible credit card, education, finance practices, risk • Clients: everyone who mortgage, home management and has the demand for the improvement, assessment with inclusive services, including the microenterprise) credit information systems) underserved poor
Credit Bureaus - Critical Financial Infrastructure Credit bureaus are part of a set of institutions make up financial infrastructure that enable effective operation of financial intermediaries Credit bureaus collect information on a borrowers credit history from various sources including financial institutions, non-bank lenders, telecoms, courts and other sources. The information is then merged and analyzed to form a comprehensive credit history record for each borrower and is sold to lenders in the form of credit reports or credit scores Research has shown that credit bureaus are critical to the expansion of credit for both individuals and small businesses, since access to credit information is needed when applying modern financial technologies to credit decisions for these market segments
Information On Individuals And SME’s Are Core ToCredit Bureaus Traditional data - loan/repayment, public record and credit inquiry Non-Traditional - obligation/repayment from essential services Public Utility Telecommunications Insurance Alternative Data - typically maintained and offered by a trusted third party Property Fraud Electronic payments and other credit & public record information
Value Add Services From Credit Bureaus Raw credit data can be very useful in, however, the lender needs significant time, resources, and expertise to analyze and interpret the data. Credit bureaus use various techniques and technologies to create value added services, ranging for risk scores to software for automated underwriting.
Credit Bureau Risk Score The credit bureau risk score is built from a broad spectrum of customer histories found in credit bureau data database It is based on the information pooled across many creditors as well as public information sources and thus include characteristics otherwise unavailable to the individual lender, such as total exposure, number of outstanding loans, and previous defaults within the system. All of these are highly predictive measures of future repayment. The score consolidates the information in the credit bureau and delivers a simple, intelligent guide to assess the credit risk of new and existing customers The score provides a numerical value on the credit risk of a borrower, which predicts future repayment probability The score is delivered in credit reports or delivery electronically into lenders scoring systems or automated software applications
Application Processing Software A key driver of profitability in the lending environment is the ability to keep the cost of the new business acquisition to a minimum Many financial institutions have turned to automated application processing systems as a means of streamlining the credit granting process, through many delivery channels Common designs of these systems incorporates the following fundamental features: 1. Electronic Data Capture 2. Decision Rules Engine 3. Decision output Advanced decision systems are capable of managing almost all aspects of the decision- making process, including customer segmentation, model building and strategy allocation, etc.
Electronic Data Capture Typically an application processing system has a series of standardized data capture screens. These screens allow the operator to capture the information necessary to process the decision and, perhaps more importantly, store the customer data in a format that can later be used for analysis.
Rule/Scoring Engine A rules based decision engine captures the application data electronically, then the software automatically applies policy rules, such as minimum required lending criteria, and scoring algorithms, including score cut-off criteria.Rules: Product 1: Product 2: Product 3:Shamwari > =1 Decline Decline DeclineUnder administration > -1 Decline Decline DeclineCollection > -1 Accept Accept DeclineJudgements > = 2 in last year Accept Decline DeclineAdverse > = 1 in last year Accept Accept DeclineWorst month in arrears > = 5 in last year Accept Accept DeclineCompuScore > = 680 Accept Accept AcceptCompuScore > = 655 & < 680 Accept Refer DeclineCompuScore = 0 or null Refer Refer ReferDisputed report > =1 Decline Decline DeclineDebt Restructuring> =1 Decline Decline DeclineID Unverified > =1 Decline Decline Decline
Decision Output An automated application processing system assimilates all of the input data and presents the operator with a recommended course of action, such as accept, refer, or reject C O D IX - C R E D IT D E C IS IO N M A T R IX OUTCO PRODUCTS REASONS ME 1 M O N TH LO AN A P P R O V E D F O R F U R T H E R P R O C E S S IN G 2 M O N TH LO AN A P P R O V E D F O R F U R T H E R P R O C E S S IN G 1 S T 3 P A Y M E N T P R O F IL E S N O T P A ID O N A N Y C C A A C C O U N T . H IG H 3 M O N TH LO AN A R R E A R S A N D P O T E N T IA L F R A U D . U N D E R A D M IN IS T R A T IO N . U N D E R C O L L E C T IO N . L IS T E D A T T H E 6 M O N TH LO AN S A F P S A S A P O S S IB L E F R A U D P E R P E T R A T O R . H O M E A F F A IR S H A V E T H E ID N U M B E R . A F F O R D A B IL IT Y . U N D E R A D M IN IS T R A T IO N . U N D E R C O L L E C T IO N . L IS T E D A T T H E 12 M O N TH LO AN S A F P S A S A P O S S IB L E F R A U D P E R P E T R A T O R . H O M E A F F A IR S H A V E T H E ID N U M B E R . A F F O R D A B IL IT Y . The degree of complexity of such software solutions varies depending on the technical sophistication of the user. Advanced decision systems are capable of managing almost all aspects of the decision- making process, including customer segmentation and strategy allocation (e.g., terms, limits, and product features) and even champion/challenger strategy setting to test the lender’s appetite for risk.
Technology For Account Management Monitoring and maintaining accounts is an important task. Typical services a credit bureaus provides include:1. Monitoring Services. These services advise a lender of any significant change to a customer’s credit file, such as a default registered by another lender2. Batch Screening. This service allows lenders to periodically update the risk profile of entire portfolios by reviewing the current credit scores of its clients3. Monitoring and Reporting. These services typically help smaller lenders with limited internal analytical capacity to produce the management information required to track credit quality
Event Driven Notification Application This service advises a lender of any significant change to a customer’s credit file, such as a default registered by another lender, in real time. Enables lenders to flag at risk borrowers so that action can taken quickly The following types of alerts are returned to the member on a daily basis as & when the alert is triggered
Event Driven Notification Application Functionality to allow lenders to select the alerts required - Missed Payments - Arrears from 0 to 1, 2, 3 or more [specify type: Home Loan, Revolving, etc.] - Arrears goes from 1+ to 0 - Overdraft Facility becomes Paid Up, Closed, Written Off, Legal, Paid up Default + Increase in Current Balance + Decrease in Credit Limit / Original Balance + Increase in Credit Limit / Original Balance - Account Maintenance (Status Codes, e.g. Closed, Written Off) - A new status code for the account enters the system - New Accounts Loaded - A new account has been loaded, specifies account type
Collections Technology Tracing services uses the credit bureau data to identify the whereabouts of a customer with whom a lender has lost contact. These products either trawl the current bureau databases to identify existing contact information of which the lender may be unaware (e.g., telephone numbers or a new address) or place a marker on the customer file so that if the customer subsequently makes another application for credit the previous lender can be informed Applications to search the credit bureau database just using partial information on a customer, where results are given in the form of possible matches.
Biometric Technology Biometric fingerprint technology is become more widely used in credit services as it can provide secure automated methods confirm an identity based on unique physical or behavioural traits Biometric fingerprint technology is used as part of our loan administration software to indentify borrowers when underwriting loans. Users of the software are also identified via Biometric fingerprint technology For the credit bureau in Uganda biometric fingerprint technology is used to indentify all the borrowers in that country and it is also linked the credit bureau files. MICHAEL RITCHIE MALAN
About Compuscan As a full private credit bureau, We collect, validate, load, verify, house and distribute consumer and SME credit information We specialise in modern credit technologies , which include the following: Credit Application Processing Software Marketing services (lead enrichment, and response models) Collections applications for tracing Account Monitoring applications Loan Management Software Fraud & Identity Management technology Credit Scoring and Analytics Skills Training & Development We have been operational for 16 years providing Credit Bureau Services with a firm focus on the African Continent
About Compuscan As a company we have over 4500 client branches or outlets using our credit information with users from various sectors such as traditional banks, public and private companies, NGO’s as well as Cooperatives/Credit unions We currently has a presence in nine African countries We operate Credit Bureaus in South Africa Namibia Botswana Uganda We are starting to operate credit bureaus in Kenya Nigeria under license with local business partners We have clients using other credit risk reduction services Zambia, Lesotho, Swaziland and Mozambique