COVID-19 has changed our way of life. As consumers start to find their rhythm with a remote way of living – working, learning, and shopping from home – digital transactions will continue to rise across industries, generating large amounts of data.
With online activity becoming a defining element of the “next normal”, the 44 zettabytes of data expected to be generated by 2020 could pave the way for improved financial inclusion. This large pool of data serves as a source of alternative data, which can shed more light on the one billion individuals in Asia who are unbanked or underbanked.
The pandemic tends to disproportionately affect vulnerable communities and minorities, both from a health and economic perspective. The impact of country lockdowns and pausing of various economic activities is expected to push 60 million people in East Asia and the Pacific into poverty as a result of a 20 per cent loss in income. With today’s pandemic-exacerbated economic uncertainties, improving access to financial services will become increasingly important for these individuals to stay afloat.
Alleviating the impact of the pandemic with alternative data
Within the financial services sector, alternative or non-traditional data refers to data that extends beyond what is found in a credit report, such as telco, utilities bills or payments data. Traditional credit reports and credit ratings are typically built from bank-contributed data, which includes an individual’s assets and liabilities (in some countries) as well as their loan repayment history. This means that if you have defaulted on a loan or have a history of paying your bills late, your credit score is likely to be low and this tends to affect your ability to access further credit.
By tapping into alternative data sources, banks and lenders can build substantial credit profiles for the unbanked and improve services for their existing customers. Alternative data in the credit services space provides a more holistic picture of customers for banks. For example, by being able to leverage consumers’ prepaid telco data, which could include their current active or inactive statuses, credit top-up patterns, and location signals, it could provide organisations with data that they can use to infer addresses and employment stability. This is linked to the ability and willingness to repay any potential loans, which could help lenders decide if they want to extend micro-loans to consumers who may not have a formal credit score.
The potential of leveraging this behavioural data over a period of time would allow organisations to interpret changes in signals, enabling them to predict a potential default before it happens. Alternative data therefore plays a crucial role in paving the road to recovery, as consumers could receive the funds that they need, and helps organisations to make informed decisions now and in the future.
The rate of alternative data being produced is expected to increase even more rapidly as more people shift their activities online due to social distancing. This has already resulted in a 7.1 per cent (300 million) increase in internet users globally. The increased usage of mobile usage of 76 per cent in internet users aged 16-64 in surveyed countries as of April 2020, as well as growing volume of data created on the web, mobile devices and smart devices could mean that 90 per cent of the world’s data will be created in less than two years.
A checklist to accelerate the road to recovery
Amid the adversities of the current pandemic, alternative data can take on a new significance in driving financial inclusion. Broadening access to fair and affordable financial services makes good business sense.
However, the road to recovery means a collaboration between businesses and consumers, with compliant and timely access to data being integral to the process:
1. While data opens new revenue streams and higher valuations, more industry collaboration – in particular, the responsible exchange of knowledge and data – will be necessary to drive financial inclusion at scale
2. There is a need for a trusted data custodian and aggregator who can orchestrate data sharing flows within the ecosystem, as data is currently fragmented and resides in different company silos
3. Consumers are at the heart of the data ecosystem. This means that they need to be well-informed about their rights and how their data is being used
4. Technology will be a key enabler in facilitating the safe exchange and movement of data across borders and organisations
As we adapt to survive and thrive in the new environment, governments and businesses will need to work together and collaborate to successfully leverage alternative data to accelerate the road to recovery. Our data exchange team, for example, works with partners such as government-linked bodies in certain regions to use alternative data to develop new propositions and business models, which contributes to building holistic data ecosystems over time.
With the increase in digital interactions in recent months, it has become apparent that alternative data will be extremely beneficial to the financial services sector in the road ahead in gaining a holistic view of their customers. Unbanked and underbanked consumers will be able to be a part of this economic recovery as they gain access to much-needed credit and financing and become a part of a future global economy that does not financially exclude nearly a quarter of its population.
The writer is CEO Asia Pacific at Experian.