How Innovation is Improving Access to Credit in High Growth Markets

For millions of people living in emerging, high growth markets around the world, a lack of access to credit is just another part of life. Yet, without this access, it can be incredibly difficult for businesses and customers to connect with each other. Opportunity and economic growth are stifled.

While it is a bleak picture, it’s one that is already starting to change thanks to the rise of innovative financial technology in markets such as India and parts of Africa.

Aided by customer demand and supportive policy, progressive fintech companies are shifting the way credit operates globally, opening up new opportunities for growth.

According to World Bank figures, two billion adults worldwide are unbanked. In India, 250 million adults don’t have access to a bank account.. The majority don’t have a credit rating. Consequently, it can be very difficult for these consumers to connect with businesses that require traditional payment verification models. Millions of people are excluded from everyday – and life changing – opportunities. Renting or buying a house, owning a phone, even pursuing an education can become off-limits. Economic growth is held back and opportunities for improvement are few and far between.

Innovative technology is helping high growth markets meet this challenge head on.

Unencumbered by the legacy of old technology and entrenched consumer behaviour that often plague other markets, high growth markets can more easily adopt mobile-first, digital financial services. The adoption and rise in popularity of mobile money networks in Africa, for example, is enabling millions across the continent to gain access to safe and secure banking solutions.

This rise in smartphones, ecommerce and online transactions in high growth markets brings with it a corresponding rise in data about customers spending and earning habits.

As the amount of data increases, new techniques are being used to build credit intelligence and more accurately understand an individual’s credit rating. For example, AI and machine learning are being incorporated into credit models, enabling underwriting which uses thousands of variables all changing in real time.

At PayU we are developing these new techniques and in their potential to unlock credit and financial services for underserved populations. Our record €110 million investment in Kreditech means that we have a joint partnership to create credit ratings and provide finance to people who may not otherwise have credit histories.

As businesses become more comfortable and able to use a variety of methods to build data profiles for consumers, more and more people can be offered access to credit.

Digital apps and services that enable customers to pay later, pay in instalments or only use credit when needed are increasing the number of consumers able to access financial services, and therefore their participation in the economy.

This impact can be seen in the example of ‘Parimal’, a 22 year old software developer from Patna, India. Earning Rs 25 K per month (the equivalent of USD $390) Parimal needs to purchase a laptop a mobile and a camera. Yet, until a few years ago, Parimal had a CIBIL score of 0, making accessing credit impossible. The ability of innovative credit services like ZestMoney to use new techniques to build credit intelligence is what is making it possible for Parimal – and people like him – access credit and enjoy the everyday conveniences this enables.

Not only this, but the credit offerings themselves are also becoming more personalised to reflect the unique people and lifestyles across different global markets.

Adjustable credit cycles combined with regulatory changes and better data security are helping financial services businesses – and their merchant customers – mitigate the credit risks commonly associated with high growth markets. For example, the ability to use credit pay for pick up and distribution costs removes the risk of non-payment for a small vegetable grower looking to expand his business.

Regulators and policy makers also need to play their part to support opportunities for economic growth made possible by increased access to credit.

Moves towards digitised credit approval processes, such as eKYC and online registries, will simplify and speed up credit approvals and help more people enter the financial ecosystem.

As companies like PayU enable more consumers in high growth markets to access credit, these same markets offer the biggest growth opportunity for businesses going global. This view is supported by the IMF, which states that economic growth in emerging markets will likely increase consistently over the next five years while growth in developed economies will likely remain depressed.

The attractiveness of emerging, high growth markets to fintech players and their merchant customers will only increase as credit access grows and the ability of businesses to engage with customers improves.

As economic prosperity grows, so too will the number of international businesses entering these markets to enjoy the opportunities of offer and, ultimately, change the lives of millions of people.

Raj Kamal, PayU, Global Head of Strategy and Credit