This morning (17 June) saw the official launch of a brand new credit score system that uses mobile usage data to create an effective credit rating that is set to change the possibility of gaining new credit to millions who currently fall outside the existing credit scores.
Understanding our society’s connectivity and what that means is at the heart of the new credit score. Most existing credit score ratings are set on people who are already banked and use traditional banking services and financial loans that are linked to traditional credit services and accounts.
But what happens to the millions who due to their circumstances such as “officially unemployed” or without a traditional bank account or retail account, but still have informal income and possibly even run their own side hustle or micro business?
According to a study done by Transunion and Chenosis, these people equal around 16 million people in South Africa who are all excluded from potentially gaining access to formal loans or credit in any form within the current credit scoring system
How The New Credit System Works:
The start point is looking at an individuals mobile history, based on their permission, that would include the following:
- Data and call recharge patterns
- This data gives an indication of a persons income, ability to manage their money, consistency of purchase among other factors
- Sim Tenure – how long have you had a sim and number – with a minimum of a 6-month period
- This data provides a clear indication of risk and consistency with people who are constantly changing numbers which would add a question of financial risk
- Call Frequency – is the person actively using their mobile service and doing recharges and are they economically active
- Provides a grading of economic activity
- Device changes
- Has the person changed devices to more expensive or less expensive devices – indicates affordability levels
- How often has the person changed their device – again an indicator os stability and financial management
Data Analysis Provides Deeper Insights
Transunion has done a study based on historical data provided by MTN that looked at mobile history of unbanked people and have found that by using the above criteria they found around 1,9 million people out of the 16 million financially excluded in SA that would potentially now be able to have access to financial products that they were previously excluded from.
Lee Naik, Ceo of Transunion speaking passionately at the launch said ” Financial inclusion isn’t just part of our mission, it’s our mandate”. “That’s why we believe the only way forward is to think differently, to lead with bold African-born solutions”.
Expansion set to Grow Inclusion
The credit score system will at this stage be limited to MTN users in South Africa, however there are ambitious plans to expand this to more telco’s and across 9 different countries throughout Sub-Saharan Africa.
It is a massive step forward towards addressing the issue of the financially excludes people in Africa and should open the doors for further innovations in the financial sector with the possibility of other fintech’s adopting this a a new way of creating viable credit ratings beyond traditional means.
