Over the last few years governments, NGOs and the private sector, had all invested huge efforts and capital to provide the unbanked population in emerging markets with access to the formal financial system. The growth in digital payments for the unbanked over the 10 years has been phenomenal. However, a large portion of the population had moved from being unbanked altogether to being underbanked, i.e. they can now transact digitally but the majority of them are unable to obtain easily access to credit and additional banking products that are considered critical from true financial inclusion.
THE CHALLENGE IN LENDING TO THE UNDERBANKED
Providing the underbanked with access to credit is not an easy challenge. Traditional lenders rely on the applicant's credit history, collateral such as property or deposits or a steady, documented income such as a salary. Most of the underbanked lack these three key assets: they have never taken credit before and therefore they have no credit history, in many cases they have no assets that can be used as collateral and most of them don't work in the formal economy, thereby lacking a steady job or a formal salary slip.
COLLABORATIVE LENDING - THE ENABLER OF LENDING TO THE UNDERBANKED
We believe the next evolution in credit is Collaborative Lending. Under the Collaborative Lending model, a bank partners with a non-financial partner, whereby the non-financial partner provides detailed data on each existing customer that has specific credit needs. The bank funds the credit and uses its underwriting know-how as well as its regulatory framework and lending license.
This collaboration enables a very efficient and cheap process, because the non-financial partner supplies the credit lead, thereby yielding a very low cost of customer acquisition for the financial institution. The bank receives validated customer data from the non-financial partner, making the operational cost very low. The bank disburses the funds immediately and directly through the non-financial partner, thereby reducing fraud risk.
COLLABORATIVE LENDING - AN EXCELLENT SOLUTION FOR MANY USE CASES
We believe Collaborative Lending could be relevant for all unsecured loans:
- When an unbanked individual uses his or her mobile money application and has no balance to pay.
- When an individual purchases a home appliance such as a refrigerator, and the merchant offers that purchaser a bank loan to finance the purchase.
- When a small business wants to buy from his or her current supplier.
Collaborative lending benefits all parties:
- Customers save time and effort, getting credit when and where it is needed and at a lower price.
- The non-financial partners will reduce customer churn and increase their customer value through additional income related to credit.
- Banks will enjoy from a new target market of potential borrowers that can be very efficient and deliver a higher ROE than these banks' existing digital or traditional lending.
Banks could partner with MNOs, utilities companies or large retailers to serve personal customers or industry aggregators that sell or buy products from a large pool of microentrpeneurs
COLLABORATIVE LENDING: INSTANT, AUTOMATED, SECURE
Paretix provides a complete solution for real-time, collaborative lending. The Paretix system features real-time decision analytics that are tailored to the unique characteristics of your partner.
Customers receive an immediate, real-time loan decision as well as a specific credit offer, detailing the amount approved, the rate, the monthly repayment amount, etc. Customers who accept the offer can have the loan processed immediately.
DON'T COMPROMISE ON YOUR PARTNER'S DATA PRIVACY
The Paretix solution can be hosted in your partner's servers therefore your partner doesn't need to share with your bank valuable and sensitive data. Nevertheless, your bank as a regulated entity will be facilitated to use all the advanced tools needed for a secure lending: customizable lending policy, monitoring and advanced risk management
DEFINE YOUR OWN CREDIT POLICY
The Paretix system empowers you to define, execute and monitor a credit policy that supports your business goals. You can decide to be aggressive with one loan product, and conservative with another, and can alter those decisions at any time.
Your credit policy defines your credit approval policy (e.g. which applicants should be approved) as well as the amount that you are willing to lend to each customer and for each product type, while balancing between the need to grow with the credit risk of each loan.
MONITOR YOUR COLLABORATIVE LENDING PORTFOLIO PERFORMANCE
To help you integrate digital lending, the Paretix solution includes tools to monitor the growth and credit quality of your collaborative lending portfolio, segmented into relevant dimensions like region, product type, etc.
In addition to these tools, our team will also guide you on insights into your new portfolio since fast growing credit portfolios in which the majority of credits have just been extended tend to show a very high level of volatility in risk profile, which can be confusing if not viewed within the right context.
To learn how Paretix can help empower your bank with collaborative lending, we offer a free, customized, one-on-one online workshop in which we discuss your requirements, showcase the Paretix system and explain how we would customize the solution to your requirements.
To schedule your own conversation with Paretix, please click the button below and we'll be sure to contact you