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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.
CONNECTING THE DOTS
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.
LENDING AS A SERVICE - THE ENABLER OF LENDING TO THE UNDERBANKED
We believe the next evolution in credit is Lending as a Service. Under the Collaborative Lending model, a bank partners with a retailer partner, whereby the retailer partner provides detailed data on each existing customer that has specific credit needs. The bank funds the loan leveraging its underwriting know-how as well as its regulatory framework and lending license.
This collaboration enables a very efficient and inexpensive process, because the retailer 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 retailer partner, making the operational cost very low. The bank disburses the funds immediately and directly through the retailer partner, thereby reducing fraud risk.
LENDING AS A SERVICE - AN EXCELLENT SOLUTION FOR MANY USE CASES
We believe Lending as a Service could be relevant for all unsecured loans:
When a telecom customer wants to purchase a smartphone and has no balance funds to pay for it.
When an individual wants to purchase a home appliance such as a refrigerator, and the merchant offers the buyer a bank loan to finance the purchase.
When a small business wants to buy from a current supplier.
Lending as a Service benefits all parties:
Customers save time and effort, getting credit when and where it is needed and at a lower price cost.
Retailer partners decrease customer churn and increase customer value through additional credit related income.
Banks get access to a new target market of potential borrowers, that can be very efficient- and deliver a higher ROE than existing digital or traditional lending.
Banks could partner with MNOs, utilities companies or large retailers to serve personal customers or with industry aggregators that sell or buy products from a large pool of micro-entrepreneurs.
LENDING AS A SERVICE: INSTANT, AUTOMATED, SECURE
Paretix provides a complete solution for real-time, Lending as a Service. 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 and the monthly repayment amount. Customers who accept the offer can have the loan processed immediately.
DO NOT COMPROMISE ON YOUR PARTNER'S DATA PRIVACY
The Paretix solution can be hosted in your partner's servers therefore your partner does not need to share valuable and sensitive data with your bank. Nevertheless, your bank, as a regulated entity, will be able to use all the advanced tools needed for a secure lending process: 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 strategy that supports your business goals. You can decide to be aggressive with one loan product and conservative with another, being able to alter those decisions at any time.
Your credit strategy defines your credit approval policy such as 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 and the credit risk of each loan.
MONITOR YOUR INSTANT LENDING PORTFOLIO PERFORMANCE
To help you integrate digital lending, the Paretix solution includes tools to monitor the growth and credit quality of your instant lending portfolio, segmented into relevant dimensions such as region, product type and more.
In addition to these tools, our team will also help you gain insights from your new portfolio since fast growing credit portfolios, in which the majority of loans 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 Lending as a Service, 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.