Credit reports will help customers in taking ownership of credit profiles
Credit reporting is still a relatively new sector in India. Consumers and lenders in the country are yet to adopt this system completely. Equifax Credit Information Services Pvt. Ltd has been operating globally for a long time, and entered the Indian market in 2010. Its country leader for India, Manish Sinha, who joined the company last year, spoke to Mint about the changing face of the industry in the country and how initiatives by the government and the Reserve Bank of India (RBI) would help create a more conducive environment for credit bureaus and bridge the loan gap. Edited excerpts:
How do you see credit reporting becoming a part of the Indian financial system?
Broadly, credit reporting is part of collating and corralling all the consumer data, to take key financial decisions. Think of it in two parts: one part is what is already in place and the other part of it is work in progress. What’s already in place is the financial system that has integrated credit reports into borrowing decisions. What’s work in progress? First, in the case of borrowing or lending decisions by banks, risk-based pricing is not being considered. The second area is the addition of other payment behaviour in a credit profile.
So, payment history of telecom bills, utility bills, gas bills are not yet incorporated. We have products, such as IXI in the US, which are basically indices that tell you the wealth of customers in your database, in the form of the assets that they have. So there are practical and workable concepts that exist outside India, but don’t exist here.
The government has been promoting the Digital India initiative, under which it plans to build an e-repository of financial data. How will this help credit information companies (CICs)?
That would be a two-way process. As the bureaus grow and expand, we would like to collect and collate in one place all the relevant data on customers. The more customers get digital, the more rich their data gets. But Digital India would also demand that lenders give instant decisions to customers. So the bureaus need to be enablers and facilitators of that. Taking an instant decision will involve using other sets of data, as I described earlier, like utility bill history, wealth indicators, and even social media, all kind of alternate data, so CICs can be an enabler in this regard. Also, as you know more about your customer, as a bank you need to be better than others in cross selling to the customer, so she doesn’t consider another lender.
What difference do you see in the behaviour of global and Indian consumers towards credit and credit report?
Overall, the Indian consumers have lower amount of borrowings, based on per capita borrowing, than a consumer in a developed nation. The awareness of credit records is lower in India because it’s been only 10 years that credit reporting has existed here. So, it’s a relatively new industry. Other thing that is different is that in developed markets, an average consumer is more proactive in building her credit profile and starting it, whereas one doesn’t do it here. Also, pricing of credit reports in India is significantly lower than what we are able to price outside India.
The Reserve Bank of India (RBI) has asked CICs to provide a free annual credit report to consumers. Would that help in increasing awareness?
Absolutely it will. Customers will get their free report, they will compare it with family and peers, so awareness would increase. Once they will know of their credit report, they would also know of any glitches in their credit score. So they can go to the bank to settle a mistake on an old loan that shows as pending. Also, they will take ownership of their credit profile.
How do analytics help you in giving better quality data to your clients?
Our clients are the financial institutions. A customer interacts with her financer in a variety of contexts. For instance, when a customer is buying a television for Rs60,000 in a store, the store owner wants to make an instant decision on whether to finance her.
Then there are banks that want to give personal loan approvals within 10 seconds to their current account and savings account customers. They tell the bureaus that you take all your time and do all your analytics but then give me an answer on who are the customers who are eligible for such disbursal.
So in the first situation you don’t have time and need an instant decision, and in the second one you have time but your client wants a sophisticated answer.
Then, there are fintech startups that are giving pay-day loans—a short-term loan. So here you are looking at a decision that has zero human intervention. The young employee needs to just fill in her details and get the immediate loan disbursal.
So to answer your question, we need to see where my customer’s customer is and I need to provide a tailored response to my customer, which is the bank, so that it can provide the best service to its customer, who is the borrower. How we do it is, we provide specific and specialised services to these banks.
So for the pay-day fintech startup, we developed a scorecard. We have done analytics for a large e-commerce company. For other companies, who can get a quasi-credit score, we would use social media data, payment utility and payment behaviour .
How do you ensure data security in this process? For example: for acquiring the quasi-credit score data, you are checking people’s social media data, do you take permission? How does it work?
So at Equifax, we only use data that has been consented to by the consumers. We would never do what is called scraping the data off publically available data, without the individual’s permission. So when we build any model, for example, we would build it on the basis of anonymised data. The only situation when we know about the individual is when the individual has agreed to it. So we never use data acquired unethically.