Big Data, Small Credit: The Digital Revolution and Its Impact on Emerging Market Consumers

Abstract

We are on the verge of massive change. Technological advances in credit assessment are poised to deliver huge impact by bringing formal, accessible, and affordable credit to hundreds of millions of aspiring middle-class consumers in emerging markets. At the forefront of this change is a burgeoning new field that we're calling "Big Data, Small Credit" (BDSC).Around the world, many emerging-market consumers remain severely limited in their access to formal financial services, particularly unsecured credit. In India alone, in 2014, more than 400 million people borrowed money-but fewer than one in seven were approved for a formal loan. 1 Indeed, this experience of being "invisible" to formal lenders is prevalent among billions of "thin file" or "no file" consumers living in nearly all of today's emerging markets.But these consumers may not remain "invisible" to formal lenders for long, thanks in part to their rising use of technology. Well over 650 million adults in India-four out of every five-already have a mobile phone in their pocket, and most of these will be smartphones by 2020. More than 240 million Indians have access to the Internet and social media. 2 Seven in 10 users of mobile broadband smartphone in India regularly stream videos on their phones; six in 10 use social networks. 3 And every time these individuals make a phone call, send a text, browse the Internet, engage social media networks, or top up their prepaid cards, they deepen the digital footprints they are leaving behind.These digital footprints are helping to spark a new kind of revolution in lending. In the last few years, a cluster of fast-emerging and innovative firms has begun

The Chinese Social Credit System: A Model for Other Countries?

“…71 There has been a good deal of experimentation in the digital finance sector in terms of identifying creditworthiness, especially in conjunction with expansion into less developed economies. 72 However, as with more conventional forms of credit scoring, the emphasis is often upon correlation rather than causation and can therefore introduce unintended discrimination such as regarding race. 73 Observation of patent applications and corporate announcements discloses that service providers in the social media sector, such as Facebook, may be preparing for their own role in relation to future financial service products and the use of social media data in this context.…”

‘All data is credit data’: Constituting the unbanked

“…Because the data used in these calculations are generated ‘at a distance’ – i.e. not by financial firms but in transactions controlled by other firms – lenders first need to negotiate points of access which will provide regular payment information (Costa et al., 2015: 8). Accessing data for alternative credit scoring arrangements often means negotiating for proprietary or private information, finding ways to address privacy concerns or using sources of public information.…”

“…These distinctive calculative infrastructures are nonetheless oriented around a common rationality – the rendering visible of the unbanked as a body that is legible to financial institutions. These infrastructures are constituting a ‘field [that] sits at the intersection of the explosion of digital data and the rapid development of analytics capable of mining this data for meaningful insight … [about those] who are becoming digital and discoverable for the first time’ (Costa et al., 2015: 6). This ‘becoming discoverable’, this latent visibility, reveals a set of practices ultimately committed to making the unbanked knowable and calculable.…”

“…A language of extraction and brute removal attends much of the investor presentations, annual reports and marketing material associated with the alternative credit scoring sector. 41 The Omidyar Network, for example, refers to alternative credit scoring as a kind of ‘mining’ of data from the lives that compose it (Costa et al., 2015: 6). Similarly, VisualDNA consistently frames their credit scoring tests as a kind of ‘prospecting’ for new borrowers among the risky detritus at the edges of formal financial system (see VisualDNA 2016).…”

“…25 In the words of one advocate, alternative credit reporting requires ‘the ability to process and analyze personal data has the potential to unlock tremendous insight into consumers around the world’ (Costa et al., 2015: 20).…”