The credit scoring process or assessment of the creditworthiness of the prospective customer is required to ensure that the financial institution provides loan services to the right people. In the process, the credit scoring system uses a variety of historical data of the customer’s previous transactions. One of the ways is by accessing the Financial Information Services System (SLIK) in the FSA. Previously, this was known as BI-Checking.
The SLIK data concerns the debtor’s track record (borrower of funds) taken from their previous transactions. Typically, the data is sourced from the database of the bank or other financial institutions.
For prospective customers who do not have any bank account, the data in their SLIK will be empty, so the creditor (lender) has difficulty determining whether they are creditworthy or not. To overcome this problem, they usually conduct a home survey of the prospective customer to evaluate the assets owned as collateral. Seeing those gaps, the innovators in fintech bring Credit Scoring Alternatives to present secondary data as material for credit analysis.
Innovative Credit Scoring Simplifies Credit Analysis
A platform of Innovative Credit Scoring manages data from a variety of sources, specifically the transaction data, which is usually carried out through digital applications. The source data processed includes phone credit transactions, electricity payments, the purchase of goods in e-commerce, and others. The user must be registered in the regulatory sandbox in the Financial Services Authority, following the rules of POJK №13/POJK.02/2018.
One of the products in the ecosystem of Open Finance, owned by Finantier, is Innovative Credit Scoring. It is intended to be a layer of infrastructure that helps owners of digital financial services get a more comprehensive quality of credit ratings in seconds. The Finantier Service has a guaranteed SLA (Service Level Agreement) of 99.9% to ensure that the system is reliable. Additionally, it is layered by security standards equivalent to the big banks.
Finantier has also been listed in the FSA as Financial Innovation Digital in the Innovative Credit Scoring cluster. This makes Finantier the first Open Finance company to get the license. As the Finantier is registered, it can be assured that the entire business process has met the safety and specified consumer protection standards. For the user, this is very important, given that the business model in the financial sector is regulated strictly by the authorities.
How Innovative Credit Scoring Works
The Innovative Credit Scoring service will access the required data as a rating variable during the process. In this process, the data is obtained with the users’ permission.
This process is performed automatically through the application. After the required data is collected, the system will perform the analysis and assessment. The platform will utilize Artificial Intelligence and Machine Learning technologies to speed up the process.
Then, the analysis results will be shown by giving a score to prospective customers under predetermined criteria. From the dashboard provided, financial institutions can directly see the score of the potential customer. In Finantier, we also offer a score of each data category used for the analysis.
Utilizing the information obtained, the financial institution can determine whether the prospective customer can get the service credit or not. In more detail, service providers’ credit can also determine how much the maximum credit value will be, based on a potential customer’s ability.
The Importance of Technology for Credit Scoring
Fintech Lending or P2P Lending is one of the fintech companies that will extensively use this service. In the working process, they need a fast and feasible assessment to give feedback as soon as possible after the users submit their applications. In addition to the quick process, the following are some of the advantages obtained by fintech companies when applying the Alternative Credit Scoring technology to their business:
1. Open wider market opportunities
According to data from Bain & Company, Google, and Temasek in 2019, approximately 92 million adults have not been exposed to banking services (unbankable). The figure exceeds half of the total population of the productive age, which reached 182 million in population. If financial institutions want to reach out to these people for consumptive or productive credit services, they need the data that can be used as a benchmark in credit scoring.
The application of the Innovative Credit Scoring platform allows institutions to embrace those in the unbankable category. Data such as telecommunication, electricity, and other PPOB transactions have become the basic needs of society in general. So, even though they have never had a bank account, they mostly have those kinds of transaction data.
2. Save cost and time
Service Innovative Credit Scoring does not require big effort in its implementation. The process is seamless using a safe and standardized API if integrated into the application. Compared to generating the service independently, this ready-to-use service will be a more effective solution.
Generating the service independently requires a huge cost and compliance with regulations during the development. Using Innovative Credi Scoring will also save the company time to focus on key business processes.
3. The Entire Solution in the Open Finance
The credit scoring service of Finantier connects to its Open Finance ecosystem. In its implementation, the fintech platform or other financial institutions can simultaneously utilize other available services, for example, the instant verification system that helps speed up the process of e-KYC (electronic know your customer).
By having a comprehensive verification and assessment system, the lending service provider can guarantee and improve the TKB90 (Success Rate of Pay) on the 90th day by serving only prospective customers who certainly have the power to return the fund regularly. Based on the FSA records, the average percentage of the TKB90 Fintech lending in December 2021 was 97.71%.