Why Are Fintechs Not Killing Credit Scoring Agencies?
Every month, £14.99 comes out of my account because I have been too lazy to cancel my subscription with Experian and yes, I know that there are arguably better and cheaper (free) services out there which will give me the same information that paid-for companies can.
Why did I sign up? – I hear you ask. My answer: trust. As an 18-year-old heading off to university, I decided that it was time to get my life in order and decided to sign up for Experian because I was scared about what getting a student loan would mean for my credit score and I chose a company I had heard of.
With CreditExpert, I understand that I am able to check my credit score on a daily basis, find out how to improve my credit score and receive alerts about how my credit score has changed. But why are credit score companies like Equifax, Callcredit and Equifax not dying out?
The reason is, in a similar way to how banks have been behaving when a new fintech comes into the market, they work with them and learn how they can become innovative and sometimes, even collaborate.
Around 2015, in my opinion, fintechs learnt that they could not work against traditional players because they have trust and legacy on their side, despite numbers showing that an increasing number of people are opting to choose a startup to manage their money and began to collaborate.
Earlier this year, Experian was named among the top 100 most innovative companies in the world for the fifth year in a row by Forbes and was given this award because their aim is to use data and technology to transform lives for the better – sounds like a fintech to me.
This collaboration was also shown after Experian led a $28 million investment in the Southeast Asian startup C88 Financial Technologies, which helps lenders reach new audiences.
Collaboration is common in this part of the world and fintech challengers are working with traditional banks to reach those who are underbanked or unbanked. TechCrunch reported that in most parts of the region, very few consumers are credit profiled.
“That makes a bank or lender’s job of assessing their suitability for a loan extremely challenging. Throw in that they are often seeking small- to mid-sized loans, and the potential value of the customer is likely lower than the resources that would be spent evaluating them.”
However, companies like C88 have been trying to guide the banking industry to pre-verify them and ascertain whether they are eligible for financial products before they apply and also reveal what kind of product they can get and at what rate.
“Many times [banks and lenders] just can’t lend the cash out efficiently,” CEO JP Ellis told TechCrunch. “But that can change with the advent of digital-enabled societies, data and mechanisms to price on an individual basis. It’s all about partnering with [financial institutions] because they have so much capital on their balance sheet.”
With an aim of remedying the lack of credit scoring, Ellis also mentioned how he wants to broaden access to capital, which will in turn, will build up Southeast Asia’s already-growing economies. “We think of ourselves not as a comparison of products, but as a comparison of eligibility,” he added.
This is the first major investment in the Southeast Asia area for Experian and highlights the company’s role of developing startups in Asia – a year after Experian backed Bankbazaar with its investment in India.