A smartphone believed to be priced below US$50 (approximately R$3,650), probably the cheapest in the world, will go on sale within a week. If Mukesh Ambani’s JioPhone Next, an Android device made to order for India by Alphabet’s Google, is a hit in the price-conscious market, it will solve one problem for banks and introduce another. With the remaining 300 million feature phone users in the country going online, there will be a surge in customer data that can backfire. The question is, how are the banks going to get their hands on this?
One answer came from iSPIRT, a small group of policy influencers that quietly set technology standards for India’s digital markets, prompting companies to enter new open-network markets, from online payments to healthcare.
The Bangalore-based group is advocating a new set of players – account aggregators – to unlock a much sought-after prize: Bringing into the folds of formal credit the 80% of adults in developing countries (40% in rich countries) who don’t Don’t borrow money from traditional institutions.
But these people and their microenterprises are increasingly online thanks to innovations like JioPhone Next. They are paying rents, taxes and utility bills and taking payments on their smartphones, spreading their footprints across the Internet. Account aggregators will gather these digital crumbs for people to share their own data in a machine-readable format for a bank loan application.
The introduction of a layer of consent managers is important. Emerging market borrowers can have many types of account-based relationships. However, they can be useless for banks if they cannot present a composite picture of their financial lives to access formal loans that are monitored by credit bureaus. More than three-fifths of India’s adult population are invisible to credit appraisers or are not considered worthy of the problem by standard lending institutions.
In an advanced economy like the US, services like Experian Boost and LenddoScore help close the visibility gap for subprime borrowers by having them voluntarily submit their utility bills or streaming video to demonstrate credibility. But in an emerging market with low financial literacy, banks prefer to leave the base of the pyramid to lenders who know the borrower in real life or have some social influence over him – such as microfinance companies that lend to women’s groups.
On the other hand, technology platforms, intimately aware of their customers’ online behavior, can match them with loans, charging fees and leaving the risks to the banks. Jack Ma’s Ant took on nearly a fifth of China’s short-term consumer debt before Beijing ended the game.
Not every country can afford to bring heavy artillery against its private sector: politics would not allow it. Aggregators can be a much smoother tool to keep the lending market fair, giving banks a reasonable economic chance to compete with data-rich tech giants.
Pick up JioPhone next. It will release data on a large segment of the sparsely banked population. Jio, Ambani’s 4G telecommunications network, will capture some of it as subscribers to its low-end data plans buy groceries from JioMart, an online partnership with neighborhood stores across India. Google will also obtain valuable data about users’ location and search queries. Facebook will tap into its own knowledge as the social media giant grows its base of half a billion Indian customers for WhatsApp and a growing craze for Instagram Reels, a video-sharing platform. Unsurprisingly, then, Google wants to influence India’s deposit market, and Facebook is biting the small business lending pie.
When it comes to real-time data, banks can never match the influence of platforms. But account aggregator snapshots can help them take a break.
Just enough additional data that will tell them whether a customer is more credible than a low (or no) credit score suggests can make a big difference in profit, especially as banks won’t have to pay hefty fees to businesses like Jio, Google or Facebook for your proprietary ratings. By explicitly owning and sharing their data, customers will avoid getting caught up in the technology industry’s biased algorithms. Small businesses will be able to show their cash flows to creditors by pooling everything from tax payments to customer receipts. Once telecommunications companies come on board, an affordable “buy now, pay later” refrigerator purchase will become possible for a low-income family who pays their phone bills regularly.
The aggregation, being a utility, will be like tap water for the Evian platforms, and will have the corresponding price. Who will own the tubes? Walmar’s PhonePe, which manages India’s most popular digital wallet, has received approval in principle to be a central bank aggregator. Eight banks, which together account for 48% of all accounts in the country, agreed to use the structure, which went into operation on Thursday.
It’s a good start. Banks desperately need help to stay in the money game. Or they will simply cry to regulators and ask them for special protections against Big Tech. This would hamper experimentation and delay the credit revolution that $50 phones (approximately Rs. 3,650) can trigger.
© 2021 Bloomberg LP
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