Among the most compelling contributions operators can make to the identity ecosystem – examined at length in the GSMA’s new report Mobile Identity: Enabling the Digital Economy – are those in the field of financial identity. The present lack of financial identity in developing markets is a global problem: the World Bank estimates that as many as 1.7 billion people worldwide are excluded from mainstream financial services, with consequently severe limitations on their economic prospects. For the financial sector to serve the ‘unbanked’ and enable them to invest in new livelihoods, however, their lack of appropriate credit history poses a fundamental challenge: coverage by credit agencies in developing regions such as sub-Saharan Africa can be as low as 9%.
Many of the unbanked do however own a mobile phone, along with over 5 billion other subscribers worldwide – and this allows the mobile industry to enable credit scoring solutions. Many countries require proof of identity when opening a mobile account, granting mobile operators certainty over who their customers are; identity data from mobile money accounts, network usage habits and various forms of account information can then be modelled to generate alternative credit scores for a subscriber and help them initiate their credit history.
Credit scoring models based on mobile operators data are already demonstrating impressive capabilities, and are consequently well regarded by customers; the market for alternative and hybrid credit solutions is thus expected to grow considerably over the next three years, according to GSMA Intelligence, unlocking significant new revenue streams for operators and helping millions of unbanked people to realise their economic potential. An October 2019 study by Oxford Economics estimated the value of this at $408 billion growth in household credit worldwide – and, according to McKinsey, this transformation could create 95 million new jobs, and as much as $4.2 trillion in new deposits by 2025.
One of the first such alternative credit scoring operations, M-Shwari, was launched in 2012 by Safaricom and the Commercial Bank of Africa for customers of mobile money service M-PESA. M-Shwari loans are approved on the basis of an applicant’s subscription history (set at a minimum of six months), with a credit score generated from an algorithm applied to their past use of M-PESA. That initial score determines the initial loan limit, with subsequent limit revisions based on savings and repayments, with disbursements and repayments handled entirely through Safaricom’s M-PESA service. In less than a year, M-Shwari led to a rise in the number of deposit accounts at the Commercial Bank of Africa from 35,000 to more than 5 million – clear evidence of the significant opportunities available in this space for both operators and those who might otherwise have continued to lack access to financial services.
Operators are uniquely well placed to act as enablers of such alternative routes to financial inclusion and trust, with consequent benefits to economic development in parts of the world which need it most. Then, once participating operators have moved into this space, they have the opportunity to move downstream by enhancing and productising the alternative credit data which results, either by applying AI analytics technologies to the datasets themselves and marketing directly to business customers, or partnering with specialist channel partners if they prefer to avoid making that capital investment. To understand more about the role operators can play to enable identity services in this sector – along with many others – click here to read more about the ‘Mobile Identity Toolkit’ and how it can be put to the best possible use in the years ahead.