Financial Empowerment for the Emerging Market Consumer?

Providing financial services to improve quality of life and help alleviate poverty remains a challenge.

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In mature economies around the world, banking services are often easy to come by, and building a credit history is automatic. Whether it’s opening a checking account, signing up for a credit card, or getting a mortgage or student loan, financial services are not only readily available but aggressively marketed.

But consumers in emerging markets don’t have branch banks on every corner, and in some cases have limited access to credit, loans, insurance and other financial services. Many responsible, creditworthy people across the emerging world can’t take out a loan, establish a credit line or open a bank account.

Across the emerging world, there is a profound need for financial services, yet there are no traditional ways to calculate risk among the billions of people who have never had a bank account, credit card or loan. This is known as the “thin file” problem.

In regions where financial history doesn’t exist, understanding creditworthiness is a challenge. While only about 30 percent of people in emerging markets have access to banking services and less than 5 percent have access to credit services, 80 percent do have access to mobile services — most of them on a prepaid plan. As such, an alternate credit identity can now be established.

The New Emerging Market Consumer

Emerging market economies are growing two to three times faster than mature economies, and incomes and education levels are increasing, as well. As incomes rise, so do banking and financial needs.

Whether it’s mobile airtime, a personal or business loan, or an insurance product, the key challenge is to provide financial services to improve quality of life, create a sustainable financial system and help alleviate poverty. Access to financial services on an individual level is the first step in creating economic improvement and opportunity.

Twenty years ago, experts believed that across Latin America, Asia, Africa and the Middle East there was low demand for banking services due to lack of understanding and trust. Yet the response to financial products has been strong.

Using a person’s behavioral phone data, such as how often they “top up,” or purchase mobile airtime, an alternative credit score can be created that can determine how much airtime or money to advance. Over time, additional financial offerings can be extended.

A New Frontier of Finance

Financial services in the emerging world are drastically underserving the potential banked population. Long-term economic growth in the emerging world hinges on access to financial services. Unlocking the new consumer’s credit capability is the new financial frontier.

By transforming consumer phone data into predictive profiles, financial services can be extended to almost every qualified subscriber. Financial services, more than any other businesses, depend on accurate, up-to-date financial identities. These are used to verify customers, understand needs and preferences, and measure credit risk and affordability.

Through their mobile phone, new emerging market consumers are becoming empowered with tools and services needed for economic vitality and a better quality of life. There is a new frontier of financial services for the billions who need and want them, and it’s right in the palms of their hands.

Elio Vitucci is the chief executive officer at Experian MicroAnalytics.

This contributed article first appeared in US News & World Report

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