Financial service providers are increasingly adopting alternative data to understand and viably serve new segments of the market. Two main trends give rise to this: There is an increase in the amount of alternative data available, and analytical capabilities are improving to more accurately predict future financial behavior, based on alternative data.
Adoption of alternative data to create new markets is, to date, mostly seen among mobile-application-based credit providers. As the products of such providers gain momentum, a critical question remains: Are they deepening financial inclusion?
To explore the potential that smartphone-based, alternative, credit scoring models could have on extending credit to unserved or underserved individuals, insight2impact (i2i) conducted research in partnership with Branch, a digital financial service provider that aims to leverage technology to deliver financial services to the mobile generation in emerging markets.
This study specifically focuses on credit products that leverage alternative data and Branch’s operations in Tanzania. To understand the potential impact that alternative data-based, digital credit products could have on deepening financial inclusion, four key research questions were identified:
- Does the use of alternative data in client selection lead to the inclusion of unbanked and underbanked customers?
- Does the Branch model help to address the financial needs of the unbanked and underbanked and create client value?
- How does the credit-scoring model compare against traditional credit bureau scoring models?
- Is this a sustainable business for lending to the underbanked client?
To address these research questions, a combination of research approaches was used, namely desktop research, together with quantitative and qualitative research methods.
The Branch case study is one of several data use cases being consolidated by i2i, to better understand and learn from both the successful use of data by FSPs and the challenges they face.
If you would like to learn more about our work or to identify areas for collaboration for data use cases, please email firstname.lastname@example.org. Herman Smit is a technical director at Cenfri and the head of Client Insights for insight2impact.