Credit bureaus in India are mandated to give a full credit report free of charge to each customer every year. Moreover, fintech companies are working along with credit bureaus and banks to analyse different types of data to better understand the creditworthiness of individuals. Mint Money spoke with Vaishali Kasture, managing director and country manager, Experian India, to get insights into what is happening in this space at a time when data privacy and protection are becoming the focus among businesses. Edited excerpts:
It has been over a year since the Reserve Bank of India (RBI) made it mandatory for credit bureaus to give one free report to each consumer. Has awareness gone up among consumers?
It was a useful development for the consumers. We have definitely seen consumers coming forward to avail their free reports and keeping a track of their credit profiles by calling and mailing us their concerns if there are some corrections to be made, or to even understand certain aspects in a better way. So, this has in general created some amount of awareness. But there is still a long way to go to be like countries like the US, where most people are aware of their credit scores even when they join their first job. As an ecosystem, including the bureaus and financial services, there is a lot more that needs to be done to create awareness. For example, as college loans are becoming popular, we need to see if students are aware that loans are given based on credit scoring.
What has changed for the bureaus?
Our team that services consumer queries has gone up significantly. That, I think, is a positive development as people are calling in to get their reports, or to understand certain aspects better or to report discrepancies.
Has the requirement for free reports had a business impact? If the reports are free, why would anyone buy one?
There are people who are buying reports, over and above the free ones, though the volumes are small. These are the people who take action based on their credit score and then come back again after a couple of months to revisit the score. They also use the bureau as a channel to get back to a bank in case there is an old credit line, like a credit card, which has been surrendered or the outstanding has been repaid but is still showing up in a credit report.
Has there been progress in inclusion of utility bills, mobile bills, and insurance premiums to calculate credit scores?
It is taking a while to get all of this into the bureaus. Efforts are being made but I think we are a long way off.
Use of alternative data has been discussed for long. What is the progress on this? Is it being put to use?
The way we calculate our credit scores is purely dependent on the trade lines or the data that comes from banks. That is sacrosanct. Our procedure of calculations and algorithms are dependent on the data coming from banking systems. This is part of our business that is regulated by the RBI.
However, there are developments in alternative data in the non-regulated part of our business. There are also several fintech companies working in this space. When we talk of alternative data, we are talking about a 360 degree view on a consumer. That includes several data points like utility, rent, and mobile phone bill data. There have been some successful pilots and we have also been part of some. So, through this, the thrust is to provide access to credit to a person who does not have data about her in a bureau. The question is how can we supplement the bureau data in a manner in which the consumer gives consent to access their social media profile or headers in SMS inbox.
We have done some successful pilots with fintechs. What we are trying to do is look at the bureau score, and if a person is low on this and not getting access to credit, see if there is alternative data on her to build a profile that is still sort of risk-proof. We want you to get the loan, but we also do not want the lender to suffer because you are bad credit. We have done some proof of concepts on social media and SMS data and there are some encouraging results. But it has just been 6-8 months, which is too little.
How does the use of social media data and SMS data help in credit profiling?
We ourselves do not collect this data, we work with fintech companies. These are the same fintech companies that work with banks. So when a bank is looking to disburse a loan, they would look at a bureau and if a consumer’s data is not with a bureau then they will look for alternative data. My job is to make the job of a bank or an NBFC (non-banking finance company) easier by saying I can work with a 360 view of a consumer. If she is not in the bureau, I can help you, with consumer consent, get access to other data. I am myself not in the business of collecting this data.
This collected data can be a pivot for lenders for skip tracing, for finding customers who have defaulted on loans. Social media sort of comes into play—data like where have you checked in, the cities you visited, your travel profile. What is also increasingly becoming important is not just your data but also your network on social media. So there are now fintech companies that ascertain your credibility based on your network on social media platforms. Who you are connected with and what all you follow helps in determining the sort of risk you are.
When we talk of SMS data, everything practically goes in, for example, whether you are a salaried individual or not. If you download an app, it could also collect your geo-location data. That is mapped with your basic SMS data like ticket spends or average withdrawals. Looking at all of this helps create a profile which can perhaps give an indication of what your income is likely to be.
There are concerns about consent not being upfront, and data being misused.
What has to be remembered is that though alternative data can be powerful, if it goes into the wrong hands, it can be misused. So people who are building credit models based on this have to keep in mind that we are doing it for creating financial inclusion. There is a very thin line between convenience and breach of privacy.
Many companies take ‘irrevocable consent’ from consumers. What is your take on data protection in this context?
As far as data protection is concerned, it is the absolute responsibility of the firm that is pulling that data. If someone does not have the ability to protect the data, I don’t think they have the right to have that data in the first place. Our consumers are also evolving; so we will also need to continue to educate consumers. As of now, I don’t think they get the full context on what they are allowing the access to. But for many, it becomes an issue of privacy versus convenience. We also cannot ignore the fact that there is an alternative data revolution that is happening. In a country of 1.2 billion people, if just 300 million people have access to credit, there are 900 million others who want access to credit.
Coming back to credit scores, does a good credit score really translate into a lower interest rate for a consumer? The effective rate of interest for most consumers is higher than the rate that is advertised. So is risk-based lending a reality?
A good credit score should reflect in your appetite to borrow and it should also reflect in your interest rate. My sense is that it should translate into a better interest rate. According to my conversations with some lenders, I see risk-based lending existing in pockets. It may not be a norm yet.