In an effort to include and capture more people in SA’s lucrative lending market, credit information provider TransUnion has partnered with MTN to create a new type of credit score that uses mobile call records to make lending decisions.
Recent years have seen growth in alternative lenders such as Retail Capital, Lula (formerly Lulalend) and Merchant Capital, who seek to offer lines of credit to people that do not qualify for, or have largely been excluded by, the country’s formal banking sector. Alternative lending is premised on using different metrics and data from those that banks use in making lending decisions.
Such players are also working to capture market share by reducing the need for getting expensive personal loans or turning to loan sharks, when people are in need of cash or have unplanned expenses to cover.
On Tuesday, TransUnion Africa in partnership with MTN and its digital platform business, Chenosis, launched the TransUnion Telco Data Score, a credit scoring solution that uses mobile phone call data records to “help millions of South Africans with limited or no formal credit history gain access to financial services”.
During a launch event in Johannesburg, the partners said the alternative data scoring model used call data records (CDR), which reflected patterns in mobile phone network usage behaviour, and correlated it to an individual’s financial behaviour.
The partnership says this alternative is not meant to replace the traditional credit scoring model, rather give more holistic view of a person or entity applying for a loan.
“By using telco data as a proxy for financial reliability, the TransUnion Telco Data Score enables lenders to accurately assess new-to-credit (NTC) consumers and expand access to safe, affordable credit,” said TransUnion Africa.
TransUnion Africa CEO Lee Naik said the plan was to prove the model’s commercial viability, starting in SA, with plans to roll this out across the African continent, working with multiple mobile providers. The companies are likely to take advantage of the eight countries that TransUnion Africa operates in and MTN’s 16.
TransUnion estimates that more than 1.4-million credit-invisible South Africans open new credit accounts each year, contributing to more than four-million new accounts over the past three years. It says traditional scoring models often fail to assess this segment accurately, leaving more than 16-million adults outside the formal credit system.
The group says its scoring system has demonstrated a 25%-35% improvement in predictive performance for lenders over previous alternative data models, based on recent pre-launch validations across the retail and banking sectors.
“With over 500-million people across the continent excluded from formal financial systems, the scale of the challenge is undeniable. Traditional data models fail to reflect the realities of African consumers, leaving millions without access to credit and the opportunities it enables. Financial inclusion isn’t just part of our mission, it’s our mandate,” said Naik.
For MTN, the partnership adds to the group’s growing portfolio of financial services and related technologies. The group's financial technology (fintech) business is now valued at R90bn.
With respect to its new partnership, MTN is responsible for consent management and will ensure that Chenosis, MTN’s API marketplace, facilitates the connection between MTN’s data ecosystem and partners like TransUnion.
“This partnership demonstrates how mobile technology and secure data sharing can support positive change in the financial sector and unlock new opportunities for millions of South Africans,” said MTN group chief commercial officer Selorm Adadevoh.
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