A smartphone widely estimated to be priced at under $ 50 (RM208), possibly the cheapest in the world, will start selling in a week.
If Mukesh Ambani’s JioPhone Next, an Android device tailor-made for India by Alphabet Inc’s Google, is a hit in the price-conscious market, it will solve one problem for banks while posing another.
With the remaining 300 million cell phone users in the country, there will be an increase in customer data that can act as collateral. The question is, how are the banks going to get their hands on it?
An answer came from iSPIRT, a small group of political influencers who quietly set technology standards for India’s digital markets, spurring companies to enter new open-networked markets, from online payments to healthcare.
The Bangalore-based group is championing a new set of players – account aggregators – to unlock a much sought-after prize: bringing 80% of adults in developing countries into formal credit. 40% in rich countries) which do not borrow money from traditional institutions.
But these people and their micro-businesses are increasingly online thanks to innovations like JioPhone Next. They pay rents, tariffs and utility bills and receive payments on their smartphones, strewn their fingerprints all over the internet.
Account aggregators will bring these digital crumbs together for people to share their own data in a machine-readable format for bank loan application.
Introducing a layer of consent managers is important. Emerging market borrowers can have many types of account-based relationships. Yet they can be of no use to banks if they cannot present a composite picture of their financial life to access formal loans that are monitored by the credit bureaus.
Over three-fifths of India’s adult population are either invisible to credit assessors or viewed as not worth it by standard lending institutions.
In an advanced economy like the United States, services like Experian Boost and LenddoScore help close the visibility gap for at-risk borrowers by requiring them to voluntarily submit utility or video streaming bills to demonstrate creditworthiness.
But in an emerging market with poor financial literacy, banks prefer to leave the bottom of the pyramid to lenders who know the borrower in real life or have social leverage over them, such as microfinance companies that lend to women’s groups.
Conversely, technology platforms, intimately aware of their customers’ online behavior, can match them with loans, collect fees while leaving the risks to the banks. Jack Ma’s Ant Group Co grabbed nearly a fifth of China’s short-term debt before Beijing called off the game.
Not every country can afford to unleash the heavy artillery against its private sector: politics would not allow it. Aggregators can be a much more flexible tool for maintaining loan market equity, giving banks a reasonable economic chance to compete with data-rich tech giants.
Take JioPhone Next. It will spit out data on a large segment of the poorly banked population. Jio, Ambani’s 4G telecommunications network, will capture some of it as subscribers of its cheap data plans buy groceries from JioMart, an online partnership with neighborhood stores across India .
Google will also get valuable data on users’ location and search queries. Facebook Inc will harness its own knowledge, as the social media giant adds to its Indian customer base of half a billion people for WhatsApp and a growing craze for Instagram Reels, a video-sharing platform.
Unsurprisingly, then, Google wants to influence the deposit market in India, and Facebook is nibbling in the small business loan pie.
When it comes to real-time data, banks can never match the weight of platforms. But snapshots from account aggregators can help them get a break.
Just enough extra data that will tell them if a customer is more creditworthy than a low (or no) credit score suggests can make a big difference in terms of profit, especially since banks won’t have to pay. high fees to Jio, Google or Facebook for their proprietary reviews.
By explicitly owning and sharing their data, customers will avoid getting trapped in the biased algorithms of the tech industry. Small businesses will be able to show their cash flow to lenders by pooling everything from tax payments to customer receipts.
Once the telecommunications companies are engaged, an affordable “buy now, pay later” plan to purchase a refrigerator will become possible for a low-income family who regularly pays their phone bills.
Aggregation, being a public service, will be like tap water at the Evian platforms, and will be priced accordingly. Who will own the pipes? Walmart Inc’s PhonePe, which manages India’s most popular digital wallet, has received in-principle approval to be a central bank aggregator.
Eight banks, which alone account for 48% of all accounts nationwide, have agreed to use the framework, which went live on Thursday.
It’s a good start. The banks are in desperate need of help to stay in the money game. Or they’ll just yell at regulators and ask them for special protections against Big Tech.
It would hurt experimentation and delay the credit revolution that US $ 50 (RM208) phones can spark. – Bloomberg
Andy Mukherjee is a Bloomberg Opinion columnist covering industrial companies and financial services. The opinions expressed here are those of the author.