How banks and businesses use fintech to support vulnerable markets

The demand for fintech has boomed across the Asia Pacific (APAC) — making banks and businesses sit up to listen to the needs of consumers here. 

The kind of fintech services needed here, however, might be a little different from more developed nations yonder the oceans.

Firstly, APAC customers aren’t quite well-banked, meaning to say, there are high numbers of underbanked and unbanked customers in the region. 

It is estimated by the World Bank that around half of the adult APAC population does not own a bank account. 

As such, much traditional banking and financial services are out of reach of a large number of those in the market.

Despite that, there is a massive need for fintech services, especially in payments in APAC. This has grown considerably alongside the increase in online activity brought about by the COVID-19 pandemic.

Financial woes in APAC

Recently, Forrester Consulting released an Experian-commissioned study on credit decisioning and alternative data use. 

The report found that banks and lenders in APAC are increasingly aware of the critical need to better protect their customers from falling into financial hardship. 

The report highlighted the growing concern of financial woes by consumers, given how the pandemic has affected the economic stability of many in APAC. Not surprisingly, poor credit decisions negatively impact the financial situations of customers. 

Over half (54%) of APAC banks and lenders surveyed in three markets agree that putting customers in a hard situation (54%) is one of the top implications of a poor credit decision, just behind financial loss (60%). 

The study surveyed 164 banking, fintech, and non-banking lending decision-makers managing credit risk in Australia, Indonesia, and India.

It found that while most are confident in their credit risk decisioning performance, the top underperforming area is the management of hardships and collections, with 54% agreeing there is room for improvement. 

Fortunately, the study also found 80% of organizations are focusing on developing monitoring and early-warning systems as a top risk management priority — and they have plans to continue investing in this area over the next one to three years. 

These statistics suggest that organizations in APAC are increasing investment in technology to predict and identify early signs of financial stress, including taking on higher-cost loans, a loss or drop in income, greater reliance on savings, and a shift in spending on high priority items. 

The takeaway from this is that this will enable personalized management plans to be rolled out to support affected individuals through these difficult times. 

Emerging trends shaping fintech use by banks and businesses

The rise of automation

Firstly, automation is a critical priority for credit risk management, and consumers are expecting more from organizations.

Increasing automation is ranked as a high or critical priority for credit risk assessment and management in the next 12 months by 73% of businesses. 

Over half (52%) say that this is to increase the speed of credit decisions and reduce manual errors in the risk decisioning and management process (50%). 

With that said, 33% say there are challenges in increasing the automation of credit decisioning and management, mainly with how current automation technologies have not matured yet. The other would be that they face challenges due to legacy technology and systems (26%). 

A higher speed of credit decisioning and quicker loan approval rates could provide a vital lifeline for consumers. 

In fact, 75% of Australian consumers believe home loan approvals should happen within three days, while 50% expect the approval to take place within 24 hours. 

Increased data sources needed

Secondly, a broad spectrum of data sources is needed for a holistic view of customers in order to improve financial inclusion

Improving the use of data and insights in business decision-making has emerged as a top priority for businesses (44%). 

However, organizations are not leveraging all the data sources available to them. In fact, 34% of respondents agree that their organization has declined applications from viable customers due to insufficient credit data. 

To improve risk assessment and management, lenders will continue to leverage more traditional forms of data such as banking or credit bureau data (41%) and tap on new data sources such as alternative credit data (40%) for credit risk and management over the next 12 months. 

Alternative data sources include telco data, consumer data, or e-commerce data, and provide a comprehensive credit profile of a potential customer. 

The use of alternative data means lenders can better assess their customers’ creditworthiness, providing them with critical access to credit which could transform their lives for the better. 

Today, Buy Now Pay Later platforms are gaining popularity for providing fast and easy credit to more people. While beneficial for the underbanked, if not carefully monitored, BNPL platforms could put consumers at risk of overextending themselves. 

Therefore, alternative data is extremely critical in ensuring credit risk assessments are accurate in setting personalized spending limits so that customers spend sustainably and responsibly. 

Prioritizing long-term customer relationships

Banks and lenders are also now pushing for an elevated customer experience (CX) as part of strategies to prioritize long-term customer relationships.

As more customers are reached online, there is a lower focus on reducing costs (23%) and more investment in improving online customer engagement to build better relationships.

The study found that businesses thought that improving CX is one of the most important business priorities (43%), alongside growing revenue (42%). 

Organizations appear to understand that nurturing strong relationships with customers is essential to building strong brand loyalty.

A 2021 Global Decisioning Report by Experian also showed that 59% of consumers would give a company more business if they felt that they were treated fairly.

It’s clear from the trends we see in fintech that the demand for digital and online banking and financial services will not reduce in the coming years.

Aside from banks, it’s also great to see businesses in APAC ensuring that vulnerable markets are protected enough through sound business decision-making powered by data and analytics.

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