A smartphone believed to be priced below $50 (about Rs. 3,650), probably the cheapest in the world, will go on sale within a week. If Mukesh Ambani’s JioPhone Next, an Android device customized for India by Alphabet’s Google, is a hit in the price-conscious market, it will solve one problem for banks while presenting another. With the remaining 300 million conventional phone users in the country going online, there will be a surge in customer data that can replace the warranty. The question is: how will the banks get their hands on this?
One answer came from iSPIRT, a small group of policy influencers that quietly set technology standards for India’s digital markets, pushing companies to enter new open-network markets, from online payments to healthcare.
The Bangalore-based group is advocating a new set of players – account aggregators – to unlock a much sought after prize: bringing into the folds of formal credit the 80 percent of adults in developing countries (40 percent in rich countries) who don’t borrow money from traditional institutions.
But these people and their microenterprises are increasingly online thanks to innovations like JioPhone Next. They are paying rents, taxes and utility bills and taking payments on their smartphones, spreading their footprints across the Internet. Account aggregators will gather these digital crumbs for people to share their own data in a machine-readable format for a bank loan application.
It is important to introduce a layer of consent managers. Emerging market borrowers can have many types of account-based relationships. However, they can be useless for banks if they cannot present a composite picture of their financial lives to access formal loans monitored by credit bureaus. More than three-fifths of India’s adult population is invisible to credit appraisers or not considered valuable by standard lending institutions.
In an advanced economy like the United States, services like Experian Boost and LenddoScore help close the visibility gap of subprime borrowers by having them voluntarily submit their utility bills or streaming video to demonstrate their ability to credit. But in an emerging market with low financial literacy, banks prefer to leave the base of the pyramid to lenders who know the borrower in real life or have some social influence over the borrower — such as microfinance companies that lend to women’s groups.
On the other hand, technology platforms, intimately aware of their customers’ online behavior, can match them with loans, charging fees and leaving the risks to the banks. Jack Ma’s Ant cornered nearly a fifth of China’s short-term consumer debt before Beijing broke the game.
Not every country can afford to use heavy artillery against its private sector: politics would not allow it. Aggregators can be a much smoother tool to keep the lending market fair, giving banks a reasonable economic chance to compete with data-rich tech giants.
Take JioPhone next. It will spread data about a large segment of the population with few banks. Jio, Ambani’s 4G telecommunications network, will capture some of this as subscribers to its low-cost data plans buy groceries from JioMart, an online partnership with neighborhood stores across India. Google will also get valuable data on users’ locations and search queries. Facebook will tap into its own knowledge as the social media giant grows its half-billion Indian WhatsApp customer base and a growing craze for Instagram Reels, a video-sharing platform. Unsurprisingly, then, Google wants to influence India’s deposit market, and Facebook is nibbling at the small business loan pie.
When it comes to real-time data, banks can never match the influence of platforms. But account aggregator snapshots can help them take a break.
Just enough additional data that will tell if a customer has more credit than a low (or none) credit score suggests can make a big difference to profit, especially as banks won’t have to pay hefty fees for people like Jio, Google or Facebook for your proprietary ratings. By explicitly owning and sharing their data, customers will avoid getting caught up in the technology industry’s biased algorithms. Small businesses will be able to show their cash flows to creditors, combining everything from tax payments to customer receipts. Once telcos join the company, an affordable “buy now, pay later” plan on buying a refrigerator will become possible for a low-income family who pays their phone bills regularly.
The aggregation, being a utility, will be like tap water for Evian from the platforms and will be priced accordingly. Who will own the tubes? Walmar’s PhonePe, which manages India’s most popular digital wallet, has in principle received approval to be a central bank aggregator. Eight banks, which among them account for 48 percent of all accounts in the country, have agreed to use the structure, which went live on Thursday.
It’s a good start. Banks desperately need help to stay in the money game. Or they simply cry to regulators and ask for special protections against Big Tech. This would hamper experimentation and delay the credit revolution that $50 phones (about Rs. 3,650) can trigger.
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