Addressing visible concerns of invisible consumers

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According to figures from the Bangko Sentral ng Pilipinas, 51.2 million or 71% of the total Philippine adult population are unbanked and, therefore, credit invisible. This reflects an alarming reality for the majority of Filipinos who utilize informal (and therefore, unregulated) channels to secure loans, such as loan sharks.

In addition, some Filipinos may have a good track record when it comes to paying back loans — but to friends or relatives and not to formal financial institutions. Being credit invisible means that many Filipino adults, due to lack of any type of credit history, are subject to a catch-22 when they need to make big-ticket purchases like a car or a house and are unable to qualify for loans from financial institutions.

If we are to come closer to achieving financial inclusion for Filipinos under AmBisyon Natin 2040, the Philippine government’s long-term vision culminating in 2040, then much needs to be done. We need to build not only awareness but concrete steps so that more Filipinos can have access to financial services.

Financial inclusion through credit scoring
Credit scoring has long existed in different parts of the world, and although growing in the Philippines, levels of participation are still behind that of many other developed credit economies. A good credit score can be an enabler that helps someone gain access to credit and the economic opportunities that can bring. Credit scores help lenders to better assess a consumer’s financial risk, and based on the increased insight they can bring often enable them to give you better terms and interest rates because of your credit history.

But if someone is unbanked, it follows that there is no historical record of their spending and, more importantly, paying behavior on which to base an assessment of the risk they represent as borrowers.

In 2011, TransUnion, the first international private credit bureau in the Philippines, was established. TransUnion’s vision is to make trust possible between consumers and business — this includes helping more Filipinos become credit visible so they can access more financial products at competitive rates. This endeavor is backed by some of local banking industry’s stalwarts, including Banco de Oro, Bank of the Philippine Islands, Citibank, Metrobank, and HSBC.

TransUnion leverages technology and innovation to help member banks and financial institutions support nation-building. Where traditional data from financial institutions isn’t available to give a traditional credit score, we use our international experience to leverage alternative data assets and take a different approach.

In the Philippines, TransUnion recently launched CreditVision Link. It is the first credit score to combine trended credit bureau data and alternative data sources to give a more robust and well-rounded picture of someone’s credit viability.

While TransUnion Philippines has access to traditional data, e.g. credit and loan payments and credit card statements, relying solely on this data can return searches on many potential customers as “no-hit” or “thin-file” results, putting loan applications in jeopardy.

CreditVision Link utilizes telco data as basis for alternative scores, including telco reloads and payments, and mobile data usage. In a country where, according to data from Statistica, there are almost 169 million mobile phones in use, that is a good data source. As a result, more consumers become credit visible with more comprehensive assessments of spending and payment behavior.

Benefits of converting the credit invisible
Seventy-one percent of the Philippine population is a huge, untapped market. If banks and financial institutions can convert even just a portion of that adult population from being credit invisible to credit visible, they will make more opportunities available for Filipinos to enter and participate more fully in the Philippines’ economic recovery.

By relying on more comprehensive and reliable data about Filipino consumers, lending institutions can expand their customer base, increase their booking rates and the number of people they can help to achieve great things.

As we face post-pandemic times and work together to help restart the Philippine economy, empowering a greater number of Filipinos to be more financially independent begins with making the financial market more inclusive. As they step out of the shadows and become visible consumers, they will boost financial growth and act as a catalyst for the economy, benefitting not only themselves but the entire country.

PIA ARELLANO has over 25 years of industry experience across banking, payment solutions, telecommunications, and remittance services. She has been instrumental in establishing TransUnion as a risk management and data solutions and insights partner of banks and financial institutions in the Philippines.

Email questions to tuphcomms@transunion.com.

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