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Alternative ways to score consumer credit worthiness in the global Underbanked market



By Bernard Lunn

Fair Isaac Corporation, which invented the FICO score, was founded way back in 1956. The FICO score was one of the great Fintech innovations before the term Fintech was coined and the company is now publicly traded (symbol is FICO of course), with a market cap over $2.8 billion.

FICO invented the credit score business and they dominate it today. Of course that means that entrepreneurs look for windows of opportunity to break into this huge market.


There are two basic opportunities – in the West and in the Rest.

In the West there are about 25% of consumers who are no file or thin file. 

That is a big %. The assumption that the market makes is that all 25% are bad credit risks (“deadbeats” in common parlance). That is a faulty market assumption that leaves an opportunity in these cracks in the market:

These are the innovators we found:

In the Rest there are about 100% of consumers who are no file or thin file.

There is no FICO score in Africa for example. This is where a Y Combinator alum called SAIDA operate. They analyze SMS spending and receipts to underwrite small consumer loans. At their Y Combinator coming out event they claimed 8,100 loans with a default rate so far on their 30 to 60-day long loans of about 8.5%.

I call this the global Underbanked market. There are Underbanked customers in the West (a minority) and in the Rest (where they are a majority). While banks mostly fight over the Overbanked, entrepreneurs are serving the Underbanked. This is another example of Innovation coming from the excluded.

In the Rest, the distinction between small business and consumer is irrelevant because there a) is no FICO score and b) most people are entrepreneurs (albeit micro entrepreneurs). This is where a company like Kreditech is interesting as they claim to becoming profitable in a new market within 1 year (that was what I heard them say on stage at SIBOS) by analyzing earlier loans and their repayment.

Daily Fintech Advisers provide strategic consulting to organizations with business and investment interests in Fintech.


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