Page 25 - Banking Finance July 2017

FICO Survey: 77 Percent of APAC Banks Say Inability to Rate the Risk

of Unbanked Consumers Constrains their Business Growth

there that are still unbanked or
underbanked."
With more than a billion potential
customers in the region, the survey
found that 2 in 5 banks said they could
grow their customer base by 11 to 25
percent if they could accurately score
unbanked customers.
Furthermore, 7 in 10 respondents
believe these new customers will be
more profitable than existing
customers.

The survey showed a more even split of
opinion when it came to the potential
In a recent poll of chief risk officers from banks across Asia
for loans to go bad with these new customers. While about
Pacific, 77 percent of respondents told Silicon Valley
3 in 5 banks anticipate higher bad loan rates from the
analytics firm FICO that the inability to accurately assess
unbanked and underbanked, 2 in 5 banks believe the risk is
customers' credit risk constrains business growth.
just the same, if not lower than other customers.
In Asia, FICO estimates there are 250 million unbanked in
"FICO has demonstrated that lenders do not have to
India and more than 500 million in China, while a recent
dramatically increase their risk appetite, just because they
estimate by KPMG forSoutheast Asia puts the figure at 438
are lending to a customer who is unbanked," said
million.
McConaghy. "By taking advantage of new alternative data
There is a significant economic, social and business
sources, delivery platforms and mobile technology, we and
imperative to address the issue, with the large majority of
our partners have created new scores that deliver risk
banks in the region looking to engage people who currently
assessments that are highly predictive and comparable to
sit outside the formal banking system.
our traditional FICO Score."
41 percent of lenders surveyed said they have customer
In 2016, FICO announced an alternative data score in
growth targets of 20 percent or more for the year ahead. partnership with Lenddo to help address the unbanked
A further 14 percent said they needed to grow 15-20
population in the Indian market. A similar score was also
percent, while 7 percent need to hit 10-15 percent more
announced in the Philippines in partnership with Consumer
customers.
CreditScore (CCS). Both will help to improve and automate
"These steep targets reveal the ambitions of banks in the risk assessment using scores that are highly predictive.
Asia Pacific region, who are eyeing the unbanked and
The survey revealed that the speed of customer growth and
underbanked populations," saidDan McConaghy, president
reliability of risk assessment is still hampered by labor-
for FICO Asia-Pacific. "And while one immediately thinks of
intensive underwriting, with 4 in 10 banks admitting their
the potential of China and India, it is worth remembering
credit assessment is mostly a manual process.
that even in developed economies there are many
consumers outside the formal banking system. FICO FICO conducted the survey of 37 chief risk officers from
demonstrated this recently with our FICO Score XD launch across Asia Pacific in March 2017 at its CRO Forum 2017
in the US, which aims to address the 53 million consumers event in Phuket, Thailand.

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