Leveraging digital profile to customise financial products

As the world moves to the third screen, the mobile phone and access moves to mobile network simulated devices, telecom providers sit on a large custodian of data. - AFP

In the evolving digital world, people don't walk, to meet the person; they use digital technologies for communication. While we walk, we leave footprints, similarly in a digital world we leave digital prints. These digital prints collectively work to be our digital identity or digital profile.
What is a digital profile? It is data about us - what we like, what we do, who we are. This data is scattered across the digital landscape. It is distributed on different systems, with telecom operator, your storage devices, social networking serves and applications that we use on our mobile. Combination of all the data points build our digital profile.
Digital profile is a combination of our static profile, inherent to you such as DOB, gender, nationality and dynamic profile, such as address, place of work, history of transactions and preferences of an individual such as music, shopping etc.
As the data grows, the jig saw puzzle gets completed on who we are, what are our preferences and interest and complete picture emerges. As the world moves to the third screen, the mobile phone and access moves to mobile network simulated devices, telecom providers sit on a large custodian of data.
Consider mobile phones, which have become ubiquitous. In UAE, the mobile penetration is almost 100 per cent with 15 per cent of the total base being on post-paid plan. Each of these telecom accounts provides a particularly rich potential source of data. Virtually every detail and request a customer makes is captured. When a customer wakes up and checks the phone for the first time, accessing his messages or email, the teleco network can capture when does a person wake up, based on movement of phone the network can trace probability of our place of work and place of stay, usage information on call, sms, browsing combined with device history gives preferences, customer information file provides KYC information. All combined it provides insights into the complete profile of the customer. Telecom providers knows more of your digital profile than anyone else.
This information can be leveraged not only for marketing communication, expanding customer engagement but also for retail, consumer durables and importantly credit analysis and product structuring in banking and insurance industry.
Lending to lower-income individuals and small and informal enterprises is a big challenge. Consumers don't have familiarity with formal financial structure and lenders have little data on what they traditionally use for scoring. In this scenario, most lenders either enhance the interest rate or avoid giving loan. In UAE, NPA has come down from 8.4 per cent to 6.2 per cent as an industry but the personal loan has seen a degrowth of 33 per cent over last three years. In emerging markets, higher interest rate along with penalty and fees is typically risk premium as viewed by the financial institution. In my view, it is premium of being emerging rather than being poor.
There is an opportunity for lenders to chart another path, using increased data computing power and data from telecom, to build better risk models. Data analytics helps in analysing for lenders as early warning signals to reduce fraud rates, repayment ability of consumer and most importantly willingness to repay. The alternative data set helps to understand complete financial needs beyond just classical lending. It also helps in structuring relevant product for customer, both credit and non-credit; and should be able to build a customised product for the customer.
There is an opportunity for telecos to invest in companies, acquire companies or incubate companies in the space of financial services and analytics which can harness the power of data and give telecom providers opportunity to monetize data. However, one area which needs to be addressed to leverage the data effectively, is the use of personal data of consumer and consumer consent.
To address this issue, telecos must build trust with the consumer that the data will not be misused. It is necessary that the consumer know what is the end use of the data, with whom it will be shared and have control over the data that is shared. If financial services are being offered by telecom provider through common ownership structure, the consent is simpler as compared to sharing data across different entities.
Telecom operators must use a different approach and work with regulators and ecosystem players to build a consent architecture. A consent architecture platform is a platform, with e-locker where the owner of the data and consumer gives a specific consent to share data with an entity for a specific purpose in a secured way possibly through application of block chain architecture. For this architecture to work, not only are technology pre-requisite but also policy and regulatory implication. Regulatory and policy framework must be modified appropriately to ensure digital signature and e- contracts acceptance and appropriate privacy and security laws.
In this context, balance is critical. Privacy laws should not kill innovation but also must be stringent enough to protect consumer. A potential sizeable opportunity for growth of economy lies in usage of digital data by conventional industries such as banking, retail, travel and insurance. Telecom companies possess assets which is the customer base and data that if harnessed in a judicious and ethical manner can provide impetus of growth not only to telecom companies and ecosystem providers but to the overall economy.
The writer is director at Cedar Management Consulting International. Views expressed are his own and do not reflect the newspaper's policy.