Building Trust in Business Transactions

By Thabo Molefe

Credit bureaus serve as crucial intermediaries in leveraging data to bridge the gap between formal and informal economies, enabling access to formal credit for previously excluded individuals and fostering economic expansion through trust-building financial transactions, while addressing challenges such as loan stacking through comprehensive data analysis, and promoting financial inclusion via advanced technologies and strategic partnerships, thus shaping Africa's financial future positively.

Building Trust in Business Transactions

Operating a business today is almost impossible without the insights and understanding provided by data. Data enables informed decision- making, problem solving, deeper business and customers insights,and enhances operational efficiency and agility.
Data, in the context of a credit bureau, has become integral to the success of many financial services organisations across the continent. Enabling lenders to identify associated risks and possibilities with their customers, tapping into new customer segments, ultimately increasing their market share.If organisations only use their own data for lending decisions, they can quickly become isolated. This is where credit bureaus ensure fairness and inclusion by creating an enabling environment for trusted data-sharing between providers to create a more comprehensive view of the market.

In Africa, informal transactions have long been the norm, driven by a growing informal sector that sustains many livelihoods. Formalising these transactions is crucial for expanding economic opportunities and fostering trust. At TransUnion, we bridge this gap by consolidating data from every possible source, including formal financial institutions and even telecoms services providers. By aggregating this once disparate data, we can provide a comprehensive view of individuals' financial
behaviours to empower lenders to make more informed decisions.

Consider for example, the story of a small-scale trader who starts by selling vegetables at a local market.By considering alternative data, this trader's economic activities, such as mobile transactions, utilities services and municipal payments, can be captured and analysed to create a credit profile. Armed with this information, the trader can access formal credit facilities to expand their business, ultimately becoming part of the formal economy and being able to grow.

Economic expansion

The sharing of credit information among businesses, financial institutions, and credit bureaus is instrumental in driving this economic growth. By bringing individuals from the informal sector into the financial mainstream, data-sharing based on the concept of ‘give to get’ facilitates greater access to credit and financial services. For example, we can leverage alternative data sources such as mobile payment histories and electricity bill payments to assess individuals; creditworthiness, thereby providing previously credit-invisible individuals with credit scores and access to formal credit.This increased data sharing has already yielded noticeable economic benefits, particularly in East Africa.Kenya, for instance, has seen a significant shift in credit inclusion, with formerly excluded individuals now accessing formal credit facilities. By harnessing data analytics and behavioural scoring models, we are empowering lenders to extend credit to individuals not purely based on traditional metrics like payslips but rather on their financial behaviours.

Navigating challenges

Greater inclusion does not come without its share of challenges. The continent has a diverse landscape with many data holders believing they do not need access to credit bureau data. Some even consider data sharing as a threat to their competitive advantage. Yet, we emphasise the mutual benefits of data sharing, including fraud prevention and having a more comprehensive view of customers to enable more informed lending decisions that benefit both the consumer and the lending institution.
For instance, a practice referred to as loan stacking has gained significant momentum. This is where bad players come onto the books of credit providers by applying for smaller loans from multiple lenders with no intention of repaying them. Loan stacking has become a challenge for many service providers.

However, by accessing consolidated credit bureau data, lenders can protect each other by having a holistic view of all customers. This also quickly highlights any fraudulent trends to be aware of. By embracing advanced technologies like cloud computing and machine learning, we can ensure data is secured and its analysis is done with stringent data privacy regulations in mind. We are also embracing strategic partnerships with reserve banks across the continent and adopting mobile-based solutions. For us, it comes down to financial inclusion, particularly among marginalised groups like women. Initiatives such as Rwanda’s Menyesha app enable individuals to access credit scores easily, fostering trust and transparency in financial transactions. This highlights the need to embrace alternative data in driving economic growth.

In East Africa, our expertise in accessing alternative data from various non-traditional sources fuels innovation and attracts FinTech investment. The future of financial inclusion in Africa lies in the continent’s ability to harness technology for trust-building and financial inclusion. By adapting to diverse economic landscapes and embracing data-driven solutions, credit bureaus play a critical role in shaping the continent’s financial future.

The author is Head of Africa Regions at TransUnion