Many people going through the bank loan process are justified in feeling banks may be a little too arbitrary in assessing risk. Based on their criteria you either make it or you don’t. There’s not much grey there.
More and more people do not even get the opportunity to get turned down, because they have no credit history whatsoever. They may be new graduates or perhaps they only recently came to America.
Others are financial Jack Bauers, living off the grid, a feat made easier by the growing number of alternative financial options available to them.
That works great until they need a car, mortgage, or a small business loan. Many do not even bother heading to the bank because they have nothing to bring, no proof they are low-risk.
To the rescue comes social media, or more accurately, companies who have figured out a way to mine social media for information that is a reliable risk determinant.
One such company is Berlin-based Mambu, creators of a cloud-based banking platform that is used by more than 100 financial institutions in close to 30 countries.
Mambu is the Malaysian word for bamboo. Bamboo is the world’s most versatile and fastest-growing plant, but only in optimal conditions, an apt symbol for how Mambu aims to help alternative lenders.
Bankles Times spoke with Mambu CEO Eugene Danilkis about Mambu’s new partnership with Lenddo, an online platform combining community-based micro-finance techniques with social media data to help the unbanked and underbanked obtain loans.
Mr. Danilkis saw Salesforce bring CRM to the cloud and Netsuite do the same for ERP and believed he could do it with banking, and in the process take advantage of mobile and tablet technology to bring a reliable financing option to microlenders, small business owners and regular people finding themselves in need of a loan.
Mambu works with two different types of platforms, Mr. Danilkis said. There are the greenfield disruptors wishing to move into new markets banks are not capturing and there are those believing they can beat the banks at their own game by doing it better and faster.
Some platforms build their own systems in-house, a process that can take years. Others partner with companies like Mambu, who can help them get to market months faster. Depending on the relationship Mambu can address important but non-value adding components, Mr. Danilkis said.
“They effectively outsource parts of their business that are critical but do not add value, things such as managing transactions, interest rates, things that are the same across all lenders.”
The Mambu team is kept on their toes because of the unique needs of their different client groups. These groups are also located all around the world, where each region comes with unique challenges. African microfinance organizations have different needs than Chinese small business lenders, for example.
Mambu also works with more traditional entities who want to digitize their processes to keep up, Mr. Danilkis said, citing examples from Mexico, Scandinavia and the United Kingdom.
While Mambu’s goals are to both simplify and accelerate an effective platform, Mr. Danilkis recognizes it would be a mistake to remove the human element entirely from the process.
“There is a fair degree of manual decision making in micro-finance lending,” Mr. Danilkis said. “It is still hands on as (lenders) strive to understand those customers. In those cases you assist them in pulling in as much information as possible from as many sources as possible and structure that internally so they have a good assessment and disbursement process.”
A key factor in developing the right solution for a client is to look at each company’s unique workflow which Mambu then develops the technology to support, Mr. Danilkis said. Mambu configures the information the client wants to capture and integrates different credit scores into the application.
Unlike most banks, alternative lenders see the grey and want to employ systems that provide their staff the flexibility to work with the many unique credit situations they face, Mr. Danilkis said. That ranges from automatic application rejection or acceptance which is an important feature of many western platforms to manual decision making in which case Mambu provides supporting data.
In Mambu’s partnership with Lenddo, Mr. Danilkis said Lenddo built their own credit engine and used Mambu to manage core aspects of their banking portfolio. That allowed Lenddo engineers to focus on data science by looking at an applicant’s activity on such sites as LinkedIn, Facebook and Twitter, Mr. Danilkis said.
Some of the social media factors they looked at included contact lists and even what types of comments tend to be made about the applicant, Mr. Danilkis said. They also look at utility bill payment history as one way of assessing reliability.
“Better information leads to better rates,” Mr. Danilkis said. “Rates that are cheaper than payday loans and other options.”
The physical locations of Lenddo and their target markets are a testimony to the global nature of the alt-fi industry, Mr. Danilkis said.
“The Lenddo team is in New York City but they operate in Colombia, the Philippines, and Mexico,” Mr. Danilkis said. “These countries have large emerging middle classes with few options outside some banks and payday loans.”
“Not many have credit scores, yet most are connected online on LinkedIn and Facebook.”
Lest you think we are about to head down a dangerous control path, Mr. Danilkis was clear that applicants must give their permission for their social media footprint to be captured.
Mambu clients have the flexibility to create their own customer scoring heuristics, Mr. Danilkis said. Those models determine the amounts loaned and the interest rates paid. No more spreadsheets.
This improves the efficiency per loan which has always been a challenge for small business lending,” Mr. Danilkis said. “If you take a week for a $10,000 loan assessment why would you do it for that when you can do it for a million dollar loan.”
Mr. Danilkis said new market entrants are figuring out ways to complete smaller loan assessments much quicker than established players, and in doing so they are grabbing an important share of a previously underserved market.
In linking with first-time borrowers, these platforms hope to develop a lasting relationshuip, one where these people come back for car loans, multiple mortgages, consolidation loans and small business loans to the one that helped them when no one else would.
Such platforms are also attractive to clients because they often are much more easily capable of adapting to a client’s changing circumstances.
“What’s just as important is what happens over the lifetime of the loan,” Mr. Danilkis explained. “If business is good they can reinvest and take out a larger loan. If there is a downturn they dont get killed by fees and charges.”
“That is where the alternative platforms are attractive. You don’t get stuck in the corporate bureaucracy where you are a complete nobody customer and you’re stuck in the same process as a large corporate lender.”