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BW Businessworld

Use Of Data Analytics To Transform Into Competitive Advantages

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Regulatory mandates, especially in the financial services sector, have historically been seen as a part of the cost of staying in the business. Interestingly, in the recent past we are seeing opportunities to use advances in data, analytics and technology to turn these mandates into a core part of the business strategy and indeed in developing competitive advantage by doing so.

The banking industry in India for instance, has lived with the regulatory mandate to reach out to a larger part of the population as a means to supporting financial inclusion as also to lend a part of their portfolio to specific underserved sectors. Similarly capital requirements that have been risk weighted to the banks' assets have been seen as a central risk /accounting initiative. With data, analytics and technology undergoing a dramatic change over the past years, there are some interesting new opportunities in these areas.

Let us take a look at the financial inclusion and focus sector lending objectives first. One of the main challenges in outreach is availability of appropriate customer identity to make the on-boarding process easier. With a key data resource in the form of Aadhar that has grown to cover a much larger part of the population in the past years in conjunction with the Microfinance data being available with credit bureaus, the possibility of leveraging electronic databases to support customer identity is becoming easier. This data together with the right software infrastructure can help in automating the customer KYC process quite easily with analytics helping derive the right inferences from these data sources. Mobile technology and mobile computing platforms like the tablet can add further agility and outreach to this overall process making risk management processes stronger at lower costs and great customer experience. This is a great way to take a regulatory objective and actually turn this into a competitive advantage.

Another aspect of this inclusion is increasing credit to the underserved sectors. Again this has traditionally been a loss producing part of the portfolio for many banks given the costs of credit and collection. The starting point for evolving solutions will again be from data that is becoming increasingly available. With the increase in mobile penetration there is now a large customer base from the underserved segments that have a good track record of mobile phone usage even if it is a pre-paid connection. Additionally with many subsidy payments going directly into bank accounts through Aadhar linkage, there is also a lot of transaction information from these accounts. Transaction data is hugely predictive and can be used with the right analytical tools to develop models that can predict the customer risk. Again software tools are available to deploy these strategies/scorecards for credit underwriting in real time. Another good example of data is analytics and software coming together to potentially create competitive advantage in a space hitherto just a regulatory mandate.

Let us now look at capital adequacy modelling which has been largely seen as the domain of the risk modellers and the accountants in the past. Once again static models of the past can now become more dynamic with the inclusion of bureau data and other transactional data. These models can now become a key part of pricing decisions at a customer level with software together with the device and mobile infrastructure referred to above allowing quick outreach decisions.

Business objectives and regulatory mandates should ideally blend for institutions to derive the best benefit from the situation, it can be seen from the few examples indicated above that this is indeed possible with the coming together of data, analytics and technology.

Author is managing director, Experian Credit Information Company of India and Country Manager of Experian India