Andrew Day: Transformational lending in a digital age
The world of financial services has shifted, with the past decade particularly having ushered in a raft of new technologies that have transformed the industry globally. Data, the way it is used, and the services companies offer have all undergone massive changes which have been accelerated since the start of the pandemic.
Andrew Day, CDO for Pepper Global, believes the use of data will be key in improving the financial wellbeing of millions of people globally, who have been left behind by traditional financial systems.
A data and analytics leader with a career background that saw him spend many years in the telecommunications industry, Day believes that the key to better customer services, products, and a healthier financial market, is all dependent on how data is used. In the world of finserve, it’s also a way to bring financial literacy to those who have been sidelined by traditional institutions.
Doing data differently
Day believes data and its handling is a cross-industry skill – and that all businesses could benefit massively from the correct handling and analysis of data.
“I think the headline is that a lot of the problems you solve in any industry with data and analytics are transferable from industry to industry. So how you collect, collate and manage data is the first part of the process. A lot of the problems that any business faces in understanding, predicting, and adapting to customer behaviours are completely consistent.”
Customer behaviour, he says, is key. And understanding it will result in better business management, regardless of which industry you might be in. “One of the number one problems in the telco space, for example, is predicting who is going to leave your network and join another person's network. You have exactly the same problem in lending businesses. Who is likely to prepay their loan, move their loan somewhere else?”
A company of two halves
Pepper Global has acts as both a lender in multiple countries and as a specialist servicer – working with banks, non-banks, fintechs, and funds. Day’s main role is to work out how the organisation can leverage data it gathers from its 13 globe-wide centres, and use it to deliver better outcomes to customers. He describes the task of recognising and managing data as a three-pillared process.
The first pillar is recognising that as a group, or rather in the group function. “We don't have a monopoly on good ideas,” says Day. “One of my roles is to work out how we surface the good stuff that's happening in the various business units around the world.
We work out what’s happening from a data and analytics and tech perspective. We then make sure that's shared across the group so we can replicate that where appropriate.”
The second part of the process involves innovation and experimentation – an area that Day is passionate about. He heads up a team of engineers, data scientists, and technologists, who work with the business units to identify applications that could potentially deliver value back to Pepper businesses and their customers.
He explains, “We build innovation projects and experiments that enable us to test the innovations. When we find ones that work, we push them into the business units and the business units then take ownership and deliver those outcomes to the customers.”
The third pillar of the process involves the upstream customers. Day says, “We work with banks and fintechs, delivering analytic solutions for them on a commercial basis. We take the experience we've got in managing our own business using AI, machine learning & data, and provide that as a commercial service to some of our partners.”
By his own admission its broad remit is in a very entrepreneurial business, which Day describes as “very exciting.”
Emerging markets and data patterns
In his capacity as CDO, Day is playing a lead role in Pepper Global’s decision to use its expertise to launch cutting-edge financial services in Indonesia – which has one of the highest unbanked populations globally.
According to a recent report by the Jakarta Post an estimated 66% of Indonesia’s 275 million-strong population is currently unbanked.
Breaking into an emerging market brings with it a massive set of challenges that include lack of technological infrastructure, geographical roadblocks, no financial history and cultural resistance to change. As Day says, “How can you credit check someone with no financial history - or enable people to get into the world of financial services, to build a credit history, and really drive financial inclusion?”
Giving customers alternatives in that part of the market, he says, is a huge opportunity that is massively beneficial for nations and customers alike. “The idea that you can make borrowing accessible, get people onto the financial services ladder, and enable them to build a credit file, is a very exciting prospect. That then becomes self-fulfilling in many respects. It's often seen as the way that the middle classes grew up in nations, that notion of becoming increasingly financially inclusive.”
Weighing up the challenge
Day believes the opportunities by far outweigh the difficulties, even though one of the challenges is that as people enter the world of borrowing in particular, the commitment that they're taking is quite often misunderstood or poorly understood. “Part of our job is to be a responsible lender. Being mindful of bringing customers into a lifetime journey is incredibly important. We do that in a way that suitably informs them, and gets them into a position where they understand their commitments, and that we lend to them in a responsible fashion.”
And establishing some sort of profile on customers without a credit history is far from impossible because data can provide key indicators on loan repayment capacity. “Without credit files and credit bureaus, we're quite often reliant on data that acts as an alternative to traditional credit scores,” says Day.
“We've had to learn the hard way in terms of what data is valuable in those processes and see that partnering with ecosystems in that respect is a valuable way to progress into emerging markets.”
“That’s not to say that traditional credit data isn’t important. It's critical where it exists, but either where it is lacking or non-existent, seeking alternative methods is a necessity”
It’s an evolving process that is growing and improving as technology and more information is gathered. Indeed, it’s even possible that alternative credit checks could even become more of a reliable indicator of solvency and loan repayment reliability, than old-fashioned financial histories.
“Inevitably, when you're starting with a blank sheet of paper without any borrowers, you have to hedge a little bit. You take some chances. You make some sensible decisions around the data you can get access to, and you create rules around who you should and shouldn't learn to lend to. Off the back of that, you lend some money and see what happens. It's a classic machine learning challenge.
“As you start to gather data, performance data on loans, then you can start to work out what data genuinely enables you to score well in the broadest sense and make increasingly more reliable decisions.”
Defining useful data sources
Deciphering which data is the most useful in assessing customer reliability, is where Day’s former experience in telecommunications comes into its own.
Pepper is concentrating more on long-term values for customers rather than short-term sales. Their aim is to build a relationship with their users, providing them with a range of services that keep them coming back for life-cycle events.
He explains, “Mobile telco data becomes important in some markets and there are a number of people that are building credit scores from mobile phone data. We actually see the world in more than one dimension from a scoring perspective.
The credit score is one thing, but also the ability for us to manage a customer through a life cycle, to think about lifetime value or longevity of loan, the ability to cross and upsell are all part of that scoring process, and so the more data, both specific customer level data that you might get from a mobile phone or from an app, a wallet or whatever, as well as markets data and local market data is valuable.”
And there are highly accurate ways to assess the viability of a customer in terms of loans that are also outside the IoT sphere. Day explains that data on weather patterns in various regions can indicate if and when a loan will be paid. If rainfall is exceptionally high or low, it indicates crop volumes will be below par and as a consequence, the local economy will suffer.
Pollution is also an indicator. The higher the air pollution is in an area, the greater indicator of better credit scores. “Why is that? Because air pollution is an indicator of economic activity. We look for signals in markets that are not necessarily the traditional signals, and couple those where we can with customer-level data, and that's part of the magic sauce,” he explains.
Data harvesting and management
As the IoT grows exponentially, and more and more data becomes readily available to companies, insights become razor-sharp. But so too do the potential pitfalls. Too many times, businesses have fallen foul of regulations, by either selling customer data to third party companies, getting bogged down with data gravity and silos, or even letting sensitive and exploitative information fall into the hands of cybercriminals. Managing the way data is collected, used, stored, and then disposed of, is a task that bears heavy legal and ethical ramifications.
Day is only too aware of the cost of poor information management, and says though it can be handled effectively, it’s not an easy task. He explains, “I would like to say it's really clean and straightforward. But that's far from the case. Pepper has a standard footprint of technologies.
But like every group company, it’s not helpful or practical to mandate the specific use of these in each of the business units. They are at liberty to create or choose the technologies that help them deliver the best possible service into the local market. We're there obviously to provide advice, but we certainly aren't the tech and data police.”
Instead, Day’s job is to make sure all units are operating as efficiently as possible. And to do that Pepper uses technologies that include Microsoft Azure and GCP. These are paired with tooling that is core to data management, enabling the data to be shared across the group.
“We use DataRobot, Alteryx, Tableau and Snowflake in some business units,” Day says. “We also have Power BI widely deployed. So it really is a question of us providing advice on tooling from a group perspective, but letting the individual business units decide how the technology suits their own situation.
A really good example of that is actually as we enter some of the emerging markets, the availability of some cloud providers isn't there, so we have to think creatively about how we move from cloud to cloud, or from technology to technology.”
Data as a growth enabler
Day works with data from a holistic perspective, with the view that it is of use throughout the entire value chain. The end-to-end process is critical, he says, because data answers key questions that emerge throughout the process, such as
- How to make the right investment
- How to manage customer engagement more efficiently
- How to manage operations
- How to develop the right products
- How to understand customer behaviour
For Pepper, the deployment of natural language processing (NLP) in their call centres, has been an innovative step in gauging the intentions of the customer, from stress-related phone calls that could dictate better question patterns, to pick up on potential fraud attempts.
“Amongst other applications, we're using NLP to help manage compliance processes,” Day says, “So, literally every step of the process from thinking about what products you might develop for a marketplace through to managing a customer in the latter stages of them being a borrower is where we see the opportunity to drive value through data.
“I think there's not a single big lever. It's about a myriad of applications across the value chain rather than one big thing that's going to make a massive difference, although they do vary in scale obviously from application to application.”
While many new fintechs took to digital transformation with ease because they were built with agile core technologies, other companies with a longer history have not found the task quite such a smooth ride. But shaking off the old and embracing the new can be an invigorating process if the business culture is welcoming of change.
He explains, “I think businesses that are 20-plus years old have a degree of legacy - certainly from a tech perspective. Widespread use of cloud, software as a service, etc., are, relatively speaking in technology terms, new to the party. And actually, when we started 20 years ago, smartphones didn't exist.
“So I think it's fair to say that the business has been on a journey. I think a lot of that is about how we reframe the businesses in a kind of digital, data, and tech savvy way.”
Day says an example of this ‘reframing’ is the way Pepper Savings Bank in Korea created a digital bank alongside the existing bank, largely because trying to create a sea change within the legacy platforms is challenging and innovating on the side was the answer.
“I think it's also fair to say that over the last 20 years, the relationship between lenders, borrowers, and intermediaries, like websites and brokers, has completely changed. They used to be very linear. You want a mortgage, you go to your mortgage advisor or your broker, you apply for the loan that he thinks is right for you, and you do that through paper-based or maybe email-based transactions. But today, the customer journey is far from linear.
“People want to engage through WhatsApp and SMS, email and video calls, and face-to-face so we've had to think about how we re-engineer business processes and customer processes as a result of customer demand.”
Day says this is a common theme around the way that Pepper approaches its markets because the company prioritizes thinking about the customer at the core of the process and product development.
“Ultimately, I think the thing with fintech that inspires me is the ability to be customer-focused and data-driven. The fintech world is all about meeting a customer need through technology and underpinning that with data and insights, and I think how you create enduring customer relationships has historically been very transactional but could be far beyond that. The focus is now on how you build trust by improving the experience and helping customers reach their financial goals, and in turn to come back to you when they need to.
He adds, “I think in the financial services world, a lot of organisations think about that one-time transaction. How do I sell this customer a loan? How do I sell this customer a pension? How do I sell them a product? I might sound like a bit of a broken record, but providing customers with an opportunity to re-engage with you is the thing that I think will set the winners apart from the losers.
“For me, that means the key measure of success probably isn't Assets under management or the number of products you've sold, it's lifetime value, and I think that's probably the number one change that customers deserve, and it re-frames the whole financial services conversation.”