The term ‘credit’ means different things to different people. In a developed economy, it’s about measuring the value of one’s availability to receive goods and services based on the expectation that they will be paid back. A credit score is as important as a social security number, driver’s license or passport in establishing identity and offering opportunity.
Yet for the majority of people around the world, the idea of credit is just that – an idea. The lack of access to formal financial services – or any kind of financial identity – makes building a credit profile impossible. People in these cash-based societies are limited not just in acquiring financing to provide opportunity and relief, but they are often hampered in accessing their own cash during off-hours when stores or banks are closed, in remote locations, or during times of crises such as natural disasters.
Why Financial Identity Matters
The modern lifestyle demands accessibility to funding that is often beyond our current means. Think for a moment of what your life would be like with no access to credit. Chances are you wouldn’t own a home or a car. Most of us could not have afforded our college education. The entrepreneurs among us would be hard-pressed to build successful businesses. And what about the ways we take advantage of credit cards – basically small-time loans that exist to allow us to pay for emergencies and unexpected expenses? Our financial identity is tied up in our access to these credit opportunities.
The developing world has little to no access to these resources, largely because they have no financial identity. This is an environment where less than half of adults and small businesses own a bank account, and only one in ten people have access to credit. Yet it could be argued that a financial identity in these societies is even more vital, as the average person is informally employed and income can vary from day to day, week to week, or month to month. As is so often the case, those who need it most have the least amount of opportunity.
The good news, however, is that mobile devices – along with the existence of the cloud – are providing an entirely new landscape for the developing world. This landscape involves assigning a financial identity to those who have largely remained anonymous, reaching these populations through their smartphones. There are scores of creditworthy people on the planet, and we’ve proven before through data science that worthiness has little to do with income or wealth, but instead with the opportunity to demonstrate responsibility.
Communication as a Commodity: A Microcosm of How Credit Provides Value
Take for example a recent discovery by our data scientists at Juvo. These scientists have access to the communication habits of millions of people scattered all around the world, and as they analyzed the ways individuals reach out to one another, an interesting pattern emerged. People, regardless of location, culture, background – and yes, even wealth – value communication equally. In a comparison of countries with GDPs that range as much as 1000%, individuals spent roughly the same percentage of their income on communication and data.
Analysis of communication patterns around the world
So knowing communication and access to the outside world is a high priority regardless of income, we were curious how this commodity would be treated when resources are scarce, such as during a natural disaster.
When natural disasters strike in cash-based societies, one of the first things to happen is a run on cash. Stores, ATMs, and banks run out of money, and individuals are left without access to vital resources. Communication has proven to be as necessary a commodity as food or water in times of crises, and populations with access to some form of credit are able to take advantage of opportunities even when cash is scarce.
With this understanding in mind, we reviewed activity in the wake of recent hurricanes that rocked the Caribbean and observed a spike in prepaid mobile users topping up their phone allowances via on-demand credit extensions prior to hurricanes making landfall.
Credit-to-Cash Ratio just prior to Hurricanes Irma and Maria
What's even more striking is what takes place when the eye of the storm actually reach landfall. The following image shows the ratio of airtime credit extensions to cash top-ups as the eye of Hurricane Irma hit the Leeward Islands as well as Turks & Caicos.
Credit-to-Cash Ratio during Hurricane Irma Landfall
As Irma made landfall, purchasing airtime from shops become extremely difficult, if not impossible. The graph above shows what happens when cash based-top ups are not possible. When traditional outlets were no longer available, users in these markets turned to their smartphones and their mobile financial identity to top-up and remain connected through and after the disaster. Many of these users had established a financial identity which enabled them to progress to borrowing a month of airtime credit during the hurricane for both voice and data use. Without this access, these users would have had to go without communication during the most intense moments of the storm – and after.
The ability of previously anonymous, prepaid users to take advantage of financial services and resources via their smartphone is particularly compelling when resources are otherwise unavailable. In many developing parts of the world, it isn’t just a natural disaster that limits access. Geographic and time constraints contribute, as does the availability of work, family issues, one’s health or any myriad of reasons that prevent the instant availability of necessary cash and accompanying resources.
The Relationship Between Identity, Credit and Financial Inclusion
For these reasons, creating a mobile financial identity in order to provide mobile credit remains the best place to start to address financial exclusion in many parts of the world and smartphones are the most logical vehicle for providing it. Nearly 80% of people all across the globe have prepaid phones, and there are nearly $1 trillion in transactions taking place every day. This equates to a huge opportunity to meet people where they are, at the moment they need it, with real opportunity.
The ways in which smartphones are reaching into every corner of the globe is truly transformative. It is incredibly exciting to be involved in the convergence of FinTech and mobile, and watch how these two industries will provide substantial opportunities to people around the world. Identity opens doors. It helps people access financial opportunities they wouldn’t otherwise have. It provides a means to necessary resources across disparate location, time and circumstance and provides a clear pathway toward greater financial access and inclusion. Building a financial identity is as vital to the emerging economy as it is to well-established ones.
This is a unique moment in time – something that could not have happened even five years ago. New populations of people are providing real benefit to mobile operators and financial services alike. The ubiquity of the cloud, along with smartphones, is driving emerging credit opportunities across the globe. In turn, those opportunities are driving financial inclusion.