Fintech Inside #21–20th Feb, 2021 | Credit Scoring

12 min readFeb 20, 2021

Hi Insiders, Osborne here.

Welcome to the 21st edition of Fintech Inside. Fintech Inside is the front page of Fintech in emerging markets. Some call it the #1 Fintech newsletter in India. What do you think?

This week I look at credit scoring in India and the need for its disruption. 6 fintech products were launched, 4 fund raises (USD 91 mn) were announced and all the updates you may have missed.

In other Fintech news: Secondary investors are valuing Stripe at USD 115 bn! Bitcoin reaching new highs is getting boring now. Robinhood raised USD 3.4 bn in financing — 3rd largest private Fintech fund raise ever!

Aside: TATA Group acquiring 68% stake in BigBasket for USD 1.3 bn is a huge moment for the Indian startup ecosystem! It’s the first Indian conglomerate (that I can think of) buying majority in an Indian startup at that valuation. True coming of age. Here’s hoping more Indian conglomerates acquire Indian startups.

Non-Fintech news: NASA’s Mars rover, Perseverance, touched down on Mars this week. It’s monumental for several reasons (video) but two stand out for me: 1. It will fly a *drone* on another planet for the 1st time ever! 2. It has a mini lab to create oxygen from carbon dioxide!

🤔 One Big Thought

What on earth is credit scoring?

You’ve ever applied for a loan or credit card and been told that the platform will check your “eligibility” for the same? I’m sure you know that the platform checks, among other things, your credit score. I’m sure you’ve also been told that your credit score needs to be above 750 to be eligible for a loan. More recently, credit scores are being used for non-lending purposes as well. CRED famously allows users with credit score above 750 in its “exclusive club”. But, what is this credit score, what factors affect a score, who does the scoring, what’s a good score, where do I find my score — I attempt to demystify these topics along with the future of credit scoring.

So… what is credit scoring and where do I find my score? A credit score is a number that is indicative of one’s creditworthiness. A credit score is usually in the range of 300–900 that takes into consideration, among a bunch of factors, your credit performance history. Higher the credit score, the better. A credit score or “-1” means you do not have any credit history i.e. New to Credit. “Thin file” means the user has limited credit history i.e. one or two credit products. 750+ is usually considered a great score. In India, as per RBI, a Credit Information company is mandated to give an individual access to their full credit report annually, free of charge. One can sign up to Transunion CIBIL, Experian, CRIF or Equifax and get that report. But there are easier ways to get your report — CRED, INDMoney, OneScore, BankBazaar and several others give users access to a credit report free of charge and go one step further by analysing it and helping the user to improve the score.

Who does the scoring and what data is used for the score? In India, only 4 entities are granted “Certificate of Registration” as “Credit Information Companies (CIC)” to collect credit data and score users — TransUnion CIBIL, Experian, CRIF and Equifax. Quick Trivia: CIBIL formed from by a consortium of banks and was, over time, acquired US-based TransUnion. Each lender (Banks/NBFC’s) must be a member of at least one CIC and send all loan data on a periodic basis. If you look at your credit report, the credit score is composed of information on KYC, mismatches in KYC, loan applications (not approvals), loans approved and utilisation, repayment performance with delays (if any), credit limit utilisation or under-utilisation and more. Obviously, recency of data has higher weightage in the score. All lenders have to provide entire data on borrowers to CIC’s periodically.

CIC’s exist to solve a very crucial part of the lending infrastructure. They are centralised third party entities that receive data on borrowers from several lenders. With CIC’s, lenders are able to check overall liability of an individual across all lenders. This is important because a lender will not want to lend to an individual that already has so many loans that they cannot repay those loans with their current income streams (over-leveraged borrower).

If CIC’s have access to such detailed data and score so well, why are there so many loan defaults? This is the million dollar question. There are four main reasons for this.

Lenders are not punctual with data transmission to CIC’s: This is a large part of the problem. There is often a huge delay in data transfer by banks/lenders which may or may not be structured. Delay in sending loan data is a problem because if another lender wants to lend to a borrower and the credit report data is not up to date, that lender will not know if this borrower has defaulted on a loan in that period, or delayed repayment or other such problems. Fintech’s have been advocating for a more real time CIC system, but it’s too early for that.
Indian CIC’s only use data on credit history: Users have evolved. Deeper user data is available. New credit products need more real time credit performance. There are new ways to determine creditworthiness. Why stick to only past credit performance to determine creditworthiness? This prompted several Indian Fintech’s to develop their own internal scoring methods, which still largely relies on CIC Credit Scores, but Fintechs added a new dimension of additional smartphone-based data.
Lenders build portfolios across score range: Lenders will lend to borrowers across the whole credit score spectrum. Often times to high credit score borrowers but also to low credit score borrowers. However, they also price that “risk” in by charging a higher interest rate to such low credit score borrowers. By building such a portfolio, lenders can maximise their average interest income. The game here is to weed out “intentional” defaulters and minimise “circumstantial” defaulters.
Scoring is not perfect and methodology is not standardised: Credit Scoring is more art than science. The methodology is not standardised across CIC’s. That’s why you’ll get a different credit score from CIBIL, CRIF, Experian or Equifax. This “blackbox” of scoring is what sets each CIC apart from the others and builds competitiveness.

India needs more innovation on CIC’s for better use of alternate data for credit scoring. India’s CIC market is only 15 years old and needs to evolve. Globally, startups like CreditKudos in UK and CredoLab in Indonesia are innovating on credit scoring with alternate data.

What are your thoughts? Will Indian startups rise up to the occasion? Or does credit scoring not have a place in the “alternate data” future?

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💼 Fintech’s Hiring

Basis, financial services for women, is hiring an Android Lead. Email your CV’s to careers@getbasis.co or DM the cofounder — Hena Mehta
Decentro, a banking API platform, is hiring for several leadership positions. See all open positions here.

If you’re a Fintech who’s hiring I’d like to help. Write to me and I’ll put your requirement here.

3️⃣ Fintech Top Three

1️⃣ Razorpay report on digital payments performance in 2020
This week Razorpay released its report on how digital payments fared in 2020. Below are some highlights from its report based off data from the Razorpay platform:
1. 80% YoY growth in total volume of transactions
2. 252% YoY growth in Merchants who signed up to use Razorpay
3. 5 Indian states (Karnataka, Maharashtra, Andhra Pradesh, Delhi & Tamil Nadu) contributed to 80% of total volume
4. Bangalore contributed 27% of total volume
5. 246% YoY growth in transactions in gaming
6. UPI recorded 47% of total volume (32% by value), 37% of volume (32% by value) was through cards, with debit cards recording 76% of card volume
Several more insights in the report, makes for a good read.

2️⃣ Indian Govt. to set up a Digital Intelligence Unit to tackle financial frauds
This week India’s telecom minister announced that it will set up a Digital Intelligence Unit to tackle Unsolicited Commercial Communications (UCC) e.g. financial frauds, unwanted telecalls and others. The government plans to levy financial penalty against telemarketers or even disconnection of resources for repetitive violations. The Telecom minister also said there will be an app-based and SMS-based redressal mechanism.

Takeaway: This is a step in the right direction given the rise in financial frauds through UPI by calls made to unsuspecting users. However, I’m not sure this intelligence unit will be able to curb anything. How is this intelligence unit going to levy and collect a financial penalty on a bunch of unemployed youth in a remote village?

Going a step further, disconnecting telecom resources to fraudsters will force them to find alternate ways to get SIM cards or other resources. The RBI, NPCI and other bodies are overboard in their own unique ways to alert users of these financial frauds. The Telecom ministry already has a “Do Not Disturb” system in place with financial penalties for offenders, which has, over the years, proven to be useless. Either way, here’s hoping these measures actually deter violators.

3️⃣ Finance ministry raised concerns regarding SBI-HDFC Payments JV Entity
India’s Finance Ministry raised concerns regarding the formation of SBI’s payments joint venture with HDFC Bank and Bank of Baroda. The JV was to form a New Umbrella Entity (NUE) for Payments as per the RBI Framework. New Umbrella Entities can set up payment systems that can rival NPCI’s UPI and RuPay. Along with SBI-HDFC, Reliance, TATA Group, YES Bank, Google and Amazon are in the running to apply for the NUE license.

Takeaway: The Finance Ministry is flagging the SBI-HDFC JV for the same reason RBI set up the NUE framework in the first place — to bring more competition and innovation in retail payments. The Finance Ministry, according to Economic Times, is afraid these public banks will squeeze flagship government projects such as RuPay and UPI products run by NPCI.

On the other hand, it’s important to know that SBI-HDFC-BoB already own 24% stake in NPCI and it indicates a potential conflict of interest. This can be mitigated by the banks selling their stake in NPCI. The three banks also account for 50% of NPCI’s payments volume. So these banks going their own way could pose a problem for NPCI. That said, this NUE space is already heating up and will be interesting to track its updates.

🚀 Featured Fintechs

Featuring 3 Fintech’s weekly that have a unique business model, unique product or have recently launched.

Decentro | Seed stage (Website)

Decentro is a full-stack API banking platform. Their API’s help any company to embed banking products in their user flows
They provide banking modules like KYC & on boarding, bank accounts, AML and compliance, cards, lending, and more. Decentro is integrated with 12+ institutions for these products
Decentro raised USD 2 mn in seed round announced in Jun-2020 from YC (S20), Plug and Play among others.

2. Fisdom | Series B stage (Website)

Fisdom is a wealth management platform that provides solutions across savings, investment & insurance
It partners with regional banks and empowers them with a SaaS platform to distribute mutual funds to their customers.
Fisdom has grown to half a million users and witnessed 80% growth during the pandemic.
Fisdom raised USD 7 mn from PayU in Dec-2020 and is also backed by Quona Capital and Sama Capital.

3. Fello | Pre-seed stage (Website)

Fello is a game based savings and investment platform for the Gen-z and millennials to save, play and earn returns more than a traditional savings bank account
Based on investments made, the platform rewards users to play various games and earn cash rewards.
Fello is currently fund raising and hiring for several engineering positions. You can contact the founder Manish here: manish@fello.in

Let’s get your startup featured here. Submit your Fintech startup

🌎 International

It’s been a busy week in fintech! If you missed any of it, check out Nik Milanović’s This Week in Fintech for the headlines of the past week:

Goldman Sachs launched its digital retail investing tool, Marcus Invest, as Public.com raised $220 million.
Web browser Opera is launching a consumer fintech product strategy.
Stripe launched its business carbon removal tool.
Mastercard is partnering with the Bahamas to launch a CBDC credit card.
Neobanks Zeta and HMBradley both launched joint accounts.
Ikea bought a bank.
And Russell Westbrook invested in Varo Bank.

Note: Nik and I are partnering to provide the best of US and Asian Fintech coverage. I personally subscribe to his newsletter because it’s comprehensive — I urge you to subscribe to his newsletter.

🇮🇳 India

📰 Market Updates:
- FINTECH’s: WhatsApp Pay removed Request Payment feature in India. Razorpay on a hiring spree, to hire 650 more employees. IAMAI (industry body) officially wrote that official digital currency, other crypto assets can coexist.

Paytm overtook SBI as top beneficiary bank for UPI payments in Jan-2021. BankBazaar expands employee stock pool, adds shares worth USD 15 million.

NPCI is upgrading major payments platforms in anticipation of higher volumes. Jan-2021 emerges as best ever year for opening new Demat accounts in India — 1.7 mn accounts opened.

India emerges as Asia’s biggest destination for fintech deals, surpassing China in 2020. Per a study, Indian Fintechs adapted to the pandemic better than global peers.

- TRADITIONAL BANKS: Insurers did not follow 20% orders of Ombudsman. India’s finance ministry will infuse INR 3,000 Crs (USD 405 mn) in insurance companies this quarter. Bank credit grew by 5.93% and deposits by 11.06% in fortnight ended 29th Jan-2021.

Aptus Value Housing Finance to launch Rs 300 crore (USD 40.5 mn) IPO. Arohan Financial Services filed IPO papers to raise Rs 1,750–1,800 crore (USD 237 mn).

59- min SME Loans: 223K applications sanctioned by PSBs; 93% disbursed so far. NBFC stressed assets may reach INR 1.5 tn (USD 20 bn) by Mar-2021 (CRISIL). Banks wrote off loans worth over Rs 25,500 Crs (USD 3.5 bn) in Oct-Dec-2020.

Govt sites exclude netbanking, foreign card schemes to promote UPI and RuPay. Union Bank sees highest UPI transaction failures (12.89%) in Jan-21.

🚀 Product Launches:
- FINTECH’s: Razorpay & Mastercard partnered to accelerate SME and startup digital payments. US-Fintech Aeldra launched bank accounts for Indians in US. Paytm Money launched Future and Options trading.

- TRADITIONAL BANKING: Kotak Mahindra Bank launched Kotak Remit, outward forex remittance service. ICICI Lombard partnered with Flipkart to offer Hospicash insurance to consumers. SBI Bank launched Xpress Credit — instant personal loans at 9.6% interest rate.

📝 Regulatory Updates:
- RBI (Central Bank): Issued revised directions for housing finance companies. Issued guidelines for common minimum standards to ensure security of digital payments. Released a funky ad for consumers to be alert for financial frauds.

- IRDAI (Insurance): Advised insurers to enable “Digilocker” for cloud storage of policy papers.

- SEBI (Securities): Approved easing of norms for IPO’s of larger companies, in anticipation of LIC listing.

💰 Funding Announcements:
- Funding Announcements: KreditBee* (instant loan platform). Thillais Analytical Solutions (SME neo banking). Zolve (India-US cross border banking). CityCash (bus/transit payments).

- Mergers or Acquisitions: KKR India’s lending unit is merging with InCred, a bulk lending startup in all stock deal. Piramal Group to acquire embattled lender DHFL after approval from RBI. Bank Open acquired GST automation startup OptoBizz.

🌏 Asia

📰 Market Updates:

- FINTECH’s: Revolut Singapore launched financial app for children. BigPay launched cash top-up at Malaysia’s 7-Eleven stores. Concerns over data regulations grow as fintech dominates Indonesia. Funding Societies crossed SGD 2 Bn in SME Lending.

- TRADITIONAL BANKING: Philippine remittances come in at USD 29.9 bn, defying COVID but first drop since 2001. China stock market breached 2007 record high after settling below the high. Deutsche Bank launched payments platform through 2C2P in Thailand.

💰 Funding Announcements:

Announcements: AppMan (Thailand)

👋🏾 That’s all Folks

If you’ve made it this far — thanks! As always, you can always reach me at connect@osborne.vc. I’d genuinely appreciate any and all feedback. If you liked what you read, please consider sharing or subscribing.