Exclusive: ‘Inclusive by design’ – Nina Kerkez, LexisNexis Risk Solutions in “The Paytech Magazine”
Giving more people full access to financial services is key to building back better, argues Nina Kerkez, Director of Consulting at LexisNexis Risk Solutions. The question is how?
That the economic effects of the pandemic have hit already financially-fragile communities hardest is indisputable; how financial services can prevent them free falling further is now the urgent question, says Nina Kerkez.
As director of consulting at data analytics giant LexisNexis Risk Solutions, Kerkez is well aware of progress made by fintech all over the world in bringing individuals and businesses in from the financial cold – ensuring access to basic bank services that can unlock opportunity and improve life chances beyond the economic.
At an individual level, such access, she would argue, is a basic human right. But it’s not being extended nearly fast or far enough. And her fear is that the additional pressures on the marginalised created by COVID-19 will make society’s attempts to repair the damage of the last 14 months that much harder. This isn’t purely a humanitarian issue: un- and under-banked communities tend to suffer worse financial, social and health outcomes – for which everyone pays.
If the ‘build-back-better’ agenda is to work, it’s no good leaving the most vulnerable behind. But how financial services addresses the issue of financial inclusion in the post-COVID era could prove controversial. Kerkez argues that it might well require compromise – between, for example, universal access to services and data privacy. And that could leave industry facing a moral hazard. Current regulatory processes governing customer onboarding can, she points out, disenfranchise significant numbers of people, such as new arrivals to the country, forcing them to go under the banking radar.
“We know that, as an industry, we need to screen customers when onboarding them. Over the years, we have seen more scrutiny of that process, but there is also more scrutiny of what is deemed an acceptable individual or business.
“My father, for example, has a UK-registered business. He’s not a UK resident and doesn’t come from an EU country, but the business, prior to Brexit, operated within the EU. He and his partner have struggled to open a bank account in the UK for their business – because, for all the reasons I just mentioned, as soon as he starts applying, red flags pop up, making it much harder for them to operate here.
“Issues arise when somebody is deemed risky, and it’s often based on those standard background checks: a lack of credit history in that country and short residency. So entities – whether individuals or businesses – are being rejected from being allowed to have access to financial services. And that increases the risks of wrongdoing and doesn’t allow us to learn more about that person or business and their financial behaviour.
“If we don’t include these individuals in the financial system, they are more likely to start operating in cash-only ways; they might struggle to rent somewhere to live, access healthcare, etc. We are creating a lot of societal issues around them.”
LexisNexis Risk Solutions is among the global leaders in providing data and analytics-based software to assist companies in evaluating risk and improving operational efficiency. Its client base includes leading banks, insurers and pension providers for which it provides tools that help identify such things as customers on sanctions lists and politically exposed persons. Its people-tracing software is used by specialist debt collection and recovery firm Lovetts. The majority of UK banks use its software to ensure customer trustworthiness and fraud detection through advanced online risk assessments, silent authentication strategies, customer-focussed analytics, machine learning, and consortium functionality that shares intelligence across the organisation and then wider UK banking network.
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The common denominator among all these solutions is data and Kerkez believes its use can be expanded further to help those at risk of financial exclusion. She says: “Data is the king, and I know people have been talking about that for a long time, but we really need to rely more on data to try to understand about people and about businesses, to help onboard them, and understand the true risks actually associated with them. And often risks relating to an average individual are very, very low.”
In fact, LexisNexis analysis found that 64 per cent of underserved customers represented a low risk to lenders.
“So, what it is that we could be looking for? It’s potentially some alternative data and some alternative behaviour, such as online behaviour, individuals’ likes and dislikes. Knowing the customer in such a way can absolutely help mitigate those risks that a financial institution might be facing.”
And therein, potentially, lies a conflict. “There are a lot of data privacy regulations out there, but we need to be thinking of what it is that we are trying to achieve,” says Kerkez. “If we are trying to eliminate some large societal issues, then, in those cases, that should be trumping some of the data privacy challenges.”
This use of alternative data, providing a much more holistic look at people’s circumstances, will further democratise financial services, she argues, in a market that still heavily relies on credit rating agencies, which, paradoxically, require people to have credit in the first place to provide a score.
“Alternative data refers to a dataset that could be used for credit decisions and fraud decisions, and some of those alternative datasets could be a lot of different things: so, public and institutional data, such as educational history, criminal history, any kind of professional licensing,” she says. “You could be looking at property assets. You could be looking at where these people live as there are often economic trajectories associated with locations. You could be looking at court data as well; bankruptcies, evictions and such like could indicate some other alternatives when it comes to risk scoring individuals and businesses.”
And then there’s digital behaviour. “Where are they accessing their accounts from? Which kind of tools are they using to operate online? There is all sorts of information out there that we could gather now, digitally, to understand this person and, potentially, some of their behaviours. From this, financial institutions could make an informed credit risk decision, and that will help increase financial inclusion and transparency.
“As a result of not including people in the financial system, we end up with underserved customers because they lack traditional credit portfolios and they will be unscorable by traditional credit data sources. They could therefore be declined mortgages, loans and other financial services that are very important for them.”
The fault lines in financial inclusion still run along race and gender.
“There is definitely inequality when it comes to race, and while we’ve seen a significant increase in financial inclusion with a lot more people opening accounts, we know that the gender gap has not decreased,” says Kerkez. “So, 72 per cent of men have access to accounts, while only 65 per cent of women do. Women from poorer households, women who are out of the workforce. And I am conscious that the implications of the pandemic could increase that gap.
“Including women in the financial universe is extremely important; it has positive effects on society. It allows them to build businesses, and it helps them to better manage their financial resources, which is very important – to have savings and pensions, and plan for emergencies,” says Kerkez. “We need to do better, as a society, when it comes to gender and financial inclusion.”