Credit Scoring Integration: Helping Companies Connect Essential Services, Finance and Social Impact
The following article has been divided into two sections. For those readers who are familiar with credit scoring and its application in the last-mile distribution industry, feel free to go directly to Section 2. For those who are not familiar with the subject or wish to understand it better, we encourage you to read the full article.
Credit scoring acts as a financial compass that guides last-mile service providers to make more informed decisions about extending loans or unlocking further essential services for individuals who lack a traditional banking history. It involves evaluating an individual's creditworthiness based on their financial behaviour and socioeconomics, making it a crucial asset for companies to mitigate risks while ensuring clients’ access to much-needed resources.
By harnessing the power of data analytics and alternative credit assessment methods, credit scoring opens up opportunities for individuals without a conventional financial track record to build one, facilitating their inclusion in the formal financial system, which not only empowers the 1.4 billion people unbanked worldwide, but also contributes to economic growth of communities and poverty reduction by enabling access to fundamental services that can improve their lives.
The importance of this statistical analysis goes beyond individual empowerment. Credit scoring can help enable the scaling of clean energy solutions and essential services, such as agritech inputs, clean cookstoves, e-mobility, water pumps, etc, by making them more accessible and affordable for a wider range of people. As last-mile providers can better assess risk, stakeholders are more willing to invest in these sectors, fostering innovation and competition.
In turn, this leads to more flexible and customer-tailored offerings, helping companies drive down costs and increase the reach of products and services, ultimately benefiting the underbanked, communities and the industry as a whole. In essence, credit scoring acts as the backbone that connects finance, technology, and social impact, fostering a better future for those who traditionally have been marginalised in the financial ecosystem.
In this context, acting as lenders to the end user, last mile distributors (LMDs) might still struggle to leverage the full potential of credit scoring or simply lack the knowledge to efficiently implement it as part of the customer journey. As CGAP explains: Lenders sometimes assume that statistical credit scoring is too costly or difficult or that they do not have the kind of data needed to implement it. However, the primary input needed for this type of modelling is something many providers already possess: customers’ repayment histories.
This being said, how can LMDs leverage credit scoring and how can we help them implement a credit scoring integration?
How can we help companies implement Credit Scoring?
From our vast experience working with LMDs across industries, we have always sought to match their unique challenges with PaygOps flexible IT solutions, while also offering advanced Business Support Services to enhance their business intelligence. One such advanced service is PaygOps Custom Workflows, the cutting-edge software integrations to automate processes and allow real-time exchange of data between PaygOps and virtually any other third-party app, while enhancing flexibility and scalability across operations. While PaygOps is an all-in-one CRM platform, it’s precisely Custom Workflows the complementary solution that allows us to put in place credit scoring and interconnect it with the whole ecosystem of PaygOps features to help companies make the most of their data.
PaygOps Software Solutions Specialists will leverage the power of custom workflows to integrate credit scoring processes into the PaygOps platform, which typically involves connecting the last-mile provider’s own credit scoring model or software via API with PaygOps, in order to automate the credit scoring assessment process. While the exact implementation may vary depending on the specific credit scoring model or software and the distributor's specific requirements, the key components of the credit scoring integration are: a credit scoring model, PaygOps and the LMDs’ customer repayment data. As a rule of thumb, a credit scoring integration will work best for LMDs who have collected a fairly extensive amount of data.
What’s a credit scoring model?
For starters, a credit scoring model is a mathematical algorithm or statistical analysis model that can be built on simple solutions like spreadsheets, or more advanced ones such as machine learning, used by lenders to assess the creditworthiness of individuals or businesses. The primary purpose of a credit scoring model is to predict the likelihood that a borrower will repay their contracts on time, based on their loan repayment history and other relevant socio-economic information. This prediction helps lenders make informed decisions about whether to approve a loan application, how much credit to extend, and at what interest rate (if applicable).
Please note that there’s no one-size-fits-all credit scoring model. The model needs customisation because the nature of the customer base, the types of assets financed and the local economic conditions can vary significantly from one lender to another. Customisation allows the credit scoring model to consider specific criteria and factors that are most relevant to a distributor’s unique business environment and customer demographics, ensuring that the credit assessment is accurate and aligned with the distributor’s risk tolerance and lending objectives, thus improving the effectiveness of the whole credit scoring system.
For LMDs who don’t have a credit scoring model, but are interested in implementing a credit scoring custom workflow, our team can advise them -on a consultative basis- on how to build a basic model according to their business unique needs and requirements. While there’s a number of approaches to credit scoring and credit scoring models, PaygOps works closely with the distributor to support the model that best works for them.
Bearing this in mind, there are a couple of default areas that are required to support any model, among which a potential credit scoring integration can support:
Know Your Customer (KYC) information - Depending on the credit scoring model chosen, the LMD will thereafter be able to define the KYC type required, which can be done on PaygOps using our custom forms, as well as collect and share this KYC information.
Data validation and verification - a key tenet of credit scoring is data validation, whether this is identity verification, etc, PaygOps is able to integrate with the relevant 3rd party and/or government databases that provide this validation, and verify the LMD’s data.
Querying the model and the results transmission - the PaygOps custom workflow is able to collect all the different data points, verify and send them to the chosen model, to query for scoring and seamlessly transmit the feedback to the customer either directly (or indirectly through the field agent) via sms/in-app
What kind of data can be leveraged for credit scoring?
Besides KYC information, the foremost requirement to put credit scoring in place is customer repayment data, which most LMDs using a CRM or more simple digital tools, already have in their possession. According to the World Bank’s Credit Scoring Guidelines, “as a result of digitalisation, more data has become available, allowing organisations to develop models with higher predictive power and deeper insights and to offer new products to sectors of society that were previously excluded from access to affordable credit.”
Traditionally, the data used for credit scoring has been heavily determined by the finance-related history data points (i.e. loan amount, loan type, maturity of loan, historical payment, etc) of the individuals assessed in a structured way. But modern credit scoring systems, as per the World Bank’s guidelines, also include several data from a wide range of sources. Thus, some of these new sources of data can include granular spending behaviour, mobile data, geolocation data and other sources, such as utilities, and even social media behaviour.
Translating this into the essential services sectors, and based on our experience supporting LMDs to implement credit scoring integrations, the criteria to match end customers with affordable loans and products relies on several points of structured data (i.e. repayment history) and alternative data that are more closely tied to the socio-economic realities of the communities they serve and the business models they operate under (Paygo, Microfinance), such as: average revenue, age and geographic location, as well as any additional data captured via PaygOps custom forms, like education, profession, material of the house, assets owned, family size, field size, type of crop, among others.
This being said, we have observed that, in order to build a robust credit scoring system with increased credit assessment accuracy, high quality data and a high number of data points are crucial. It’s important to bear in mind, too, that a credit scoring model based solely on repayment data without taking into account socio-economic factors, and vice versa, would not be entirely accurate. Therefore, taking both types of parameters into consideration is ideal for maximum accuracy throughout the credit scoring process.
Building upon the information about credit scoring, credit scoring models and the data that can be leveraged shared in Section 1 of this article, let's now explore the practical implementation of credit scoring with PaygOps Custom Workflows and the added value of having such an integration.
While PaygOps is an all-in-one CRM platform, Custom Workflows is the cutting-edge software integration solution that allows our Business Support Services team to put in place credit scoring and integrate it with the whole ecosystem of PaygOps features to help companies make the most of their data.
How does exactly the Credit Scoring integration work?
The PaygOps Credit Scoring custom workflow leverages the customer data that the PaygOps platform collects and stores from the LMD’s operations, then seamlessly shares this data with an external credit scoring service or model. This external service uses its proprietary credit scoring algorithm to analyse the data, assigning a credit score to each customer based on different socio-economic factors. The credit score and risk assessment are then integrated back into PaygOps, where they are used for real-time credit decisions, such as approving or declining loan requests.
Let’s picture an LMD leveraging the PaygOps Custom Workflow for Credit Scoring to sign up a new client:
A field agent wants to help a potential client figure out the maximum contract value they can afford. He uses the PaygOps mobile app to complete the profile of this new lead, which also includes a custom form with three key socio-economic questions predefined by the LMD:
The client is interested in an offer with a value of 3000 shillings. They earn 5000 shillings a month, have a house made of concrete, and don’t own a TV.
The field agent saves this information on the app and awaits the response.
Thanks to the historical data on the LMD’s client portfolio and the Customised Dashboards feature on PaygOps, the platform can process (and display), for instance, the number of clients that successfully completed the loan in the past 2 years or so, the number of clients who defaulted, against the average monthly income of such clients, which allows for the correlation of such parameters to obtain the repayment success rate according to each income level (see graph).
Through several API calls, the custom workflow integrates and seamlessly syncs the data captured through the custom forms and the repayment data already available on PaygOps, so that the credit scoring model can run its algorithm and generate the credit score.
The model leverages this data to extrapolate the correlation between the defined socio-economic parameters and the repayment data in order to assess new clients through predictive analytics, forecasting how likely is the new lead to successfully repay the loan.
Basic credit scoring model
The field agent gets the response on the mobile app, which helps them make a more informed decision in real time (times may vary depending on the area network coverage).
This way, they’ll know how to better adapt the offer to the financial possibilities of the new client and will help them find a more suitable offer or, for instance, refer them to the call centre for further assessment, increase the down payment, or even reach an agreement they consider fair to help the client access the offer, while mitigating the default risk for the business.
For a closer look into the the custom workflow for credit scoring, we invite you to watch our latest webinar, where one of our software solutions specialists, will walk you through its implementation and possibilities:
What’s the added value of having a PaygOps Credit Scoring integration?
In 2022, we worked closely together with an agritech provider in Kenya with more than 15 years of experience and 3+ million farmers served, to develop a custom workflow for their credit scoring model that could seamlessly integrate with the PaygOps platform and tailor to their programme’s specific requirements, looking forward to growing their scale. It was an unprecedented solution in the organisation’s digital technology strategy that is now allowing them to maximise their usage of data, better know and serve the farmers, as well as improve the risk mitigation and risk management.
Supported by this integration, now when a farmer enrols in the programme, they go through a comprehensive series of criteria that gives them a final credit score, to see, among others, whether the loan can be approved or not for the farmer, assess their willingness to repay and if they are eligible for further products and services (read the full report here).
Putting in place an efficient credit scoring process is a key challenge that LMDs face and that can be answered thoroughly through Custom Workflows and PaygOps' Business Support Services, by allowing organisations to: make the most of the historical repayment data, use the LMDs' in-house knowledge on repayment risks in their socio-economic context, enable the automatic bi-directional data transfer between PaygOps and the credit scoring model. Adding to the value of the integration itself, PaygOps boasts a series of comprehensive features and processes that can enhance the credit scoring process, such as:
Data Collection and Management: PaygOps can collect and centralise valuable customer data, including payment history, transaction records, and user behaviour. This data can be crucial for credit scoring models, as they often require historical financial information to assess creditworthiness.
Payment History: PaygOps thoroughly tracks and records customer payments and interactions with the Paygo system. This data can be used to evaluate a customer's payment history, a key factor in credit scoring.
Custom Forms: PaygOps can be customised to capture specific data points relevant to the credit scoring criteria of a company. This customisation allows businesses to align the platform with their credit risk assessment needs.
Reporting and Analytics: PaygOps offers advanced reporting and analytics capabilities through Customised Dashboards that allow businesses to easily assess customer data and generate insights. These insights can inform credit scoring decisions and strategies.
Customer Engagement: Improved customer engagement through the PaygOps after-sales module can lead to better customer relationships, which can also factor into credit scoring. Satisfied and engaged customers may be more likely to make timely payments.
Scalability: PaygOps is designed to scale with the growth of the business. As more customers use Paygo services, the platform can handle the increased data volume, making it suitable for businesses of all sizes.
Combining the potential of Custom Workflows alongside the renowned flexibility of PaygOps features, will allow your organisation to implement a robust credit scoring system that will certainly bring significant value to your business by enabling your teams to make more efficient and data-driven lending decisions in real-time, drastically reducing the risk of default and financial losses.
Credit scoring is the ultimate analysis to help streamline lending processes, automate approvals and terms based on accurate credit scores and, effectively, increase the access to asset financing for customers who might not have traditional credit histories. A credit scoring custom workflow helps to facilitate better risk management, optimise financing strategies, and enhance the overall sustainability and profitability of last-mile operations, making it a key advantage for companies using PaygOps in the provision of clean energy and essential services.
Engage with us to further discuss how we can support your last-mile business in setting up a robust credit scoring custom workflow. Our Business Support Services specialists will be happy to assist you.
About PaygOps: Solaris Offgrid’s flagship fintech software, PaygOps, enables credit to be provided to the bottom of the pyramid for essential products like solar home systems, agri-inputs, water pumps. The end customers pay incrementally via mobile money under a PAYGO model. PaygOps provides the software infrastructure to manage the contracts, payments and related communication for the local retailers of such products. Our affordable modular and interoperable solution connects energy and payment methods (Pay-as-you-go, mobile money) to a suite of enterprise applications that allows the smooth management of lease financing and field operations, while providing key financial data and metrics to investors.
About Solaris Offgrid: Solaris Offgrid supports distributors and manufacturers across all industries in over 35 countries through Product Development Services and flexible IT solutions. Solaris Offgrid’s flagship PaygOps platform is an interoperable B2B SaaS which connects energy and utility appliances (solar devices, water-pumps, cookstoves, smart meters, e-bikes) and payment methods (Pay-as-you-go and Mobile Money) within a suite of enterprise applications or API services, to allow distributors to smoothly manage their operations and tackle their challenges at the last mile, thus enabling them to provide affordable essential products and services to millions of people at the Bottom-of-the-Pyramid.