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  • Writer's pictureDaniel Moreno Montoya

Four challenges of Multiple Purpose Financial Institutions to get more clients

If we were to add up the Gross Domestic Product of Argentina, Chile, Colombia, Costa Rica, Panama, and Venezuela, we would obtain the exact value of Mexico's GDP. That is how big our economy is. However, accessing formal credit in our country continues to be challenging. Let's see why.

Crédito formal Sofomes Fintechs México
Almost 80% of adults have no credit history. Converting them into customers is vital for Sofomes.

According to the National Financial Inclusion Survey (ENIF), the number of Mexicans with some financial products went from 54 million in 2018 to 56.7 million in 2021, an increase of only 4.7% in three years.

In terms of loans, the number of adults with access to formal credit rose from 24.6 million to 27.4 million during the same period, an annual growth rate of 3.4%.

So, given moderate annual growth and the scenario of illiquidity of Mexican households, what are the challenges faced by Multiple Purpose Financial Institutions (Sofomes) to facilitate access to formal loans for a more significant number of people?

Let us now review the four most relevant tasks these entities have to obtain more clients, approve more loans, and reduce the probability that new users will become debtors.

1. Access to alternative data sources for credit risk profiling.

In a country where nearly 70 million adults have no credit history, simply consulting the credit bureau to make loan decisions is not an efficient option. Hence the potential of alternative data sources.

From a comprehensive identity validation, for example, it is possible to obtain far-reaching data for the qualification of credit prospects, such as estimated payment capacity, percentage of job stability, and salary progression.

In addition, validating identity makes it easier to know whether applicants are alive or deceased through the CURP and whether they are on any blacklists, such as those of the SAT, Interpol, or OFAC.

In this way, you can construct a detailed credit risk profile to convert into new clients the people excluded from traditional banking about 80% of the adult population who mostly resort to informal credit for their financing.

2. Perform automated identity validation processes

Data obtained through identity validation also helps prevent identity fraud and synthetic identities. These two crimes are rising in Mexico and cause enormous losses for credit institutions yearly.

One of the reasons for the increase in these crimes is manual validations, which are ineffective in detecting them. For this reason, many Sofomes opt for automated identity validation platforms, which escape human error.

Thus, they improve compliance with KYC standards and reduce the risks associated with approving credit. They also minimize validation times from hours to minutes, making the resources and costs involved in qualifying credit prospects more efficient.

3. Improve User Experience

Related to the previous point, if a lending institution takes several days to verify a person's identity, it will take too long to respond to their credit application.

Reducing response times is critical to providing a clean and satisfying user experience, especially in a world where we have become accustomed to having immediate access to the products and services we seek to purchase.

However, it is not only a question of time; it is also essential to reduce the requirements. Requiring forms, certificates, and a significant amount of documents to apply for credit affects the experience of those who apply for loans.

If we take Elektra or Coppel as an example, we can conclude that a large part of the success of their loans is that they only ask for a photo of the INE to study an application. That is putting the focus on users and a frictionless experience.

But is an INE photo enough to validate identity and qualify a credit applicant? Yes, with just a picture of the INE, it is possible to validate a person's identity and obtain the information to decide if it is convenient to approve credit.

4. Offering digital and customized credit options

Across all sectors and industries, personalization is a crucial element in attracting more users. Therefore, building risk profiles with alternative data sources has another considerable advantage: it facilitates the creation of tailor-made financial products.

Understanding the characteristics of new audiences and offering them credit products that meet their financing needs and their ability to pay is a strategic action to convert and retain more customers.

If we add the ability to offer them through digital channels, it will be an extra advantage in the commitment to improve the user experience.

For example, Fintechs assimilated this combination of elements very well, exploiting personalization and digital channels for exponential growth and attracting millions of users across the continent.

Finally, in the current scenario, the conditions are in place to bring a new credit offer to a population that has been excluded so far by the limitations of traditional identity validation models.

If you want to know how to use Nufi's platform to reach these people, click here and let's talk about it.

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