Tech helps mitigate risks
Amid high interest rates, credit providers need to manage risks while keeping lending accessible to support economic activity, with technology playing a critical role in facilitating this complex balancing act, even in a challenging economy.
“Technology improves our ability to assess creditworthiness and affordability, which protects customers against overindebtedness and our business against bad debt,” says Alfred Ramosedi, CEO at Bayport Financial Services.
“Digital technologies also reduce costs, which benefits our customers and enhances their experience through improved efficiencies and a comprehensive view of the customer across touchpoints.”
Ayanda Ndimande, Head of Business Development at Sanlam Retail Credit, says: “Digital enablement via apps and the use of mobile devices improves convenience for consumers.”
Digital-led innovation also helps broaden access to credit products by providing additional sources of information.
“With more data, creditors can understand their customers better and provide tailored solutions,” adds Ndimande.
“Data also helps lenders develop new solutions, such as advice-led credit, which supports consumers who, under current circumstances, do not qualify for credit but, following proper advice, can qualify in future.”
In this regard, the best outcome for credit markets is creating a free flow of information between the lender and borrower that informs creditworthiness, says Frank Blackmore, Lead Economist at KPMG South Africa.
“However, lenders often encounter restrictions in the amount of data they can request from borrowers. Borrowers may also find themselves in positions where they don’t want to fully disclose their creditworthiness,” he says.
“Consequentially, lenders need to use whatever information they have about the borrower and their behaviour to assess their risk as accurately as possible and offer credit at a fair price, and are applying AI and ML to help reach these decisions.”
These technologies also mitigate risk through better fraud detection, as AI and ML can analyse vast amounts of data, applying techniques such as pattern and anomaly detection to flag suspicious activity in real time.
“AI is starting to play a significant role as a fraud detection tool in the trade credit sector,” says Frank Knight, CEO at Debtsource.
“With one in every 300 credit applications processed by Debtsource including some element of fraud, we constantly refine our models to better detect low-, medium- and highrisk applications.”
According to Knight, applying more efficient AI models to trade credit application vetting helped Debtsource clients avoid more than R400m in fraudulent transactions in 2023. This fraudulent activity typically includes commercial identity theft and scam businesses.