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Machine Learning and AI Can Help Reduce Credit Defaults in the Lending Space

CTO, Social Lender, Bade Adesemowo,

Chief Technology Officer [CTO] of Social Lender, Bade Adesemowo spoke on different perspectives surrounding lending and the role of ML, AI and social score in Nigeria.

How are the Fintech and banks’ lending platforms leveraging your data referencing platform to enhance their operations?

Information we gather is majorly derived from the social media accounts of the prospective users account and provided guarantors by the users. The information is used to derive the social reputation score of the users. Financial institutions who are partners or prospective partners benefit from the accessibility.

The Social Reputation Score [SRS] is a measure of trust. In lending, this can be seen as a measure of creditworthiness. In the future, SRS will be useful for several other financial services but not limited to KYC, insurance, etc.

How does data referencing help to reduce loan defaults? 

Online, mobile and social data sources that include machine learning and Artificial Intelligence can help reduce credit defaults in the lending space. Social Lender uses data science to know our customers’ trustworthiness based on the  data they have given to us to grant loans. The Artificial Intelligence embedded in these models has made the system stable thus the occurrence of bad debts has been significantly reduced.

What are the benefits and importance of data referencing? 

Referencing data includes information such as country codes, state codes and gender identification, which is usually static and helps to categorise other data within code tables. Fintech organisations are expected to understand that the progressive system of any Fintech requires that to work on an existing ideology or to modify an existing Fintech system requires referential data for a progressive result.

What is the scope of your operation?  

Social Lender is a lending solution based on social reputation on mobile, online and social community platforms. The solution is designed to bridge the gap of immediate fund access for people with limited access to formal credit. Social Lender uses its own proprietary algorithm to perform a social audit of the user on social media, online and other related platforms and gives a SRS to each user.

Loans are guaranteed by the user’s social profile and network, allowing users to borrow from the banks and other financial institutions based on their social reputation. Social Lender is licensed to financial institutions in the countries of operation. Social Lender Limited is a company created to operate, manage and license the solution in the various countries of operation as we develop more features and functionalities.

Social Lender helps people to borrow money from the banks and other financial institutions guaranteed by their social reputation, bringing these people (most times, for the first time) into the formal credit system. Social Lender solves the problems of prohibitive cost to serve the market, inadequate financial history, unreliable credit score and lack of collateral that hitherto prevented our partner financial institutions to serve the market.

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How and what is the process for accessing data on your platform?

Social Lender has APIs for easy integration with other core banking and non-banking platforms, and we gather information from users.

What does the launch of Facebook’s Libra, a cryptocurrency platform mean to Fintech companies in the world? Do you view this as a threat to Fintech companies?

This digital currency gains its security by being stored on a vast digital ledger, called a blockchain. This blockchain is like a vast public ledger, where all confirmed transactions are included as so-called “blocks”. As each transaction or block enters the system, it is broadcast to the peer-to-peer computer network of users for validation. In this way, all users are aware of each transaction, which prevents someone from stealing your money and also prevents double-spending, where someone spends the same currency twice.

This decentralized blockchain system is going to change your life from the way you transact business or manage assets, to the way you use your machines, vote, rent a car, and even prove who you are. Along the way, it will transform banks and other financial institutions, hospitals, companies, and governments among others.

Experts predict the blockchain could become a powerful tool for improving business, conducting fair trade, democratizing the global economy, and helping support more open and fair societies. It could be inferred that cryptocurrency platform is a major threat to financial technological advancement.

There have been insinuations about cryptocurrency. Some say it won’t stand the test of time for different reasons. Do you buy the insinuations?

A cryptocurrency is a digital currency that is created and managed through the use of advanced encryption techniques known as cryptography. Cryptocurrency made the leap from being an academic concept to (virtual) reality with the creation of Bitcoin in 2009.

While Bitcoin attracted a growing following in subsequent years, it captured significant investor and media attention in April 2013 when it peaked at a record $266 per Bitcoin after surging 10-fold in the preceding two months. Bitcoin sported a market value of over $2 billion at its peak, but a 50% plunge shortly thereafter sparked a raging debate about the future of Cryptocurrencies in general and Bitcoin in particular. So, will these alternative currencies eventually supplant conventional currencies of financial technologies and become as ubiquitous as dollars and euros someday? Or are Cryptocurrencies a passing fad that will flame out before long? The answer lies with Bitcoin, which means cryptocurrency will surely survive the test of time.

Research shows that 30% of the global population is on Facebook. What this means is that Facebook has a market for Libra already. What does this mean to financial institutions?

 Libra is by far the most ambitious foray into cryptocurrencies since bitcoin came into the scene 10 years ago. Whether you’re a crypto novice, or whether you’ve been a bitcoin enthusiast since day one, this development is well worth your attention. Libra benefit has majorly been centralized towards the crypto atmosphere, while financial institutions have not been involved in the full benefit. There are a number of key differences between Bitcoin and Libra. But for now, I think the biggest distinction lies in its sheer scalability. Whereas it’s taken bitcoin years since its inception to break into the public consciousness, Libra has the benefit of being made available on a massive social media platform that boasts as many as 2.4 billion users worldwide.

Payment Service Bank, (PSB) is described as what will enhance the financial inclusion growth. Do you see PSB as a major challenge to banking?

Apparently, the PSBs are allowed to offer only high-volume, low-value transactions in remittance services, micro-savings and withdrawal services. And their target customer base is restricted to individuals and small businesses. These PSBs cannot give loans, advances or trade in foreign exchange markets except for remittance within the country. They can’t evaluate the risk and exposures of potential clients, which is obvious since they can offer loan services. No doubt, this move would increase the population of Nigerians with a bank account. But financial inclusion is beyond just maintaining a bank account and making payments. It encompasses a broad range of formal financial services asides savings, and it’s not limited to payments, loans, insurance, and pension products and services.

Furthermore, the PSBs can make any other form of investment except putting money in government securities which are considered low-risk. There’s a high degree of certainty for PSBs the securities to get returns and as at when due.