The Relationship Between Climate Change and Credit Scoring
13 Feb, 2020
Climate change and it’s affect on risk and credit scoring.
The Covid-19 pandemic is having a transformative impact on the world of credit risk assessment. Leaving to one side the macro view – that we are now in a world in which debt and unemployment levels in almost all major countries are soaring to percentages of GDP not seen since the Great Depression of the 1930s – the pandemic seems likely to speed up the moves towards digitally based systems.
Since the crisis began, most banks and financial organisations have been encouraging clients to use alternative methods to access their local branches. As David Donovan said in a recent article for Publicis Sapient: “Coming with the challenge to accelerate adoption is greater competition — or potentially cooperation — with fintechs and mobile carriers who have the technology and increasingly the potential to offer financial services.”
In addition to this accelerated digital adaptation, financial institutions have quickly adapted to the new reality of many employees working from home. As Frank Aldridge, managing director of Craigs Investment Partners in New Zealand noted recently, the firm managed to get 540 of its national staff working from home four days prior to the beginning of the country’s lockdown.
In the field of Open Banking, in which data aggregation has become critical in building connectivity between financial institutions, consumers and businesses, and fintechs, companies like Visa and Mastercard have an opportunity to become significant players, says Jim Marous, of The Financial Brand in a recent article. Visa acquired Plaid, a digital data aggregator, in early 2020, in a move that is expected to enhance Visa’s global platform and strengthen its partnership with fintech.
“Additionally, it will feed into Visa Direct, increasing Visa’s total addressable market and reinforce its push-payment platform. This will be powered by the next generation of financial apps, which will also help them plug into mobile and internet technologies, which will increase their total addressable market,” says Marous.
Trends that may prove self-reinforcing are the declining use of cash, in part due to the unfounded belief that paper money and ATMs could carry the virus, the development by financial institutions of a variety of chatbots, and the increasing use of smart phones for financial transactions.
Digital phone payments are becoming so prevalent that financial institutions can be expected to see increased competition from mobile carriers for consumers. And they may need to look to partnering with them more directly and often. Of course the cashless society has long been a fact of life in places like China, as result of the astonishing uptake of WeChat, which reportedly makes up around 40 per cent of China’s mobile payments market.
Despite – or perhaps because of – the virus, when it has become increasingly difficult to reach humans to provide information on financial matters, the use of chatbots and digital channels can be expected to grow as the pandemic continues and beyond. In any event, according to one report by Forester Research, customers love to self-serve, adding that 44 percent of US consumers prefer interacting with chatbots over humans for customer service.
“As enterprises, governments and other organisations look to add chatbots, digital channels and virtual assistants powered by Conversational AI and decision engines, vendors have been scrambling to meet demand.”
According to Ron Shevlin from Cornerstone Advisors, quoted by The Financial Brand: “For banks and credit unions to succeed with AI/chatbots/voice, a more fundamental change in the attitudes consumers have towards the banks and credit unions they do business with – and a fundamentally different type of relationship – is required. A relationship built on a value proposition of advice, not convenience.”
Financial institutions will need to be increasingly agile and have a reliable digital roadmap that allows them to quickly provide solutions for customers. Get in touch with the team at Credisense and let us know you how no-code digital platforms can rapidly scale your digital offerings.