Bridges to Credit: Alternative Data and Inclusive Finance, with Santiago Espinoza
One of the most exciting things about working in emerging markets is the opportunity to leap frog old systems - a tool that once had a cutting edge is now an anchor, and to be free of it a means to be nimble.
Now, I’m not suggesting traditional data has reached the point of being an anchor, but markets rich with it have created fully developed ecosystems that may be stifling innovation on other alternative data fronts.
This is why it was so exciting for me to be given a chance to see what’s happening in Latin America, a region that, by and large, fixing gaps in traditional with new and varied alternative data experiments.
I’m spoke to Santiago Espinoza, LexisNexis’s Director of Market Planning for LATAM, to learn more.
You can find Lexis Nexis Risk Solutions at: https://risk.lexisnexis.com/
They’re also on LinkedIn at https://www.linkedin.com/company/lexisnexis-risk-solutions/
Santiago is also on LinkedIn at https://www.linkedin.com/in/santiago-espinoza-6385ba
I am on LinkedIn, of course, so feel free to send me a connection request there: https://www.linkedin.com/in/brendanlegrange
My action-adventure novels are on Amazon, some versions even for free, and my work with ConfirmU and our gamified psychometric scores is at https://confirmu.com/ and on episode 24 of this very show https://www.howtolendmoneytostrangers.show/episodes/episode-24
If you have any feedback or questions, or if you would like to participate in the show, please feel free to reach out to me via the contact page on this site.
Keep well, Brendan
The full written transcript, with timestamps, is below:
Santiago Espinoza 0:00
I work with the very base of the pyramid. They have that phone in their homes, but they don't have mobiles. And I said, Come on, what are you talking about? Everybody in Mexico has a mobile phone and in the region is the same the same scenario. So at the end, they are producing the little prints, I will say every second every minute of their day. So with alternative data, now they have the opportunity to go after these population.
Brendan Le Grange 0:33
The Pont du Gard is an ancient Roman aqueduct bridge, built in the first century to carry water for 50 kilometres into Nime, rising to 50 metres tall over its three tiers.
It's a hell of a sight. Apparently. If I'd been a bit better at planning things, I would be standing on the shores of the Gardon river now looking at it, but I made a little mistake. When I initially drew up a five day cycling itinerary around a pilgrimage to the last home of the French le Granges, I was aiming for Cabrierers d'Avignon when I should have been aiming for Cabrierers d'Auiges (the one my wife had actually mentioned mind you).
Noticing this, in time luckily, forced a reshuffle. Nimes is off the list and now, if you're listening to this on the day it was published, I will instead be heading up and over the Vaucluse plateau, towards l'Isle sur la Sorgue, and a recovery lunch. It is set to be a wonderful ride, but it does lack the metaphor I was hoping for, for an episode entitled Bridges to Credit.
Well, never mind, and welcome to How to Lend Money to Strangers with Brendan le Grange.
Santiago Espinoza, Director of market planning for Latin America at LexisNexis Risk Solutions, welcome to the show.
Santiago Espinoza 2:03
Thank you very much, Brendan for the opportunity. And the time.
Brendan Le Grange 2:06
I'm really looking forward to it, it's to market I've not had the pleasure of working. So I always like these episodes where I get to learn as much as anyone else.
And Santiago, you've actually been in the digitization, the modernization of Mexican financial services for 20 years now - so I think one of the better teachers, I could ask for on the subject. So before we speak about your current work at LexisNexis, let's start with how you got there.
Santiago Espinoza 2:31
Yeah, absolutely.
As everybody knows, Latin America is a bunch of countries emerging economies that definitely they are looking for some space for the financial inclusion, and the need for the credit and personal loans.
So, for example, in Mexico, we have a potential market of about 90 million people. As of today, we only have 20 to 30 million credit cards. So as you can imagine there is a lot of opportunities in there. The big internatonal banks have looked for some of these opportunities in the markets, especially in Mexico and Colombia, but there is a place for pretty much everybody.
Because at the end in the top tier we have a heavily banked population but it is not the big case of this market. So there is a big challenge for all these institutions to get access to the very base of the pyramid. However, there are a lot of lacks of information in terms of a creditor input information, PII information, information about the government institutions. So on one hand, we have the need for access to the credit note and on the other hand, we have these hungry companies looking for these big markets.
So that's where I came in working in different in different companies.
Brendan Le Grange 4:00
So that we started working just a few years apart. I was in South Africa also work sometime with American Express, albeit it was a American Express franchise, portfolio run by bank, but also a region that has a lot of similar problems, a very well banked tip of the pyramid, and a massive underserved base of the pyramid.
So I'm interested to hear as we go through the talk today, the different types of solutions that emerged in North America and Latin America compared to what have emerged and are emerging in Africa as well. But really, we're here to talk about your more recent work your current work at LexisNexis.
Now, I know LexisNexis a little bit, because in my last role our CEO came across from LexisNexis. But prior to that I considered LexisNexis or just thought of LexisNexis as a legal data provider, and not so much as a banking data provider. So for anyone listening who may be unfamiliar with what LexisNexus Risk Solutions does. Could you give us some background to the company? What are they doing around the world? But I guess in particular, what are LexisNexis Risk Solutions doing in Latin America?
Santiago Espinoza 5:12
Well, LexisNexis Risk Solutions is a company of more than 40 years of experience in markets like the United States and the United Kingdom.
However, in Mexico and the rest of Latin America, we have more than seven years of experience. And what LexisNexis Risk Solutions offers to the Latin American market is business services related to the data to the alternative data. So we are a consulting company with more than 6,000 companies.
Within this network, we share more than 2.5 billion identities in the world. That's the outstanding number that we share with our prospects and customers in the region. No, because it's very different to say, for example, in countries like Colombia, like Mexico, Argentina, or Chile, where we have a population of between 30 million up to 100 million people.
But when you say, okay, we can give you access to more than 2.5 billion digital identities. That's the point where all the eyes are wide open. No, because that's the that's the war. That's the complete the complete war no. So from that point of view, what I will say is that LexisNexis Risk Solutions needs the company right behind companies like Google, like Facebook, their key players in terms of the utilised entities. And recently, we acquired a couple of companies called ThreatMetrix and Emailage, that gave us a lot of access to different data worldwide.
So in just a matter of seconds, regardless of your current location, we can get information from customers, from Asia, from Europe, from Eastern Europe, and so on. Because what we have seen is that a lot of companies coming from these regions want to expand into the Latin American market, because these opportunities, that's the consortium and the power that LexisNexis resolution has in the region and the whole world.
Brendan Le Grange 7:18
For an outsider, if we're imagining lending in Latin America, what does that landscape look like? Obviously, when you ask about a region, there's going to be lots of new ones. So it's probably unfair to ask such a simple question with such a complicated answer. But well,
Santiago Espinoza 7:33
I will say that there is a lot of diversity in the lending landscape. For instance, we have customers for credit cards, where you can have customers with $1,000 credit lines up to, I don't know, maybe $100,000. But in the other hand, you will have the very base of the pyramid or the middle of the pyramid, where they want to have a credit between $50 up to $100 or $200.
So as you can imagine, whatever is in between, that's the very big opportunity for these companies. But the problem for the companies and the people to get together is that unfortunately, in the past, the companies, the lending companies, they didn't have access to reliable information about the prospects or the customers they were looking after. So with alternative data, now they have the opportunity to go after this population, because what the facts that we know from the Latin American markets is that they are heavy users, for example, for mobile phones, in the case of Mexico and Colombia, the mobile phones, penetration is above the 80% of the population.
So that give us a lot of digital prints about these prospects. And these customers, they are producing the top prints, I will say every second every minute of their day, you go to the office, you read your email, maybe you booked a flight or a hotel for your next vacation or next holiday or do the transactions in e-commerce, maybe you do buy some tickets for the for the movies or for a concert or whatever.
Each one of these activities represent a footprint in most of the cases within our consortium and within our network. So that's where the opportunities comes in for the different lending companies to get access to this population. Because in the past, it was very complicated for certain sectors of the population going to a bank branch in their communities.
Now, most of the time is very hard and very difficult to open branches closer to potential customers with the opening of the fintechs and without All these communications and new technologies, now each single person with their mobile phone is a potential customer for banking services, we have a banking branch in each one of their mobile phones. So definitely, that's the change that we have brought to the landscape in terms of financial inclusion and the offer of financial services.
Brendan Le Grange 10:24
40 years ago, we had credit bureaus and credit bureau scores were starting to be bought, we used that traditional Did you repay to Do not repay data, because that was the only data that made sense to capture in a world where it was very expensive and difficult to capture data. It's the single most important field, but it's not inherently the field we need. We just wanted to understand our customers and understand their risk.
We've kept it because it works very well, but now we live in a different world. And there's all sorts of other ways we can still answer that same question of what are the patterns of this consumer? How stable are they? How risky, are they? And are they likely to repay our debt. And now we a client has no credit file a very thin credit file, they may have, as you said, almost everybody does a very thick file of alternative data that we just need to understand. And it's not as easy to conceptualise what to do if somebody's getting new data every second.
But before we get that far ahead. You mentioned telco data, when you talk about alternative data in the region in particular, is that primarily what we're seeing different data from the telco provider in the handset and the activities on a smartphone? Or are there also different types of alternative data that are proving to be popular and useful?
Santiago Espinoza 11:42
Yeah, I will say it's different information. Because what we have seen within our networks is the transactions happening every second, that's in one side. In the other side, what we have is the behaviour that this person has in the digital world.
Let's take Santiago as an example. Santiago for sure is a physical individual that does transactions every single day in the in the digital war, painting, de commerce reading my emails, using the social media, getting access to video, streaming services, and so on. But also in the real world. Santiago maybe goes and requests for a credit card for a card in a department store, maybe a car loan, and so on. Those are the are the physical transactions where we have the traditional players like the credit bureaus, they have information like the PII information, for example, my complete name, my physical address, my phone number, etc.
But what do we have in the digital world? In addition to this information, what we have for example, is my email address, how long I have been with my email address associated with my with my personal name. So for example, Santiago has a personal email address for I will say, more than 20 years old, and my mobile phone number has been the same from since I don't know another 20 years old. No.
So what happens for example, if Santiago wants to request or wants to apply for a personal loan, in FinTech, maybe in Mexico or in Colombia, if they want to use alternative data, they will look for my PII information based in the credit bureaus, but also in some of the cases, they want to know, where am I located. Some of the newest companies are exposed to different fraudsters in different locations, trying to steal information from the traditional sources. Let's say that as someone has access to my physical address, my complete name, etc. But they don't have information of that tentative data. So that's a very good opportunity for some companies like us to prevent fraud.
We know that historically, Santiago has performed transactions from from Mexico City, not from Asia, from Eastern Europe, and so on. So that's what type of information we can use.
Brendan Le Grange 14:14
If somebody were to compromise my identity in the real world, the sort of most formal version of my identity that remains compromised, whereas my online, my digital footprint moves, your buttons will shift over time, what's normal for you changes, and I think that's something that can move and flex is much harder to copy.
But Santiago, when it comes to people lending with us alternative data, how is the lender incorporating it? Are they pulling this in instead of traditional data alongside traditional data?
Santiago Espinoza 14:45
Okay, that's, that's a very good question. And the answer is that they use both. The first one is where they mainly the traditional institutions that traditional banks are the ones relying the most for the traditional credit bearing institution.
However, they have started to incorporating alternative data models within their own in house models. And in the other hand, what we have seen mainly in the fintechs. And under startups, they are the ones relying more in the alternative data because they are, let's say, digital native No. So for them, they adapt the adoption processes easier rather than the traditional banks.
But my recommendation always is the same. The way this needs to be seen is as a compliment, as a very good muscle that can make your model stronger, and to get access to more population that the one providing for them. From the credit bureaus. Let me give you one example with one of our customers in Mexico, co financiero, is online lending company, they do personal loans to the middle of the of the pyramid with alternative data, we were able to increase their portfolio up to 200% of their current base, at the same time, we were able to reduce their fraud rate up to 30%. So definitely, that's a very success story before us, because in the best case scenario, the credit bureaus have assets for I will say, between the 20, up to 30% of the population. In the rest of the cases, they don't have any information about the prospects.
So with alternative data, we were able to provide access to that population and to know their behaviour and to identify the good payers and to dismiss potential fraudsters. And definitely some others. Once they have seen this type of results, they are asking, Okay, what will be better for me because I can I can reduce costs, for example, if I dismiss the traditional credit bureau services, but at the end, you can work with both, you can work together,
Brendan Le Grange 16:57
You couldn't imagine any other business where he would turn away half the customers who came knocking on the shop door in the morning. And yet you so often find lenders who turn away 30% 40% 50% 60% of the applications because they lacked the the data they needed. And so this is usually beneficial.
And, you know, we talk about access to credit as it is often rightly spoken about in terms of the consumer benefit. But also, of course, there's a, there's a real big benefit to the lenders as well in in widening the pool, bringing in customers that are no more or less risky as just now we can identify them. You know, the sort of uplift you're talking about here isn't unique.
I was actually reading LexisNexis has recently published alternative credit data Impact Report. And that mentions that the use of alternative data has positively impacted revenue growth, when nearly all the financial institutions that were surveyed, with the majority saying revenue increased by at least 15%. So these alternative data sources can provide layers of insight we haven't seen before. So let's stay on that positive of the impact. You've mentioned some great examples there. Are there other use cases that are worth calling out?
Santiago Espinoza 18:11
Yeah, absolutely. There are different examples of the lift that we were able to provide to different customers in along the region. So let me give you one more example talking about migration.
Because at the end, that's common in the region, people from Venezuela going to Colombia, people from Central America coming into Mexico, and also we are receiving people from Chile, from Argentina because of different situations in those in those markets. So what happens in those cases, let's say that you are a person coming from Argentina, and you come to Mexico legally, of course.
But regardless if you are legal or not, what is happening is that you don't have any credit background information in Mexico. So okay, you will start working in a company. And definitely you have the need to get access to credit. No. So you have spent six months in Mexico, but you don't have access to any credit card, because the traditional banks, what they asked for is information within the credit bureaus, receipts, from different months in your payroll and so on. That's the typical information regardless of their of their country.
But definitely these type of people, they don't have that type of information, because at the end, they are coming to a new country with no with the money that you have in your pocket. And basically that's it. The companies that are are incorporating alternative data within the risk models are the ones providing more access to credit to these type of people. In the scenario that I gave you, you execute it and you have a digital footprint in Argentina.
The power of companies like LexisNexis Risk Solutions is that we're able to collect that information coming from different sources within our consortium, and we can incorporate that into the risk models of these type of companies. So in a matter of seconds or minutes, I will say these companies are able to give you a credit card or credit line or personal loan. So these companies are the ones gaining access to this type of of population,
Brendan Le Grange 20:23
you could come even with your papers in hand, and find that in the new country, they won't accept that idea unless it's stamped, unless it's translated. And through no fault of yours, you just cannot participate. And then you start paying all these extra costs of having to work around the system.
The one thing that brings to mind is that anybody who's worked in data at one time or another, has said, you know, more data is better. And usually we're data hungry. So why have some lenders not done this yet? Why haven't more lenders already embraced alternative data? In that search? Which is more and more and more?
Santiago Espinoza 21:05
That's a tough question. There is no direct answer for that question. But what I have seen, in my experience, is that in some of the cases, unfortunately, I will say depends on the mindset of the of the people in charge of managing the risk in the companies in the region, what I have seen is that the traditional mindset, it's very set, they say, I will say that information is not 100% accurate? No. And my answer to that question is that do you have access into the digital world every single day? No. And in the traditional in the credibility institutions, they take, for example, one day, one week, one month, one cycle call for information to be updated.
If I execute my credit bureau right now, for Mexico, there is information for the first company that I've worked with. And in the alternative data world, for example, what the type of information that you will see is the information that I executed a few seconds ago, the transaction that I did a few hours ago. So that's the difference. And that's why we execute pilots free of mostly free of charge for them, for the companies, for them to test our services to test our data to test the attributes that they can incorporate to their models. Because again, for some of them, it's hard to believe that these alternative information is more reliable than the one coming from traditional sources.
Brendan Le Grange 22:40
I love that example. Because yeah, in the traditional model, if I think about identity verification, I've been asked, yeah, which of these is a previous work address of yours, or a previous phone number of yours, or I've seen in in my one of my cards from a new bank here, you know, it's called location based security.
So if my card is used near my phone, you know that it's okay. And it knows where I am standing right now. So it doesn't matter. Which was why, you know, what was my office address? Three years ago, when I moved to England or 10 years ago, in Hong Kong? It's where you're standing at the moment.
Santiago Espinoza 23:13
Yeah, for example, I used to be consultants. So you can imagine the number of different companies that I worked with. And when they asked me, okay, can you give me your office numbers? Oh, my gosh, what number is that?
Brendan Le Grange 23:29
Exactly? Yeah. And you mentioned there about doing pilots and tests. So maybe it's a good time to bring this back to LexisNexis? What role? Are you fulfilling the end? How are you helping lenders out there in Latin America, work through this conceptual project of understanding what data is out there? How to take it into their risk models, how to use it to make lending decisions that are more accurate for decisions that are more accurate?
Santiago Espinoza 23:55
Yeah, in my own words, I will define myself as a kind of Ambassador, because I am part of this digital revolution that we are seeing in the region, the revolution for the traditional banks to become digital banks, because I work in the first Mexican digital bank a few years ago. So I have seen this panning change, no.
And my recommendation is that they see me as okay, you're telling me about these attributes, the digital data, and some of the cases is new for me. And you sound really excited talking about this topic? And my answer is yes, I sound really, really excited about this, because I have seen the old model to know I come from traditional institutions. I have seen the traditional Greece models. And now I believe I am one of the key players in this revolution. And the numbers are out there. No.
And I have seen some companies saying okay, Santiago, maybe your company or the data or the solar questions that you are telling me, they don't apply for my customers or my prospects, because I work with the very base of the pyramid, the best case scenario, they have that phone in their homes, but they don't have mobiles. And I said, Come on, we're in Mexico, where 130 million people, and from those 100 million people have mobile phones. So what what are you talking about? Everybody in Mexico has a mobile phone and in the region needs the same, the same scenario. So in that sense, we, as a company, we are able to digitise some of the companies in a matter of days or weeks instead of years.
So I am the one working on providing these conversations to the senior levels in their companies, and make them understand the value and the lift that they can receive use in our solutions and the power of the alternative data and the digital footprint.
Brendan Le Grange 25:59
Yeah, well, San Diego, I love to hear their passion. And I I agree with you that in terms of timing, the traditional works well is still an important pillar of lending. But we've got this whole new set of data types that we can understand. And often, as you said it, it tells us a lot more than maybe we think, and every year, smartphones get cheaper, they get further spread out, we're only gonna get more and more alternative data. So you're gonna have to understand that you're gonna have to incorporate it into your lending one day, you may as well do it now and get the benefits from now.
So, Santiago, if anyone is listening and wants to start that conversation, or maybe they want to just learn more about LexisNexis Risk Solutions, where is a good place for them to go online? To find out more? Yeah, absolutely.
Santiago Espinoza 26:42
Within our website, LexisNexis Risk Solutions, there is a lot of information about our different solutions and the power of our data networks, the different use cases that a your company needs. And you can get in the information about these numbers growing and the number of fraudsters that were stopping and the success cases that we have with the financial inclusion in the Latin America region, and in some other regions worldwide.
We are in the middle of a revolution know where regardless of your location, if it's Latin America, if it's Mexico, Colombia, Argentina, and so on, we are able to provide information from worldwide to your market. Yes, okay. Do you know your customers? But do you know your customers in your own environment? But maybe you don't know how your customers are behaving in different companies in different markets in different sectors? No, maybe it's a different behaviour from the E commerce that from the insurance sector or the online travel agencies and so on or banking services? No, that's a that's the power of our company.
And you can reach me directly in LinkedIn that I will be more than happy to support you in any questions you may have about about our solutions.
Brendan Le Grange 28:07
Perfect here, Santiago. I'll put those in the show notes as well for anybody who wants to start their conversation. So yeah, thank you for your time. It's been fantastic learning about the region, but also just about the impact that the sort of data is having out there.
Santiago Espinoza 28:22
Thank you very much, Brendan, and for everybody listening to us in this conversation has been a pleasure for me to give you maybe a quick view of the Latin America region and the potential that we have, and whatever we have done here in the market. It's a world of opportunities for everybody. Because obviously, you can talk about the US and the United Kingdom as an as the key players for the fintechs and other startups.
However, for example, in Brazil, Mexico, and Colombia, we have a lot of companies come in from different markets from different locations, opening and starting operations in our region. So definitely that talks about the potential that they are seeing in our in our market now. Because again, you are talking about maybe millions of people that they don't have today, access to the banking services. And regardless if it's a personal loan or credit line or credit card, or just a digital savings account, there is a big opportunity for for the region.
Brendan Le Grange 29:28
Yeah, and I think you're talking about a region with lots of people moving back and forth, lots of people sending remittances, riveters remittances and mobile population between countries.
Santiago Espinoza 29:39
Absolutely. And remember that in the digital world, they are no borders. So absolutely. We can do pretty much everything we want in the in the digital world. And we can bring everybody together.
Brendan Le Grange 29:53
Yeah, well, I'm going to be following that story. I'm gonna go head over to the website now as well and read up some of the reports in a bit more detail. Santiago. Yeah, thank you again. And thank you all for listening.
Please do look for and follow the show on your favourite podcast platform and share the updates widely on LinkedIn where lending nerds are found in our largest concentration. Plus, send me a connection request while you're there.
This show is written and recorded by myself Brendan le Grange in Brighton, England and edited by Fina Charleson of FC Productions.
Show music is by Iam_wake, and you can find show notes and written transcripts at www.HowtoLendMoneytoStrangers.show and I'll see you again next Thursday.