More than 1.7 billion people across the globe remain unbanked, according to the latest data from the World Bank’s Global Financial Inclusion database. And it’s a growing problem in countries such as Sri Lanka, where a large portion of the population is forced to operate in cash and outside of the financial system. “If you’re poor, earning in cash with no bank account, your only source of credit is the loan shark and informal money lenders,” says Reeza Zarook, CEO of Rukula Limited.
Zarook sought to address the issue in 2016 when he founded Rukula, a microcredit retailer that offers installment plans to the country’s unbanked population. Rukula helps these citizens buy basic durables by moving beyond traditional loan processing; it operates on the belief that ability to pay has less to do with income than the stability of the customer’s family unit.
A finalist in this year’s BAI Global Innovation Awards in the Innovation in Societal and Community Impact category, Rukula uses machine learning and an AI-enabled algorithm that considers not only an applicant’s income, employment and customer type but also their spouse, age of kids and whether they own or rent.
“In all we obtain approximately 20 other attributes from the customer that feed into the scoring,” Zarook says. “If they pass the credit score, it is only then that we look at their income to decide how much to lend.”
Rukula has used technology and new ways of thinking to fill a gap that has challenged banks in reaching underserved consumers.
Innovation doesn’t necessarily have to be a ground-breaking invention or application, says Jennifer Tescher, a Global Innovation Awards judge and president/CEO of the Center for Financial Services Innovation. “It’s often just about putting parts together in a different way, borrowing from things we have seen elsewhere and applying it differently,” Tescher says.
Consider that while many banks have explored cloud applications for years, it’s a big leap for a small bank to move its entire business to the cloud. Wilmington, N.C.-headquartered Live Oak Bank undertook an ambitious initiative to transition its entire internal IT infrastructure to the cloud in less than two years.
A finalist in the Internal Process Innovation category, Live Oak Bank migrated its operations to the Microsoft Azure environment to empower its employees to serve their customers anywhere and at any time with accessible applications. The move gave employees the ability to use any device to sign up customers for new accounts, service existing customers, process loans and deposits, or enable other banking features.
Attaining full mobility played a key role in attracting a young millennial market and was a better way to compete against mega banks without adding staff, says Live Oak Bank chief information officer Thomas Hill. “We wanted to make our employees a mobile branch. They can go anywhere at any time and can service our customers like they’re the only ones.”
Live Oak leveraged its smaller size and nimbleness to adopt cloud tech faster than bigger banks. Administrators took legacy applications and started converting them into a virtual environment that could run on any type of platform. Live Oak started moving each application into the Azure space, validating along the way to ensure that it worked. It did the rollout in two major phases, both which ran roughly 18 months, and during that time employees adopted to the new workflows.
“It benefited by validating our environment in a very methodical way because it allowed us to change the culture of our company, as well to be more accepting of a new way of processing as opposed to the old legacy way of doing things,” Hill says.
All of Live Oak Bank’s internal and customer-touching processes were reexamined and optimized for cloud operations and transitioned to the cloud. The current cost-benefit analyses indicate up to a 50 percent reduction in corporate IT spend. And the only owned hardware items required to run Live Oak Bank are the laptops and smartphones that customers carry.
All successful innovators share the strength of a long-term vision, says Global Innovation Awards judge Sue Britton, founder/CEO of the FinTech Growth Syndicate. Much of their innovation also happens on the inside with backing from funds and staff—and produces a focus on the customer.
“It’s about innovating your internal systems and legacy technology and how to leverage data,” Britton points out. “A lot of the stuff we hear about is consumer-facing.”
Often, those consumer-facing advances are ultimately about solving internal challenges. In Colombia, Banco Pichincha Colombia collaborated with NovoPayment (a finalist for Disruptive Innovation in Financial Services) to extend services to gig economy businesses and embed them in their workflows through cloud applications, bank-grade middleware and application program interfaces (APIs). Using NovoPayment’s white-label, bank-grade platform, Banco Pichincha enrolled and authenticated freelance workers, with Via-co-branded accounts electronically enabled for procurement and compensation purposes.
In China, security and convenience have long been two of the top concerns for the insurance industry. To attain a competitive advantage, insurers have typically strived to improve risk management while enhancing the user experience, both of which require strong identity verification. Similar to the United States, traditional paper-based verification can be costly, leads to poor customer experience and is vulnerable to fraud, says Han Qiu of OneConnect, a finalist for Outstanding Use of AI in Financial Services.
OneConnect, a subsidiary of China’s largest insurance company, sells technology to smaller banks; in September 2017 it launched an AI-enabled online verification tool. OneConnect uses biometric markers such as voice recognition, face recognition and posture recognition to make the verification process more efficient.
“We are a firm believer that the best technology is a result of constant innovations,” says Qiu. “In my personal view, innovation is the DNA of any successful fintech company,”
Increasing competition from fintechs, neolenders, and tech giants is compelling banks and credit unions to seek out innovative business models to expand and diversify their sources of revenue. By embracing strategies such as distributing financial products through retailer websites and points of sale or creating value-added bundles that include both financial and non-financial partner products, financial institutions have the potential to achieve up to 20% increases in revenue.
Join us for this complimentary BAI webinar to hear FintechOS’s Mariana Henriques speak with Matt McCombs, President and CEO of Vibrant Credit Union, a 50,000-member financial institution serving Iowa, Illinois and Indiana, about how they reinvented their direct origination business.