The Challenge of Financial Inclusion for the Unbanked: GXS Bank’s Story

Despite progress in expanding access to financial services globally, millions of people remain unbanked. According to the World Bank's Global Findex Database 2021, a lack of money, distance to financial institutions, and documentation requirements are key barriers to financial inclusion. This leads to a vicious cycle where those without credit histories cannot access loans and other banking services to build their financial profiles.

In Singapore, while over 90% of the population has some credit history, there remains an underserved segment without extensive credit records. For traditional banks relying on credit bureau data, the lack of information about this group makes it difficult to evaluate their creditworthiness and extend loans responsibly. As a result, these individuals struggle to access formal credit channels, perpetuating their exclusion from the financial system.

In this blog, we’ll uncover how one digital bank, GXS Bank, is using data to help unbanked individuals access banking products. What follows are key takeaways from a conversation featuring the CDO of GXS Bank, Dr. Geraldine Wong.

Bootstrapping Credit with Alternative Data

Facing an absence of financial data, how can a bank assess the creditworthiness of newcomers? GXS Bank is a digital bank founded in Singapore in 2022 that leverages alternative data sources from its partners, Grab and Singtel. (Grab is a leading super app in Southeast Asia, while Singtel is a major telecommunications provider.) GXS Bank uses data such as Grab's financial services data and Singtel's telco payment history to build proprietary credit risk models. 

As Dr. Geraldine Wong, CDO at GXS, explains, "We actually created a proprietary credit assessment tool, a model to leverage alternative data from Grab and Singtel." By analyzing repayment behavior on platforms like Grab's buy-now-pay-later services, GXS Bank can assign credit scores to those without traditional credit histories.

This allows GXS Bank to offer initial small loan amounts, even to first-time borrowers lacking extensive credit records. Wong notes, "We could offer them a credit limit of a very small amount of this non-bureau customers and through their repayment behavior on our platform, be able to then increase the limits." As customers demonstrate consistent repayment, their credit limits can grow over time, bootstrapping a formal credit history.

Expanding Financial Inclusion with Alternative Data

Alternative data sources like mobile money transaction records, utility payment histories, and e-commerce data can be leveraged to assess creditworthiness for the unbanked population that lacks traditional credit histories. By analyzing these digital footprints, lenders can assign credit scores and extend initial small loan amounts to unbanked individuals. As borrowers demonstrate consistent repayment, their credit limits can be increased incrementally, allowing them to build formal credit histories. 

This bootstrapping of credit records opens up access to other financial services like higher loan amounts, mortgages, and insurance products that require credit risk assessment As GXS Bank demonstrates, alternative data enables financial inclusion by providing a path to credit for underserved segments that traditional credit bureaus could not serve.

Risk-Based Pricing for Inclusive Lending

GXS Bank employs a risk-based pricing model that allows it to lend responsibly to customers without extensive credit histories. By starting with small loan amounts, like its  GXS FlexiLoan product where customers can take up loans from as low as $200, the Bank can extend credit to unbanked segments while controlling risk exposure.

The interest rates are calibrated based on the limited credit information available from alternative data sources like Grab's financial services data and Singtel's telco payment histories. As the customer demonstrates consistent repayment behavior on GXS loans, their credit limits can be increased over time. The interest rates are also adjusted downward, allowing these newly banked customers to access more affordable credit as their payment histories build up.

This risk-based pricing approach enables GXS to lend inclusively by starting customers off with appropriate loan sizes and pricing based on their data footprint. By giving an on-ramp to build credit histories, GXS can responsibly bank underserved segments over time.

Building Trust Through Data Protection and Transparency

Building customer trust is essential for successfully banking underserved segments with limited experience in the formal financial system. As Wong explains, GXS Bank obtained certification for data protection from the Infocomm Media Development Authority (IMDA) of Singapore to instill confidence in customers that their personal data would be handled securely. She also works closely with these partners to ensure data is used compliantly. “When we use data from data-sharing partners, it needs to come with the right amount of consent,” she points out.

Ensuring the data from Grab and Singtel is governed, and shared with the appropriate context, is also essential.  “Both partners have varying amounts of description on their data,” Wong shares.  Her team integrates that data and its metadata in Alation’s data catalog as a sandbox for her team to utilize.

Maintaining rigorous data governance practices and being transparent about how customer data is used are also critical factors in establishing trust, especially for those new to banking services. GXS Bank implements mandatory annual training on data governance for all employees and contractors to ensure proper data handling protocols are followed consistently across the organization. By demonstrating a commitment to protecting customer privacy and using data responsibly, GXS Bank aims to build the trust required to successfully serve financially underserved populations.

Conclusion

In her conversation, Dr. Wong showcases how GXS Bank is pioneering financial inclusion using alternative data, helping the unbanked build credit where traditional banks have failed. By leveraging data from partners like Grab and Singtel, GXS can responsibly offer credit while maintaining trust through rigorous data governance.

To dive deeper into how Dr. Wong’s team uses a data catalog to power innovation in banking and AI, listen to the full conversation. 

Interested in how a data catalog can transform your organization’s data management? Book a demo today and see how Alation can support your AI and banking initiatives.