Imagine an American single mother of two teenagers living in Indianapolis who decides it is time to buy her first family home. With no debt, a college degree and a steady job, one would think it would be easy to secure a mortgage. Except she can’t. What about a British national in his mid-thirties moving back to the UK after spending some time in Hong Kong? He has a corporate job and needs access to credit to get his life organised in the UK. Except he can’t because he has no past credit history in the UK and traditional credit lenders cannot score his ability to repay loans.
Financial exclusion affects 30 percent of people worldwide across rich and developing countries and impacts a huge variety of people, from students, retirees, housewives, migrants and many more.
Fortunately, there are solutions. In this episode, YS Chi speaks with Steve Elliot, UK managing director of LexisNexis Risk Solutions who shares his thoughts on how to address the issue in the UK; and with Carolina Costa, RELX head of government affairs for Latin America, who says Brazil is getting it right.
This podcast is brought to you by RELX.
Imagine an American single mother of two teenagers living in Indianapolis who decides it is time to buy her first family home. With no debt, a college degree and a steady job, one would think it would be easy to secure a mortgage. Except she can’t. What about a British national in his mid-thirties moving back to the UK after spending some time in Hong Kong? He has a corporate job and needs access to credit to get his life organised in the UK. Except he can’t because he has no past credit history in the UK and traditional credit lenders cannot score his ability to repay loans.
Financial exclusion affects 30 percent of people worldwide across rich and developing countries and impacts a huge variety of people, from students, retirees, housewives, migrants and many more.
Fortunately, there are solutions. In this episode, YS Chi speaks with Steve Elliot, UK managing director of LexisNexis Risk Solutions who shares his thoughts on how to address the issue in the UK; and with Carolina Costa, RELX head of government affairs for Latin America, who says Brazil is getting it right.
This podcast is brought to you by RELX.
The unique contributions podcast is brought to you by RELX. Find out more about us by visiting relx.com. Hello, and welcome to series three of Unique Contributions, a RELX podcast where we bring you closer to some of the most interesting people from around our businesses. I'm YS Chi, and I'll be exploring with my guests some of the biggest issues that matter to society. In this series, I also want to investigate the issue of trust. How can we build trust in data and technology to help create a world that works for everyone? I'm exploring today the topic of financial inclusion. Financial exclusion is a worldwide crisis that impacts 1.7 billion people, or around 30% of people across the globe, without access to global financial services that meet their needs. Global financial inclusion has vastly improved over the last 10 years, but what still surprises me to this day, is how many people this affects in both rich and poor countries alike. Such is the gravity of the issue, that financial inclusion is an enabler for achieving seven of the 17 United Nations Sustainable Development Goals, from eradicating poverty, to promoting health and wellbeing to reducing inequality, and achieving gender equality and even economic empowerment of women. I'm speaking today with two experts on the topic who have first hand experience of financial exclusion, one in the UK, and the other in Brazil. So my first guest is Steve Elliot, managing director for LexisNexis Risk Solutions in the UK and Ireland. Steve, welcome.
Steve Elliot:Thank you very much. Thank you.
YS Chi:So Steve, while financial inclusion sounds great, I want to make sure that we're on the same page about this meaning, can you tell us what you mean by financial inclusion?
Steve Elliot:Well, absolutely. So if we think about the world around us, our world is changing fast. Whatever economy we live in society is rapidly evolving, people are acting in a much more digital landscape. And it requires fast decision making. And that includes in the credit markets. In the credit markets, firms are trying to understand who people are and do so quickly. And trying to understand what risks they present when they're trying to lend credit. And financial inclusion - to be included - it means that those firms need to be able to make decisions fast in relation to the people. But if they can't, if they're using the wrong data, then it makes it very difficult for those credit providers to provide service to the consumers. And that's essentially what I mean.
YS Chi:So you're saying that more number of people are more quickly having to engage in daily lives, that includes financial transactions, and that many are being unfairly treated, including being left out entirely? Is that true?
Steve Elliot:That's absolutely true. So it all comes down to how they're looked at, and comes down to the data that's used when you're trying to assess whether the person first of all is a real person, whether the person is the person they claim to be, but also the risk that they present. So it's absolutely about the data that it relies on, and a lot of credit scoring at the moment relies on past activity, what happened in the past. And that's not often a good predictor of what might happen in the future, the future in the past are different things. So people are being excluded, because firms are using the wrong data to try and predict future activity for people.
YS Chi:Right, we're going to get to that a little bit later, again, about the past behaviour pattern. But just how big is this issue? How many people in the UK, for example, are struggling to get access to credit, since UK is a very developed country?
Steve Elliot:Well, it's bigger than you think. And as you say, the UK is a developed country, it's reliant. It's relied on all sorts of data to score credit over a long period of time, and yet the problem still exists. So in terms of scale, we estimate that about 7.1 million people in the UK or put another way, about 13.7% of the population, the adult population that are struggling to access credit at the right price, or to access credit at all, because they have very thin credit files or no files at all. So when firms are trying to score them, they struggle to do so accurately and that's at some scale.
YS Chi:So, I mean, I used to be a banker and, you know, we would indeed make decisions about credit worthiness based on past behaviour, because that is the only predictor we had going forward. So how is that any different today, Steve?
Steve Elliot:Well it used to be the only predictor predictor of behaviour going forward. But now using more data assets, you can actually be much more accurate in terms of predicting the future, you can look at not just how they behave in their existing credit records, but also how they behave in terms of the lifestyle around them, who they interact with, and so on, and so on. And then you can use analytics to actually look at the key indicators that will tell you how they're going to behave in the future. But the problem is even broader than that. If I relate it directly back to financial inclusion and exclusion, if you don't have that record, then you can't actually look at the past behaviour to work out what the future behaviour is going to be. And I'll give the example of my own children. My own children are trying to enter the markets at the moment but because they have no past behaviour, they're almost compelled to take out debt or credit in order to try and create a profile so that firms can actually predict what they might do. So the current ways actually need an awful lot of improvement.
YS Chi:Yes, and my kids are doing exactly the same saying they need to take out loans just so that they have credit record.
Steve Elliot:Well, that's right, we encourage people to take debt to try and build a credit profile. And that's got to be the wrong way of doing things. And if we consider some of the consequences of that, we can see short term loan applications on the increase at the moment - many more people are applying for for short term loans in order to try and improve their position because they can't get access to the right credit at the right price.
YS Chi:Let's delve in a little deeper into that. I don't want to underestimate or understate just how bad the consequences of not having access to credit are. But for many people, it can be hard to picture what exactly happens when you don't have a credit history? Can you just give us some very simple examples of this?
Steve Elliot:Well absolutely. So what does credit mean? Credit means more than just credit cards, it means access to mortgages, it means access to loans that people use to pay for education to improve their lifestyle, to improve their financial wellbeing. It means access to energy supplies. And in the UK, we see increasing numbers of people having to get pay as you go meters, which are very expensive, because the utility companies are struggling to credit rate them and provide them with access to utility. So it means that right across people's lifestyle, if you can't credit risk rate, or you can't get effective credit scoring against you, you end up paying more for things more for energy, more for mortgages, if you can get them, more for credit cards, because you're considered to be a higher risk when in fact you might not be.
YS Chi:Right, and I understand you have an interesting story yourself.
Steve Elliot:That's right, you're well informed! Yeah. So I, I lived many years out in Hong Kong. I did a number of things in Hong Kong. And I didn't come back to the UK until I was in my 30s. I came back to the UK and I had no debt in the UK. I'm a British national. I spent my childhood in the UK, came back with no debt. But I couldn't get any credit. I couldn't get a mortgage. I couldn't get credit cards, even though I had no debt. And I couldn't get them, because in the UK, I didn't have a credit record. So I had a job but struggled actually to just interact with the environment around me because I couldn't get access to that credit. And yet I was in a reasonable position.
YS Chi:Yeah, well, you probably were what you call in your industry, an invisible person, huh?
Steve Elliot:Well, exactly. So I had no file, so invisible, and yet I had income, right. And I was able to service the debt if I had it, but I wouldn't be alone. So if we think through examples, there's lots of other people in the same situation. Quite often when couples are going through divorces, that you find that the financial arrangements were in the name of the husband. And then the wife will struggle to get access to credit for rental arrangements, for energy services for credit cards, and so on. Like I've explained because they don't have a file. Children, young people, as they're entering the market will struggle to evidence their records, and all sorts of other people moving across the country, even the elderly struggle, because they tend to have less credit having already paid things off. But when they do need to return back to the credit markets, they struggle because they haven't got the profiles, so it impacts a lot of people
YS Chi:Specifically in the UK, since you cover this territory, is it something that is evenly distributed throughout the country? Or is it something that is more pronounced in certain parts of the UK?
Steve Elliot:There are regional differences for financial inclusion but also the consequences of not being financially included. And we see actually the differences where you'd expect to see them in the UK so London and the surrounding areas has a lower incidence of financial exclusion sorry, then the north of England or Wales. Wales, in fact of the Home Nations other than Northern Ireland has the highest rates of financial exclusion. And then you can go into that further and look at the usual areas where there are economic difficulties across the nation and see, actually there are further trends there as well. So it's trended by geography, but also trended by age group. And we see a big impact in the in the younger age group where they are trying to enter the market.
YS Chi:Right? So what can we do? What is our unique contribution as LexisNexis Risk Solutions to this issue in the UK?
Steve Elliot:Well we can provide much better credit forecasting, so we have a very broad set of data assets that look not just at the past, but what people are doing today, that looks not just at their credit records, but also lots of other lifestyle records as well. All of our data is credentialised, it's real data. None of it is social media data, it is real activity data. And we've linked all of this data together into single profiles for people. It includes the likes of, you know, name, address, date of birth, but the device they use, the email address they use, where they use it, how they use it, and so on. And we've linked that together. And then we can run analytics against it, to look at the network around them, to see how risky their entire network is. And what that means in practice, it means that we can authenticate very fast, but we can also risk rate very effectively. And that has real tangible benefit, not just for the individual, but for industry as well.
YS Chi:So this is years of experience that we have accumulated in these mixed of rich data that does predictive forecasting, is that correct? That's absolutely correct. And so it's a secret sauce of some sort.
Steve Elliot:That is the secret sauce. It's bringing all the data together, linking it together effectively to see the full network around an individual so you truly understand who they are and what risks they pose. And that's exciting for many reasons. It's exciting because you can understand credit risk far, far more effectively, you can predict risk far more effectively. To give you a quick example, in relation to that, when we've looked at it, we found there are much better predictors of a person's likelihood to pay or not pay than the historic credit payment record that firms typically rely on.
YS Chi:So this is really encouraging to know that we have expanded the view of the entire person rather than the very narrow past history. So that's great. But on the other hand, we all are worried about privacy. It sounds like we have a lot of data. And how do you assure people on the street that this data is being used for good?
Steve Elliot:Well, that's, that's a great question. I, too, am a consumer in the market. And I too, am always concerned about security and privacy. But with big data, provided you have strong governance and strong regulation in place, you can get increased assurance. So what do I mean by that? With more data, we can actually see if people are being targeted by fraudsters, we can see fraud networks starting to set up around individuals that you wouldn't typically see if you had less data. But we are extremely well governed, we are independently audited by our customers, we are regulated by the FCA. And we have very extensive controls in place that check the customers that we provide the data to, how they use it, how we use it, and so on. So we have a very comprehensive set of controls that ensure that we act responsibly.
YS Chi:Right. So I have two related questions. If a consumer hears this, is it explained in a street language that we can all understand? Or do you really need to be an expert and rely on FCA or ICO or other government entity to tell us that it's okay?
Steve Elliot:If you're referring to the security of the data, it is a complex, complex issue. And the best way to understand it quickly is to confirm that we are regulated by the different entities. If you trust those entities, then you quickly get trust that we are governing the data effectively. We are registered with the Data Protection Office. So with the Information Commissioner's Office and subject to their regulations as well. So if you trust those entities, and their oversight of us, you can trust our governance. But if people need to see more detail, then we're always happy to explain that.
YS Chi:So my second question is if quote unquote, a "mistake" is made in our, our assessment of the person's ability to pay, right? I literally put that in the quotation mark because it must be defined. If you think that's something was done wrongly in calculating the risk. Is there a way to correct that
Steve Elliot:That's, you know, again, another very strong as a consumer? question. So we ultimately don't make the decision about whether a consumer gets credit or not, we provide the insight to lenders, and lenders can use it along with yet more data assets to make their decisions. But a consumer might feel the decision was wrong. And we do have our own consumer complaint arrangements in place so that if a consumer thinks that we have the wrong data in relation to them, or our data is inaccurate, then they may make complaints to us, and we take a look at the data and review the data. And we ensure that the data is fully accurate and correct. So there are routes for the consumer, both with the lender themselves, and directly with us to make sure that the data that we provide is accurate and true.
YS Chi:So it sounds to me like we are always in the background supporting our customers who then support the consumers.
Steve Elliot:Well that's kind of true. So we're powering big organisations, in fact, big medium, small organisations so that they can provide their customers, their consumers with access to credit, but also access to all sorts of other services as well. Consumers want to move from one service to the next very quickly. And we're enabling firms to identify to authenticate fast, to credit risk rate fast, to fraud assess individuals fast as well, so that they can get absolute security and move quickly through their own supply chain through the through the different services and products that they want to be accessing.
YS Chi:So it sounds to me like if this were a restaurant, you are letting our waiters and those who are in the front of the restaurant to get the feedback from the consumers. And you will change the secret sauce in the kitchen.
Steve Elliot:Absolutely, yeah, we need to make sure that the secret sauce, the data that we have is absolutely accurate. If it's not, then our own customers will stop using us. So the food in your kitchen analogy in your restaurant analogy is critical. It needs to be the right food. It needs to be safe, it needs to be prepared correctly. It needs to be right for the consumer and the customer.
YS Chi:Yeah so the data is the ingredient. Exactly. Great. Now I can relate to when it comes to food and golf, I can understand. Thank you so much for spending time with us today. This was really very informative and educational, and I can hear excitement in your voice.
Steve Elliot:Well, there is genuine excitement. I used to be many years ago in in the police out in Hong Kong actually. And I can see here, how more effective we are able to be in fighting fraud and fighting criminals. But I've also been in in all sorts of financial services companies for many years. And again, here I can see how much better we can enable them to be to provide services to their consumers. So I think what we do is incredibly exciting. And that's what motivates and drives all of us here.
YS Chi:And I agree with you, if we can make credit available to the right people more fairly and quickly, then it is good for the whole society because then the bad credit is distinguishable. And we don't have to pay for the bad credit.
Steve Elliot:Exactly. People shouldn't be overpaying for the credit based on inaccurate risk assessments. They shouldn't be excluded because they can't be seen. They shouldn't be exposed to fraudsters and we can fight all of that and help all of that.
YS Chi:Well thank you, Steve.
Steve Elliot:Thank you very much.
YS Chi:The UK is a good example of how even rich economies can do much much more to help millions of adults gain access to fairer and more affordable financial services. So thank you again, Steve for being my guest today. And moving on, I now want to focus on a different region, Latin America. My next guest is Carolina Costa, who heads RELX's government affairs division in Latin America. Carolina's work is crucial in enabling a good understanding of what RELX does, and ensuring trust between us, governments and other stakeholders in the region. Welcome, Carolina, so glad to have you today.
Carolina Costa:YS, thank you so much it's a pleasure.
YS Chi:Yeah, so I started this episode, asking Steve Elliot for his own definition of financial inclusion. Now, this is, you know, another one of these terms that can mean a lot of things to different people. So I would like to get started with our conversation by asking, what does financial inclusion mean to you? Have you seen it affect individuals around you?
Carolina Costa:Wonderful. Yes. YS, so for me, financial inclusion means that individuals and businesses have access to useful and affordable financial services that meet their needs, and that are delivered in a responsible and sustainable way. And here we're talking about services such as payments, savings, credit, insurance, so on and so forth. And by looking at financial inclusion from that perspective, it becomes clear that financial inclusion is a key enabler to reduce poverty and boost shared prosperity in our society. The case and the evidence that financial inclusion serves as a pillar for economic development is so strong that multilateral organisations have the issue ranking high on their priorities. We see a lot of activity on financial inclusion coming from the word bank, the G7, the G20, and the United Nations, which has identified financial inclusion as a key driver for achieving seven of the UN's 17 Sustainable Development Goals.
YS Chi:So how much financial exclusion is there today in Brazil, for example, or all of South America?
Carolina Costa:Yes, it is a problem that is very much present in Brazil, and in Latin America, and the nature of financial exclusion in the region is complicated and presents several layers. For instance, when we're looking to specific groups, right, and those groups that are impacted by financial exclusion, they can be of many different backgrounds and part of many different groups. One that to me is close to my heart, I guess, is the financial exclusion of Latin women. But that is not limited only to women that are in the bottom of the social class. Women across different social classes are impacted by existing limitations that result in financial exclusion. These limitations can be structural ones, such as a strong dependence on the family and the informal economy, high economic exposure or limited rights to own property. Other limitations may be what many referred to as the unseen barriers, unpaid work, the lack of family leave policies for new mothers or gender pay discrimination. Cultural and social norms play a major role impacting the economic participation of women well into adulthood. When jobs are scarce, we often see that men tend to have more rights to those jobs than women do. Also, as a result of cultural and social norms, women can be discouraged to open their own bank accounts, so they can remain dependent on male figures. In Latin America, approximately 58% of men have an account compared to 51% of women. This suggests that around 160 million women in Latin America do not have a bank account. Now, if I put my government relations hat on, you know, the call to action to players involved in the financial inclusion debate, or moving away from financial exclusion, is that gender cannot be an afterthought due to the design of policies dedicated to promote financial inclusion. Integrating gender analysis into these policies, YS is critical, because women from the factory floor to the classroom to the boardroom, are the pillar for economic growth,
YS Chi:So over the past 10 years or so, I have been hearing that this situation has really improved very well. Still some way to go, of course, and that more people are getting access to financial services. Now in a world in which, as Steve described, where there's much more than bank account issues with all these digital transactions that we conduct every day, how is this affecting Brazil and Brazilian people without access to financial services, especially woman? Is this particularly easy for them? Or is it particularly hard for
Carolina Costa:I think it's a bit of both. And, you know, them? talking about Brazil here is really fascinating, because in a way, I think Brazil is getting things right. Over the past two decades, Brazil has made some very important advances toward financial inclusion. A full 100% of Brazilian municipalities are served by some type of facility that delivers a basic set of financial services. If you know how geographically large Brazil is, you'll get a good sense of how extraordinary this is. And now we have the FinTech revolution, which has played a major role to further advance financial inclusion in Brazil. FinTech companies which have flourished there have changed the way Brazilians buy, save, invest and access a wide range of financial services. They are successfully using alternative consumer data and existing networks to offer millions of Brazilians their first bank accounts and financial products. So a vast network of some type of financial facility across the whole country, combined with a successful set of cash transfer programmes and a favourable regulatory environment that have allowed for the domestic financial system to evolve with new technologies are all key factors behind Brazil's financial inclusion success story. And the success of Brazil matters. It matters because what happens with the financial inclusion in Brazil is important not just for Brazil alone. Neighbouring countries are and will fashion their plans to promote financial inclusion based on what they see in Brazil.
YS Chi:So who else is in this shadow and excluded that need to still come out into the inclusion?
Carolina Costa:That's a great question. And I think that the segments of the population are large and vast, you have those that are in rural areas that perhaps have a much harder access to financial services, you also have the youth, young people that are now you know, coming at age and entering at or seeking to enter the financial ecosystem. You also have, you know, maybe retirees or veterans or migrants. So it really is a broad set of citizens of individuals that have been in the shadow, but as the financial system has evolved over the years, may now have the opportunity to enter it.
YS Chi:So you're so excited about the good things that have happened in Brazil, and you believe that this is going to be a role model that neighbouring countries are going to be able to learn from. Are there specific things that we at RELX is doing to help with this?
Carolina Costa:Yeah that's a great question. And you know, as we've covered here, financial inclusion in Latin America is evolving at a rapid pace, due to many interconnected factors, short term ones, such as the shock caused by the global pandemic, that accelerated adoption of digital services, as well as long term ones, including regulatory changes linked to the use of big data analytics and machine learning, that impact the financial system. Collectively YS, these factors have generated large amounts of alternative data, and here's where LexisNexis, which is part of the RELX family plays an important role, and by doing so LexisNexis helps financial service businesses expand their offerings to credit worthy consumers who had fallen outside of traditional scoring profiles, for instance. The outcome is that multiple segments of the population, including the underserved groups can now have better access to credit. Let me give you an example of a great partnership LexisNexis has with a Mexican based player.
YS Chi:Mexico, not Brazil, okay.
Carolina Costa:Not Brazil. Yes, let's let's move to another important market in the region and this partnership is really great to highlight in our conversation today. So Lexis has partnered with a microfinance company called Kubo Financiero. Kubo is focused on enabling customers to achieve their personal financial goals by offering innovative and accessible financial products. Kubo turned to LexisNexis because it wanted a solution to help increase credit opportunity across their customer base while effectively controlling default risk. LexisNexis gave Kubo the advantage of a holistic view into an individual's digital identity reputation, they have rescoring and unique biometric footprints, so adding a layer of alternative data and more productivity intelligence to lending decisions. It's just a great example of a global company LexisNexis partnering with a locally based player to help drive financial inclusion in the market that needs it so much.
YS Chi:Well, I remember I think you might have been there with me, when we were meeting with the former president of Mexico, and I had the opportunity to raise financial inclusion. And boy, he jumped on it with his ministers about how important it was for Mexico. It sounds like we are doing something very tangible there.
Carolina Costa:Absolutely, we are. You know, financial inclusion is a win-win for everyone. Right. And I think more and more countries and policymakers are realising that in placing financial inclusion as a pillar of economic growth in the same level as let's say, you know, education and healthcare.
YS Chi:So, where are we able to next target in Latin America, beyond Brazil and Mexico?
Carolina Costa:We are looking to Colombia, Argentina and Chile as our markets for growth in that region. And again, matching and linking what policymakers are seeking to do, as well as what we can offer to local players. And I think that's where, you know, we can really drive impactful and meaningful change.
YS Chi:A true unique contribution for us. Absolutely. So there's always whenever we talk about data that that concerns consumers, a group of people who will raise flag and say, What about privacy? How is the perception of this privacy issue in South America? We've heard about it in the US and other developed markets. Be very curious to have your tell us how this is perceived in your region.
Carolina Costa:That is also front and centre, in the minds of policymakers and civil society in general. And you're absolutely right to raise this because as the financial ecosystem has evolved over the years, and so rapidly, in the past few years with emerging technologies, artificial intelligence and machine learning, the internet of things, right. You have this enormous amount of data, and with that, you have to look into data privacy and the protection of data privacy. So across Latin America there are regulations for data privacy, and we as a private sector player, seek to not only comply with them, we comply with them, but really, to ensure that our products and solutions match what policymakers are seeking to do with data privacy, because to us, these types of regulations are quite important. And they benefit the system as a whole.
YS Chi:Right, and we just need to always be aware that data can be used for good. That's right, without having to to cause alarm. This is terrific. Well, we heard from Steve about a developed country now we heard from you Catalina about the developing world and how in both cases, financial inclusion plays a critical role in in equity, inclusion, growth. And this is very exciting that LexisNexis and RELX as a whole can make a unique contribution. Thank you so much for joining us, Carolina.
Carolina Costa:Thank you YS it's been great. I appreciate it. Appreciate the opportunity and sharing some of these thoughts with you today.
YS Chi:Well, thank you to our listeners for tuning in. Don't forget to hit subscribe on your podcast app to get new episodes as soon as they're released. Thank you, everybody.