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assessment
A digital readiness primer and case study
@eflglobal // Amie.Vaccaro@EFLglobal.com
EFL Intro
Q&A
Traditional credit scoring is blind to billions of people
3 billion are unscorable, another 3 billion will enter the middle class in the next 20 years
Covered by
70%
credit Not covered
bureau,
30%
• Billions of good applicants rejected
Not
covered, • Enormous missed opportunity
70%
More Available
(Hit rate on sample of low-income applicants in emerging markets)
60%
50%
40%
30%
ONLINE DATA BUREAU DATA
Less Available
20%
10%
0%
0% 5% 10% 15% 20% 25% 30% 35% 40% 45%
Less Predictive More Predictive
Predictive Power
(Out of sample gini coefficient with comparable model & sample)
1
1 3 Control
Entrepreneurial potential
Interaction metadata
4
Continuous Learning Social Behavior
EFL receives monthly loan
repayment used to constantly
customize and improve
models
Q&A
EFL works best when there’s a clear need for an
alternative credit score, and the FI is challenged by:
1. 2. 3.
High rejection rates due Default rates over target; Loan application process
to lack of data – too hesitant to dramatically takes time and is resource-
many grey zone or thin decrease acceptance intensive for lender
file clients rate
1. 2. 3.
Approve more people, Decrease and control Fast track: Cut pre-filters
without taking on more your default rate, with for high-scoring
risk limited volume impact applications
High Volume,
Credit Score Ready Driven to Push Innovation Mindset
Ability to receive a 3-digit, Strong desire across Willingness to try new solutions
numerical, credit score and use it in management & teams to and consider a departure from
their existing credit decision making implement and scale traditional processes.
process. solution quickly.
Q&A
Financial institutions are going digital globally
Digital technologies can cut the cost of providing financial services by 80 to 90% and improve scalability
Digital
Cost savings
due to digitization
Source: McKinsey Global Payments Map; “Fighting poverty, profitably: Transforming the economics of payments to build sustainable, inclusive financial
systems,” Bill and Melinda Gates Foundation, September 2013; McKinsey Global Institute analysis
Being digital means being scalable. If you have to add staff to increase lending, you aren’t digital.
Increased Risk
Digital applications can come with increased
risk and fraud. Effective credit scoring is key EFL is your digital
to keeping a healthy portfolio.
loan officer.
% DIGITAL
Use EFL as a stand alone • Control risk while
tool, focused on: Hybrid model – maintaining
• Customer Acquisition some parts digitized efficiency.
• Reject Recovery • Increase
Add EFL to partially digital acceptance rates.
process flow, see results in:
• Operational efficiency
0%
Q&A
Product Design: Understand Your “Bones”
What framework are you working within?
3. Data analysis of
flows and field 1. Field observation
interviews: ensure & interviews: on
which key metrics both question
are improving and framing and content
which aren’t
2. Experimental design:
validate/quantify hypotheses
from field via more real-life
channel using flow split-testing
and within-flow experiments
1 Get OUT! START
Talk with people- get them to use your product, explain as little as
possible.
Parallel Flows
Test two similar products at the same time, with different
versions of the same content you need to test – isolates
the “treatment effects”
In Person
Single Flows
Distance Testing
10 Point Scale
Reply with a NUMBER ONLY on a scale from 0 - 35%
20%
15%
AFTER
Percentages 10%
Understanding the
user’s concept of Understanding the
honesty and fairness user’s sense of
in the context of her personal responsibility
financial life for and control over
her life
Locus of
Integrity Control
% of responses with
no valid answer
25%
Opportunism/
20%
Progress
mindset Understanding the
15%
user’s perspective on
10%
opportunities and
Locus of Confidence, motivations to take risks
Control, Optimism, to improve her life
Integrity, GSE
Opportunism
Q&A
Overview - Scoring on the feature phone
Equity extends credit through chat, proves ability to boost acceptance rates
The Engagement
EFL designed a new product – taking the learnings of our
traditional psychometric content, and transforming them into a 22
She’s new to the
SMS question assessment. Instead of being flat-out rejected, low bank, so she
data customers could take the assessment remotely on their receives the first
feature phones, and gain an opportunity to be approved.
EFL SMS asking
her to start the test.
The Results
Collecting 24k completed SMS tests, EFL built a custom SMS
model, and saw significant predictive power in the data Tine’s survey is
(psychometric & meta). The strong model results indicate analyzed, and her
potential SMS uses across markets / channels. credit score sent back
to Equity in real time.
Tine is disbursed!
1 Design SMS
Test
…TO VALIDATE TWO MAIN HYPOTHESIS
3 Run Pilot;
Gather Results
will facilitate a high
conversion rate.
UX of SMS
Test
Completion
Rate (%s in
funnel)
4 Build Custom
Model
2. SMS psychometric
5 Out-of-Sample Predictive
testing will enable Equity Psychometric
Model Power of SMS
Validation to better segment and Assessment Model
predict risk
CREDIT
SCORE
337
CREDIT
SCORE
337
Default Rate
Default Rate
Usability validated through low drop off
rates.
Average completion rate of 78%, with an
average test time of 33 minutes.
Low EFL Score Quartiles
80% of drop-off occurred within first 4 questions. Default
1 Worst 12 23 34 54Best
56% of tests were completed within 15 minutes. Worst Scoring Best Scoring
Default Rate
EFL & Equity’s Internal
Behavioral Score
Combining the EFL score with an
internal behavioral (transactional) score:
Low
Default
boost acceptance rate by 20% High 1.2x 1x Low
without taking on additional risk Acceptance Rate
20%
Ensemble Experian
Behavioral EFL
Default Rate
EFL & Traditional Bureau
Score
Combining the EFL score with a
traditional bureau score:
Low
boost acceptance rate by 53% Default
Ensemble Bureu
Bureau EFL
Q&A