How can companies increase credit availability without increasing defaults?

Companies in various industries are adopting advanced data analysis technologies with Open Finance and artificial intelligence to increase the supply of credit without raising default rates. These innovations allow more accurate and personalized credit assessments, helping consumers to manage their finances efficiently and increase their credit limits. According to Bacen data, the granting of loans for the purchase of goods by individuals grew 18% in the 12 months to February 2024, the highest in the last five years. 

Strategies for risk mitigation include credit portfolio diversification and market segmentation, fundamental to deal with the growing default, which reached 72.54 million Brazilians in May 2024, according to Serasa. A survey by the Locomotiva Institute and MFM Tecnologia revealed that 8 in 10 Brazilian families are in debt, with the credit card being responsible for 60% of late debts. Experts emphasize that the effectiveness of increasing credit availability is in the complexity of risk analysis, made possible by AI tools, which help in the automation of the process of credit segmentation and more accurate monitoring of frauds. 

Bruno Moura, director of business and marketing at klavi & company that offers solutions based on Open Finance and Open Data.“We believe that an effective risk analysis strategy should be based mainly on a culture of data analysis, in which new sources of information are constantly evaluated and old sources are regularly monitored, given that the behavior of the public changes frequently”, the expert also points out that for a secure credit analysis it is necessary to obtain and analyze a wide range of information about the potential customer, including history, income, current financial capacity, past payment behavior and any type of data that may statistically have proven its relevance.  

In addition, he reinforces that it is necessary to have a good monitoring and continuous improvement of the technologies used, implementing systems to continuously monitor the credit performance of customers, the data used for analysis and constant revaluation of models, as well as updating technologies so that agility in the decision-making process remains constant. Linked to the two points, it is also important to use robust statistical models such as AI for behavioral analysis.  

“Using only traditional data sources (such as credit bureaus) will not improve your view of your customer and at the same time will not differentiate you from your competitors.Using other sources since following the rules and data protection laws is essential to find new opportunities for improvement”, says Moura.  

 The role of financial education in reducing default 

 The responsibility of consumers in the use of financial resources is also a crucial aspect along the journey. In this sense, Bruno Moura explains that financial education has a key role, being the smartest way to prove that, if well managed, credit will be vital to achieving achievements of people and companies. 

“Artificial intelligence tools that use Open Finance data are essential for this and can make a difference, making the person correctly advised for their consumption and life profile, reducing the possibility of financial mismatches and at the same time, showing the consumer that if he has a healthy financial life, the entire ecosystem will benefit”, explains Moura. 

According to data from Open Finance Brazil, in December 2023 more than 42 million Brazilians already had active consents to share data between banks and financial institutions.In addition, in 2023 15 new APIs were launched, totaling more than 30 products with APIs in production, boosting billions of weekly calls in phase 2 of Open Finance. 

 Linked to financial education, the role of companies is the insertion of credit policies to balance the concession with the maintenance of low default rates. Among the main policies are: 

(1) Differentiation of audience: different people have different behaviors, so the credit policy needs to be customized for each audience, product and service.  

(2) Evaluation and monitoring of variables: given the numerous data variables present in the policies, we need to be aware of quality over time, including to assess whether there has been a change in behavior and whether there are impacts on the expected results. An example was the pandemic: new behaviors were created and data that previously predicted default, needed to be replaced by new ones and who managed to monitor this as soon as possible, had less impact.  

(3) Joint work with fraud, service and collection areas: credit is an ecosystem that needs all the tips to be consistent and united in favor of a strategy, if something is not correct, the impact will be throughout the chain.  

An example of how a company can significantly increase credit availability without increasing default is customizing offers, properly managing limits, and tracking customers throughout the cycle.  

 “Imagine today how many freelance professionals there are in the country and who does not have a relevant credit history, but who has consistency in their income and with available credit would have the possibility to grow their business, investing in tools and equipment that can make it grow even more? With Open Finance, it is possible to give an adequate limit to this person, increasing the availability of credit without increasing their default, after all you know exactly the financial capacity of the person and not only their credit history that is often starting”, explains Bruno Moura. 

With these approaches, companies hope to expand access to credit responsibly, promoting sustainable growth and keeping delinquency under control.