Alternative data unlocks credit for millions of Brazilians

Even though it is very useful for the population to access products and services essential for their survival, credit ends up being a big taboo here in Brazil. Data from the Brazilian Institute of Research and Data Analysis (Ibpad) show that about 73% of Brazilians feel financially excluded precisely because they cannot access this facility. In part, the problem is due to traditional valuation models, which cannot capture the financial behaviors of people operating outside the formal banking structures.

Thus, the use of alternative data may be the great asset of financial institutions, which are still based on very outdated information of credit bureaus when evaluating potential customers. To get an idea, a survey of the World Bank (Global Findex Database) shows that 45% of Brazilians are underbanked, using mainly cash transactions or alternative financial services. 

On the other hand, Pix has had explosive adoption, being used regularly by more than 70% of the adult population, according to the Central Bank.The growth of digital payments presents a huge opportunity to redefine credit assessment, but financial institutions are still adapting to this.

According to Igor Castroviejo, country manager at 1datapipe, a provider of AI-based consumer insights solutions, the biggest mistake institutions make when assessing credit is defining people who do not have a banking history as having a bad score. “This is simply not true. Currently, we have technologies to assess real financial behaviors beyond the outdated credit models”.

AI and alternative data: unlocking credit

Considered the technology of the moment, Artificial Intelligence has been very useful in the credit assessment segment. Through its combined use with data analysis, it is able to provide insights that go far beyond traditional bank statements.By analyzing real financial behaviors, models based on this technology can provide a clearer and more inclusive view of credit capacity.

So much so that a Cinnecta study points out that about 50% of financial institutions already use AI in their credit processes, with 70% of teams considering high priority to install new technologies to improve increasingly evaluations.

However, what would be the main sources of this alternative data? Below are some examples:

 Cell phone use ^ Frequency of recharging, bill payments and consumption habits indicate financial stability.

 Account payments and rent & rent One-off payments for essential services are strong indicators of financial responsibility.

 E-commerce and digital transactions Buying patterns and payments on BNPL services (Buy Now, Pay Later) show consumer reliability.

Social and behavioural data ^digital footprints, such as employment history, education and professional networks, reveal credit potential.

These AI-based insights enable lenders to overcome outdated models and expand financial access to millions of” people, explains Igor Castroviejo.

The role of Pix in financial inclusion

Pix is fast becoming the most powerful financial inclusion tool in Brazil, allowing millions to build a transaction history without the need for a traditional bank.With more than R$ 26 trillion transacted in the last year through the platform, according to the Central Bank, financial institutions have a goldmine of data at their disposal.

According to Igor Castroviejo, the explosion of digital payments in Brazil is a fundamental game-changer that must be taken into account by local authorities.“Financial institutions that do not incorporate this type of information will be ignoring the future of” credit, he attests.

Why is AI essential?

Creditors often rate customers without a credit history as being high-risk just because they lack conventional financial records.AI challenges this view by focusing on real-time behavioral insights rather than just past credit performance.

A Juniper Research study predicts that AI-based credit assessments will lead to a 67% increase in emerging market lending opportunities by 2028.“Financial institutions that embrace this shift will be able to expand their customer base, reduce default rates and create a fairer credit ecosystem”, Igor Castroviejo points out.

With this, rather than relying solely on outdated methods, financial institutions must adopt dynamic, real-time models that reflect modern consumer behavior.“The credit industry is at a crossroads.We have either evolved and included more people, or we continue excluding millions based on outdated” standards, Igor Castroviejo points out.

Time to act is now

Financial institutions that adopt AI-driven credit models will lead the next wave of financial inclusion.Because the technology already exists, the question now is who will be the first to use it strategically.

As Brazil moves towards a more inclusive financial future, the real question is not “se” AI can fill this gap in the credit market, but rather “quem” pioneer this movement. “This will only encourage the creation of products focused on the real needs of people.In addition, the measure reduces inequalities by expanding access to credit, electronic payment methods and simpler and lower-cost banking products”, concludes Igor.