How good or bad are credit decisions through alternative channels?

Mobile telephony has become one of the convenient, fastest and reliable medium of communication in vogue. As a medium of communication, one does not necessarily require a formal education to use a mobile phone or enjoy some of the other services that go with it. As a result, many companies use it as a channel to advertise their products and services to all segments of society.

In banking services, customers can conduct financial transactions through a mobile phone or tablet.

It is in this respect that financial institutions and consumer finance companies use these channels to sell their products and services such as loans, savings, treasury bills and insurance policies and domestic appliances (TVs, Refrigerators, etc.) to the public. The recent emergence of mobile money services in our country has also provided this alternative channel for some lending houses in partnership with the Telcos to offer loan products to the public.

The overriding purpose of this article is to look at the benefits associated with credit transactions through the medium of Telcos (online loan services) as well as the hidden risks in the process. Here are some of the benefits that can be derived by both the lenders and the borrowers from the contractual relationship.

The benefits

It removes face-to-face interactions and emotional connections which can sometimes cloud the lender’s credit decision-making process.

The loans are unsecured and turn-around-time, for instance, as advertised by one of our lending houses is approvals in 20 minutes or less, and receiving of cash is within 24 hours.

It makes it easy for people who need quick loans since no bank account is required. It can be described as suitable for emergencies (hospital expenses etc.)

It is convenient to the borrower as it eliminates travel time. Applicants apply for the loan and approve the terms and conditions on the phone or on the internet. Further communication in relation to the loan with the lender occurs online/on the mobile phone.

It involves less or no amount of paper for the transactions.
The disbursement and the repayment of the loans are done through their mobile money accounts.

It is important to emphasise that information is invaluable for credit appraisal to determine if a person qualifies for a loan product. To facilitate the decision-making process, these lenders rely on the information the telcos provide to them on the mobile money history of their subscribers. The Telcos also provide detailed information like the mobile phone number, full name, date of birth and valid Identification Number of the borrowers to the lenders. The name of an employer (if applicable) is also required for salary earners.

In addition, the lenders also indicate that they conduct credit references on the prospective borrowers to know their credit history. This is all good and well-intended to enable them to convince themselves that they are dealing with the actual persons. There is, however, a slippery ground of risks in the transactions as the lenders mostly place their trust on the telcos for vital information. Interestingly, there is no restriction on the purposes of the loan. Is there no exclusion list of what to finance or not? Reputation risk could arise.

Regular repayment of the loan is by automatic deduction from a borrower’s mobile money account. If any portion of the repayment amount remains unpaid after the due date, any funds deposited into a borrower’s mobile money account is automatically deducted until repayment of the outstanding balance has been made in full. The inherent risk which one can foresee is that, since it is a borrower’s previous satisfactory mobile money history which influenced the credit decision, he could change his mobile network after taking the loan and leave it in default. This could be aggravated in identity theft when residence visit to the borrower is not done.

Risk of Identity Theft/Fraud

Identity theft occurs for instance when someone uses your personal identifying information including your payslip and employee identity details (if any) without your consent to obtain financial services like loans for their personal use. As indicated early on, the Telcos are the primary source of information to the lending institutions which do the loans without face-to-face interaction with the applicants. Since your identity has been assumed by a perpetrator, you would then be obliged to honour the loan terms and conditions that had been entered into at your blindside. You would end up being saddled with debts with its implications on your finances and even on your health.

I recall an incident in which a close friend of mine was a victim of identity theft. His payslip was stolen and used to buy home appliances on a hire purchase from a consumer finance company. Distressful! It was his subsequent payslips that revealed the transactions. Another case in evidence is the recent news in the media of an employee in the Customer Life Cycle Management Department of one of our banks who is reported to have stolen GH¢ 11,000.00 from a deceased person's account. It came to light from closed-circuit television and forensic examinations that he connived with an outsider through identity theft of the deceased’s personal details to steal the money. The two cited occurrences confirm my assertion that identity fraud is real and could pose serious risks to mobile money loan transactions.

Identity theft can occur through:

Connivance between employees of the Telcos (especially casual workers at the call centres) and employees of the lending houses for their mutual gains. In fact, employees have often been cited as the biggest threat to cipher security through accidental or intentional actions.

Registering with false identity for mobile money services. This is sometimes facilitated by some merchants. Validation of identities at points of registration is fraught with challenges. This serves at conduit to perpetrate financial crimes such as taking loans.

Illiteracy-some illiterates subscribe to mobile money services as a convenient way of cash sales deposits and remittances. They rely on close relatives for their mobile money transactions. Some of these “confidants” could abuse the privileges and take quick loans without the knowledge of these persons.

Loss of personal documents or inability to put personal information including passwords in safe locations or through phone hacking where one can gain unauthorised access to another person’s phone messages(documents).

It is a matter of fact that some of our financial institutions have access to online identity verification systems which have been integrated with personal identifying database systems (e.g. with Electoral Commission, etc.) to facilitate real-time verifications. However, from experience, these systems are not foolproof to eliminate identity theft.

These lenders in an attempt to clothe themselves in some form of protection from the risks indicate exclusion of liability clauses in the transaction agreements. How absolute could this protection be when identity fraud emerges? Due diligence processes for the transactions could be questioned in court.

Consequences of identity theft

All in all, if a borrower can prove that the debt is not his responsibility, then he may not be liable for the debt, however, it can also be very difficult to prove that he is not, in fact, the actual borrower. A financial institution can cite negligence on the part of the borrower. Even if he absolves himself of the debt obligations, it could take a credit bureau a longer time to remove the incorrect information on the victim (if the lender submits the borrower’s credit information). This negative information may affect the individual’s credit requests when he in person now applies for a loan. The Credit Reporting Act,2007 (Act 726) provides the legal framework to resolve some of these issues. The issue however, could take many months to resolve when the matter goes to court especially on the grounds of fraudulent conversion.

It has been said many times that you cannot build something on anything and expect it to stay. It would eventually collapse. It is this inference that I say loans decisions that are based on Telcos information can be entrapped in the risk of identity fraud particularly when mobile money scams are on the rise. We agree to the fact digital platforms are now the trending channels to provide innovative financial services for customer experience. However, the red flag of risks associated with personal identifying information cannot be ignored in a bid to deepening financial inclusion.

To conclude, attention must be given to the reported cases of mobile money frauds in the media. These reports give strong warning signs of identity theft in the financial services sector. There is, therefore, the need for regular collaboration among stakeholders particularly the Telcos and financial services institutions to put up robust and modern technological systems in place. By this way with regular public education, we can prevent and mitigate incidents of identity fraud which has the tendency to erode confidence in the financial services sector.


The Writer is a Chartered Banker

Email: [email protected]