EXPERIAN SA: Acquisition to Improve Financial Inclusion Across sub-Saharan Africa

“We’re in a world where technology can disrupt businesses,” said Experian Group CFO, Lloyd Pitchford at the company’s results presentation in May.

And he meant it in a truly global sense. All markets around the world are being disrupted by new technologies, whether it’s developed markets like the USA, or growing economies like South Africa.

In SA, Experian’s appetite for growth through technological innovation is just as fierce as in any other global market.

Ultimately, the goal of this financial data analytics and credit bureau business is to help people and organisations to assess, predict, plan and protect themselves. Technology has become an integral part of this offering, and its influence is only set to increase.

By investing in major acquisitions, and growing its product portfolio, Experian is fixed firmly on the growth path, and is helping more and more people and organisations to improve their understanding of, and access to, financial services, while at the same time helping lenders to understand market opportunities.

In May, Experian SA completed the acquisition of Compuscan and Scoresharp to create an African powerhouse with industry-leading technology and unrivalled reach. Experian SA Chief Customer Officer, Mark Wells talks to Enterprise Africa about how the deal is boosting financial inclusion and helping to bring more people into the credit economy.

“The acquisition was seen as a strategic opportunity for growth globally,” he says. “While it happened on our continent and in our market, it was something that had a lot of attention from the Group CEO and investment board – it was a big deal for Experian as a global entity. The reason for that is the reason we chose to buy Compuscan – our ambition to expand into sub-Saharan Africa.

“Previously, Experian had done quite a lot of narrow scope work in Africa – assisting certain financial institutions in the likes of Malawi and Botswana with regulatory analytics work – but that was an on-demand, reactive thing. If you look at the footprint of Experian across the globe, other than South Africa, the African continent is relatively untouched. Enter Compuscan which was a SA-born start-up business that had grown into a medium-sized business with the mission of expanding across sub-Saharan Africa.

“Compuscan had put down a footprint as a credit bureau and analytics services business across five other African countries and had begun to make great inroads in those markets. What they didn’t have was the capital investments and the ability to grow at scale, so it seemed like a perfect marriage and that is exactly what is has turned out to be. Compuscan has a footprint with local relationships, knowledge and data, and Experian had a desire to begin to provide more financial services and credit offerings on the continent.”

Compuscan’s footprint spans South Africa, Namibia, Botswana, Uganda, Ethiopia, Mozambique and Lesotho. Scoresharp has been a wholly owned subsidiary of Compuscan since 2007 but has always been branded as an analytics organisation that was independent of a specific bureau. Its expertise comes in the form of a unique ability to take the best of data and interpret it in credit risk decisions to give the best possible outcome for a credit lender.

The result of the acquisition was a doubling of the employee base, an expansion of the product and service portfolio, and access to knowledge and data across important new markets, furthering Experian’s global footprint. The success of the merge has been down to blending the two organisations strengths and weaknesses.

“It’s been an incredibly positive thing,” says Wells. “The businesses are very complimentary. We’ve had very little overlap in terms of customer penetration and customer services. Compuscan had traditionally built its business on the microlending sector and their main source of income and service provision is to approximately 3000 microlenders in South Africa, extending across its other markets. Experian has always been very focused on providing services to financial institutions – tier one banking, telcos, retail etc. We also had quite a different array of services so while there is an overlap in terms of the consumer credit bureau, Compuscan had a more mature analytics offering and Experian had a more mature commercial credit bureau as well as enterprise-class software and fraud offerings.

“Each of the individual business had areas that we were strong in and areas that we were less strong in but in this acquisition, the reason that Compuscan was such a good target for us is that we were strong where the other was weak and vice versa. By putting the two organisations together, the value proposition on both sides has improved.”

R120 MILLION INVESTMENT

A prerequisite of the acquisition, instilled by the Competition Commission, was that Experian must invest in South Africa. Happy to oblige, Experian announced it would invest R120 million into new technological enhancements, establishing South Africa as an investment hub.

The two key focus areas for this investment are moving the business onto a global cloud-based reference architecture, in line with international best-in-class, and adopting a new service model to remain compliant with the various legislations active across different territories.

“We took two parallel and separate running credit bureaus and we wanted to move to a much more agile architecture as we merged the data assets with the technology that serves customers. The first part of the investment is around moving to best-of-breed technology – a reference architecture based on cloud that would allow a much more agile service. It’s the reference architecture that Experian is using globally and is starting to roll out in other parts of the world. It’s beneficial for the African continent as, when products are developed on top of the credit bureau, if we are using the same reference architecture and structure in a cloud environment, our time to market bringing new products to African customers will be that much quicker,” says Wells.

The second part of the investment is what Experian terms ‘the hub and spoke services model’. “Legislation in each country is different with regards to data protection, data privacy and storing data in country or allowing data to be stored in a central place. While we’re looking to remain absolutely compliant with those laws, where we can get economies of scale using a shared services model in this cloud infrastructure, we are looking to be able to service African countries from a central place where it is possible. Where data has to be stored in country, we would look to make those investments into reference architecture in those countries,” details Wells.

GELEZAR

Another technological advancement, which looks set to have a real tangible impact on South African consumers and businesses, comes with the launch of Experian’s GeleZAR app. The company describes the app as a continuation in the fight against financial exclusion. GeleZAR, which will be available from the app store once pilot testing is complete, is an educational tool which is aimed at the unbanked population, outside of the formal credit economy. This is a large market, and one which many companies have tried to exploit over the years.

Wells insists that by helping consumers to understand more about credit, credit bureaus, financial services, and credit profiles, they can make better use of the data that is held about them and, potentially, unlock new opportunities in the formal credit sector.

“Firstly, we want to provide financial education to consumers as well as small and medium enterprises,” he says. “The app is targeted towards the unbanked sector of society and allows them to educate themselves on basic principles such as budgeting and how to handle money. It then takes those consumers on a journey to help them understand about credit and what a credit score is. It helps previously unbanked consumers from the credit economy to start understanding how they could unlock access to financing and build a credit profile that will create opportunities for them in their daily life.”

The app will also offer benefits to the country’s lenders. By using the app, consumers will offer up information about themselves as the technology will pull relevant data from the cell phone. This information can be used by Experian to create an alternative profile of a person – extremely useful in a market where only around 52% of people have access to credit. Banks and other lenders are keen on gaining this type of information so that they can understand more about the market and its potential.

“We ask consumers for consent to provide us with certain data that they store on their smart phones,” says Wells. “We have found that if we are able to gain access to smart phone data, specifically for people that do not have a credit profile, that data provides us with an ability to build an alternative credit score which we have found to be quite predictive. We have piloted this is Brazil and in parts of Indonesia and we are using some of the algorithms they have developed. We have proven a correlation between traditional data and mobile scraping data, and it allows us to accelerate consumers ability to access credit. If we are given consent by consumers, with the intent to build an alternative credit profile, we can go to financial institutions looking to lend to that segment and give them a view of those consumers where they may not have had data before.”

This idea holds potential for the wider sub-Saharan African region. Sub-Saharan Africa is projected to have 500 million smartphone subscribers by 2020 and a large portion of society remains unbanked and outside of the transitional credit economy.

“We are in a pilot phase right now, we have partnered with a number of financial institutions and one of the largest low-cost mobile phone retailers in Africa, and they have preloaded the app on phones. We are testing the algorithms and tweaking them specifically for the South African market,” says Wells.

“We’re in the early stages but it’s something we are very excited about because we’ve seen success in other parts of the world in developing alternative credit scores. In the rest of the sub-Saharan African market, 80-90% of the market isn’t part of the credit economy and doesn’t have a data set that services a traditional credit bureau,” he adds.

Constantly adding to, and improving, the data available – and aggregating that data in a speedy and discernible manner – is a core capability for Experian, which is why it continues to develop new tools to access more data, even from mature credit markets.

In the USA, a new tool that encourages consumers to offer up extra data – data that might not be included in a traditional credit report – has helped to improve credit scores almost instantly. Experian Boost has seen such success, the company is already planning roll out in the UK and other mature markets.

“It’s a consumer service that has been launched, calling on consumers to contribute their data that isn’t traditionally stored with the intent of immediately boosting their credit score,” says Wells. “It’s at the other end of the spectrum from the GeleZAR app but it’s part of the same story – consumers have data that is valuable and they can make that data work for them, continuing to enhance their ability to access financial services and credit.

“In a live environment, as they submit data, in an open banking way, they will see their credit score improve so they have benefits from the lenders they use.

“We’ve had a massive uptake in the US with Experian Boost and so the company is now looking to roll out globally. It is a product which is aimed more at people who understand their credit score. Again, it’s about how do they own their own data and make it work for them,” he adds.

INVESTING IN GROWTH

The growth of the product portfolio and the delivery of new services coming out of Experian make for an extremely exciting international business, and the fact that the end goal is improved financial inclusion helps to list this business among one of the most important in the region.

But, even with a fantastic reputation, Experian remains hungry for further growth. Wells says that further acquisitions, mergers, partnerships and joint ventures are already being considered.

He says that there is certainly a feeling that local is best and, taking from the Compuscan lead, developing local knowledge is the way to go.

“This idea lends itself to M&A activity,” he adds. “We don’t have any specific targets at this stage as we are still looking to bed this acquisition down and enhance our services to those countries where we already have a presence. In the very near future, we will start to identify opportunities in other markets that would be able to benefit from the same types of services that an Experian-Compuscan merger has already brought to markets where it is active.”

Of course, one of the major hurdles to any investment or growth strategy is the strength of the local and global economy. South Africa has faced a weak economic climate for some time and the global economy is characterised by unpredictable choices.

But, in difficult times, Experian provides data insights to assist with the best possible decisions. Its knowledge, data, and analytical ability give lenders a much clearer picture of the market, and this can help reduce risk.

“Our industry specifically is not immune to local economy pressure but what we have found, especially in South Africa, is that as pressure comes on to our client base, around credit provision, they become more risk averse. As they become more risk averse in their practices, they have an increased hunger for data and interpretation of that data so they can glean insights out of that data. This is where our value proposition sits,” Wells explains. “While our customers are always very cost-conscious and looking to drive pricing down, we have seen an increased demand for closer relationships and they are asking us for additional insights that can assist them in unlocking new markets in a relatively risk averse way. That spawns new opportunities for us so I wouldn’t say we operate without impact from the economy but it does drive customers to expand their relationships with us as they look to minimise pressure and reduce losses by not taking too many risky decisions.”

RISKY FUTURE?

With the Compuscan acquisition now complete, and Experian in a position to provide more data insights than ever before, the future looks bright. But there is one unknown hanging over the financial services industry – the looming National Credit Amendment Bill. Informally known as the ‘debt relief bill’, this piece of national legislation is designed to help those with serious debt problems. Specifically, individuals could be allowed to apply for relief and their debt could be suspended, partially or in full, for up to 24 months. Ultimately, if circumstances do not improve, debt could be terminated.

The bill has been signed into law by President Ramaphosa and the big banks are concerned. Experian is waiting to realise the full impact.

“From an Experian perspective, it provides us with a certain amount of work to do but also with opportunities,” says Wells. “We are obligated, once the debt relief bill is legislated, to create an identifier in the bureau that can recognise individuals that have applied for debt relief. The opportunity comes as each and every one of our banking and lending customers are interested in the exposure that they have to consumers that may apply for debt relief. They are coming to us and asking if we can assist them with making sure they understand their exposure and they understand the potential losses that they may experience based on people applying for debt relief.

“What we are not yet clear on is how our customers will respond,” he adds. “Will they become more risk averse and cut down on lending to consumers who have applied for debt relief or will they see it is an opportunity to service the market as others withdraw? It will be interesting, and our perception is that it doesn’t affect Experian’s business other than the development that we need to do on the bureau.”

South Africa’s Banking Association has made it clear that it does not support striking off debt in any form. Various analysts have suggested that SA banks could suffer losses of up to R25 billion. But Experian would not be directly impacted – the company does not lend money and is purely a custodian of data.

“It enables us to provide an additional service by identifying individuals that may qualify for debt relief, and that information is valuable for our customers as they can gain an enriched story about who they are lending to.”

For Experian, locally and globally, it is important for financial institutions to seek data insights in order to grow their businesses. Experian’s large amount of expertly aggregated data is invaluable in situations like this. The company has cleverly positioned itself as an organisation that financial institutions can truly partner with and derive benefit from.

With an ever-growing middle class around southern Africa, and a desire within financial institutions to lend to more people and grow presence, now is the perfect time for Experian to go out and stake its claim as the African partner of choice – backed by international expertise – for both businesses and end-consumers looking to improve their access to the formal credit economy.

“Ultimately, the services we are looking to provide surround how we can gain more approvals for financial services credit granting than we have today. The organisations that are our customers have exactly the same objective. In order for them to do that, they need to be able to assess the risk, and in order for them to do that, they need insights to make informed decisions,” says Wells.

“We need to provide as much data as we possibly can both in traditional credit form as well as in alternative data form so that we can inform those organisations whether someone is credit risk or not,” he concludes.

Technology is changing the landscape for this important sector and this vital company. Fortunately, Experian is an industry-leader and its position is secured by an ongoing enthusiasm for innovation and improvement.