{"id":35497,"date":"2018-11-13T19:06:59","date_gmt":"2018-11-14T00:06:59","guid":{"rendered":"https:\/\/digital.hbs.edu\/platform-rctom\/submission\/dms-for-dollars\/"},"modified":"2018-11-13T19:06:59","modified_gmt":"2018-11-14T00:06:59","slug":"dms-for-dollars","status":"publish","type":"hck-submission","link":"https:\/\/d3.harvard.edu\/platform-rctom\/submission\/dms-for-dollars\/","title":{"rendered":"DMs for Dollars"},"content":{"rendered":"

Individuals and businesses in America enjoy access to a mind-boggling array of financial services.\u00a0 Borrowing is ubiquitous – consumers swipe plastic to their heart’s content, smaller firms tap into bank loans, and big corporations issue public bonds.\u00a0 And while societal over-indebtedness can lead to systemic financial calamity, access to banking and credit are core drivers of the virtuous cycle of investment, production, and consumption.\u00a0 Most people in the developing world, however, lack access to the most basic financial services.\u00a0\u00a0The World Bank estimates that nearly 60% of adults in Sub Saharan Africa, and nearly 45% in all developing countries, are either unbanked or severely underbanked.1<\/sup><\/p>\n

 <\/p>\n

Lenders are fearful of extending credit given a lack of data and tools to assess the creditworthiness of potential borrowers.\u00a0 The holy grails of borrower risk assessment – evaluating ability and willingness to repay – are challenging in data-scarce environments. \u00a0Consumers’ financial flows are unpredictable as most lack the luxury of regular paychecks,\u00a0living payout to payout, which might come from selling farm produce one month and temporary manual labor the next.\u00a0 Workers also struggle with\u00a0sporadic expenses, including medical emergencies and requests from family who need help.2<\/sup>\u00a0Moreover, they have non-existent or fragmented financial records because they earn\u00a0wages in cash and have little or no formal savings or registered assets.3<\/sup><\/p>\n

 <\/p>\n

Tala, a California-based fintech company, is working to transform financial access by building a lending business grounded in machine learning-driven credit assessment.\u00a0 The company’s Android-based mobile application\u00a0uses machine learning on a user\u2019s smartphone data to predict her capacity to borrow and her associated repayment\/default patterns.\u00a0 \u00a0The app mines the rich reams of consumer mobile data to build an exhaustive picture of a consumer’s financial life, using “alternative data-points” as reliable proxies for user financial attributes.4<\/sup><\/p>\n

 <\/p>\n

Tala uses a combination of Android and behavioral data to instantly underwrite first-time customers.\u00a0 Behavioral data refers to how a customer interacts with or moves through the app (e.g., which pages she visits and how she arrives there) or whether she read the terms and conditions. Device data examples include device type and ID, operating system vintage, and the apps on the phone.5<\/sup> The Tala app requests access to certain information, including SMS, call records, and location patterns, collecting over 10,000 unique data points per user.6<\/sup> These data points can provide valuable insights on a customer – prepaid-minute purchase patterns can indicate a steady or uneven cash flow, and the timing and frequency of calls and text messages can indicate whether she is working a steady job (for example, fewer calls between 9 a.m. and 5 p.m. may indicate that someone is working during those hours).7<\/sup><\/p>\n

 <\/p>\n

Tala has already\u00a0delivered credit to nearly 1.3 million customers and originated more than $300 million in loans in countries like Kenya, India, and Mexico.8<\/sup>\u00a0 In the future, the company plans to continue building deeper financial analysis capabilities (e.g., via partnerships with PayPal) and to develop more rigorously data-science focused machine learning techniques trained on historic user data (e.g., recently hired Uber’s Head of Data Science as Chief Data Officer). For repeat customers of Tala, for example, existing repayment behavior will be the most important factor for future lending decisions, leading to a virtuous cycle of more data and more learning that can drive lending of greater amounts and expansion into new types of financial services.9<\/sup><\/p>\n

As the company looks ahead, I would advise them to leverage their data and algorithms to play a more prominent role in the financial well-being of their customers.\u00a0 Tala could build out an offering of non-credit products (e.g., insurance, savings) and enable customers to make good financial decisions (e.g., through the use of targeted alerts).10<\/sup>\u00a0 The company could spread the mobile lending revolution globally – Africa remains the world’s leader with more than 10% of adults using mobile money accounts.11<\/sup>\u00a0\u00a0Tala could further work with more traditional credit agencies (e.g., Transunion) to complement their existing services to banks and other financial institutions.\u00a0 Tala’s machine learning capabilities could lead to more intelligent credit decisions and lower the cost of sourcing, evaluating, and disbursing loans across a variety of settings.12<\/sup><\/p>\n

 <\/p>\n

Finally, I would challenge Tala to proactively develop a robust risk-mitigation framework for safe-guarding its goldmine of sensitive data.\u00a0The use of machine learning to analyze alternative data raises serious privacy, ethical and legal concerns.\u00a0\u00a0\u00a0Many people might not feel comfortable with a company having access to such intimate details about their lives.\u00a0 Even if Tala itself behaves ethically, the more data it holds the more that can be stolen by malicious hackers in a data breach.\u00a0 How can Tala work with the rest of the fintech industry to develop and implement data storage and use standards?<\/p>\n

 <\/p>\n

[Word Count: 785 Words]<\/p>\n

 <\/p>\n

References<\/strong><\/p>\n

    \n
  1. Jake Kendall, \u201cFintech Companies Could Give Billions of People More Banking Options,\u201d 性视界 Business Review<\/em>, January 20, 2017. https:\/\/hbr.org\/2017\/01\/fintech-companies-could-give-billions-of-people-more-banking-options<\/a> , accessed November 2018<\/li>\n
  2. \u201cTala: Using Machine Learning to Provide Access to Credit for the World\u2019s Unbanked,\u201d HBS Digital Initiative, <\/em>April 9, 2018. https:\/\/d3.harvard.edu\/platform-digit\/submission\/tala-using-machine-learning-to-provide-access-to-credit-for-the-worlds-unbanked\/<\/a><\/li>\n
  3. Tobias Baer, Tony Goland, and Robert Schiff, \u201cNew Credit-Risk Models for the Unbanked,\u201d McKinsey & Company, <\/em>April 2013. https:\/\/www.mckinsey.com\/business-functions\/risk\/our-insights\/new-credit-risk-models-for-the-unbanked<\/a> , accessed November 2018<\/li>\n
  4. Ibid<\/li>\n
  5. Tala, \u201cData Ethics at Tala\u201d, https:\/\/tala.co\/dataethics\/<\/a> accessed November 2018<\/li>\n
  6. Jake Kendall, \u201cFintech\u2026\u201d<\/li>\n
  7. Tobias Baer, \u201cNew Credit-Risk\u2026\u201d<\/li>\n
  8. \u201cTala Raises $65M in New Financing\u201d, FinSMEs<\/em>, April 19, 2018 http:\/\/www.finsmes.com\/2018\/04\/tala-raises-65m-in-new-financing.html<\/a><\/li>\n
  9. Tala, \u201cWith an Eye Toward Global Expansion, Tala adds Kevin Novak as Chief Data Officer\u201d, https:\/\/tala.co\/press-releases-1\/<\/a>, accessed November 2018<\/li>\n
  10. Tobias Baer, \u201cNew Credit-Risk\u2026\u201d<\/li>\n
  11. Toby Shapshak, \u201cMobile Drives Financial Inclusion in Africa, Growing 20% in Past Six Years\u201d, Forbes, <\/em>May 16, 2018. https:\/\/www.forbes.com\/sites\/tobyshapshak\/2018\/05\/16\/mobile-drives-financial-inclusion-in-africa-growing-20-in-past-six-years\/<\/a> accessed November 2018<\/li>\n
  12. Jon Walker, \u201cArtificial Intelligence Applications for Lending and Loan Management\u201d, Tech Emergence<\/em>, March 27, 2018. https:\/\/www.techemergence.com\/artificial-intelligence-applications-lending-loan-management\/<\/a> , accessed November 2018<\/li>\n<\/ol>\n

     <\/p>\n

     <\/p>\n

     <\/p>\n

     <\/p>\n","protected":false},"excerpt":{"rendered":"

    Individuals and businesses in America enjoy access to a mind-boggling array of financial services.\u00a0 Borrowing is ubiquitous – consumers swipe plastic to their heart’s content, smaller firms tap into bank loans, and big corporations issue public bonds.\u00a0 And while societal […]<\/p>\n","protected":false},"author":11388,"featured_media":35498,"comment_status":"open","ping_status":"closed","template":"","categories":[],"class_list":["post-35497","hck-submission","type-hck-submission","status-publish","has-post-thumbnail","hentry","hck-taxonomy-industry-financial-services"],"connected_submission_link":"https:\/\/d3.harvard.edu\/platform-rctom\/assignment\/rc-tom-challenge-2018\/","yoast_head":"\nDMs for Dollars - Technology and Operations Management<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/d3.harvard.edu\/platform-rctom\/submission\/dms-for-dollars\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"DMs for Dollars - Technology and Operations Management\" \/>\n<meta property=\"og:description\" content=\"Individuals and businesses in America enjoy access to a mind-boggling array of financial services.\u00a0 Borrowing is ubiquitous – consumers swipe plastic to their heart’s content, smaller firms tap into bank loans, and big corporations issue public bonds.\u00a0 And while societal […]\" \/>\n<meta property=\"og:url\" content=\"https:\/\/d3.harvard.edu\/platform-rctom\/submission\/dms-for-dollars\/\" \/>\n<meta property=\"og:site_name\" content=\"Technology and Operations Management\" \/>\n<meta property=\"og:image\" content=\"https:\/\/d3.harvard.edu\/platform-rctom\/wp-content\/uploads\/sites\/4\/2018\/11\/African-Fratstar-1.jpg\" \/>\n\t<meta property=\"og:image:width\" content=\"810\" \/>\n\t<meta property=\"og:image:height\" content=\"540\" \/>\n\t<meta property=\"og:image:type\" content=\"image\/jpeg\" \/>\n<meta name=\"twitter:card\" content=\"summary_large_image\" \/>\n<meta name=\"twitter:label1\" content=\"Est. reading time\" \/>\n\t<meta name=\"twitter:data1\" content=\"5 minutes\" \/>\n<script type=\"application\/ld+json\" class=\"yoast-schema-graph\">{\"@context\":\"https:\\\/\\\/schema.org\",\"@graph\":[{\"@type\":\"WebPage\",\"@id\":\"https:\\\/\\\/d3.harvard.edu\\\/platform-rctom\\\/submission\\\/dms-for-dollars\\\/\",\"url\":\"https:\\\/\\\/d3.harvard.edu\\\/platform-rctom\\\/submission\\\/dms-for-dollars\\\/\",\"name\":\"DMs for Dollars - Technology and Operations Management\",\"isPartOf\":{\"@id\":\"https:\\\/\\\/d3.harvard.edu\\\/platform-rctom\\\/#website\"},\"primaryImageOfPage\":{\"@id\":\"https:\\\/\\\/d3.harvard.edu\\\/platform-rctom\\\/submission\\\/dms-for-dollars\\\/#primaryimage\"},\"image\":{\"@id\":\"https:\\\/\\\/d3.harvard.edu\\\/platform-rctom\\\/submission\\\/dms-for-dollars\\\/#primaryimage\"},\"thumbnailUrl\":\"https:\\\/\\\/d3.harvard.edu\\\/platform-rctom\\\/wp-content\\\/uploads\\\/sites\\\/4\\\/2018\\\/11\\\/African-Fratstar-1.jpg\",\"datePublished\":\"2018-11-14T00:06:59+00:00\",\"breadcrumb\":{\"@id\":\"https:\\\/\\\/d3.harvard.edu\\\/platform-rctom\\\/submission\\\/dms-for-dollars\\\/#breadcrumb\"},\"inLanguage\":\"en-US\",\"potentialAction\":[{\"@type\":\"ReadAction\",\"target\":[\"https:\\\/\\\/d3.harvard.edu\\\/platform-rctom\\\/submission\\\/dms-for-dollars\\\/\"]}]},{\"@type\":\"ImageObject\",\"inLanguage\":\"en-US\",\"@id\":\"https:\\\/\\\/d3.harvard.edu\\\/platform-rctom\\\/submission\\\/dms-for-dollars\\\/#primaryimage\",\"url\":\"https:\\\/\\\/d3.harvard.edu\\\/platform-rctom\\\/wp-content\\\/uploads\\\/sites\\\/4\\\/2018\\\/11\\\/African-Fratstar-1.jpg\",\"contentUrl\":\"https:\\\/\\\/d3.harvard.edu\\\/platform-rctom\\\/wp-content\\\/uploads\\\/sites\\\/4\\\/2018\\\/11\\\/African-Fratstar-1.jpg\",\"width\":810,\"height\":540},{\"@type\":\"BreadcrumbList\",\"@id\":\"https:\\\/\\\/d3.harvard.edu\\\/platform-rctom\\\/submission\\\/dms-for-dollars\\\/#breadcrumb\",\"itemListElement\":[{\"@type\":\"ListItem\",\"position\":1,\"name\":\"Home\",\"item\":\"https:\\\/\\\/d3.harvard.edu\\\/platform-rctom\\\/\"},{\"@type\":\"ListItem\",\"position\":2,\"name\":\"Submissions\",\"item\":\"https:\\\/\\\/d3.harvard.edu\\\/platform-rctom\\\/submission\\\/\"},{\"@type\":\"ListItem\",\"position\":3,\"name\":\"DMs for Dollars\"}]},{\"@type\":\"WebSite\",\"@id\":\"https:\\\/\\\/d3.harvard.edu\\\/platform-rctom\\\/#website\",\"url\":\"https:\\\/\\\/d3.harvard.edu\\\/platform-rctom\\\/\",\"name\":\"Technology and Operations Management\",\"description\":\"MBA Student Perspectives\",\"potentialAction\":[{\"@type\":\"性视界Action\",\"target\":{\"@type\":\"EntryPoint\",\"urlTemplate\":\"https:\\\/\\\/d3.harvard.edu\\\/platform-rctom\\\/?s={search_term_string}\"},\"query-input\":{\"@type\":\"PropertyValueSpecification\",\"valueRequired\":true,\"valueName\":\"search_term_string\"}}],\"inLanguage\":\"en-US\"}]}<\/script>\n<!-- \/ Yoast SEO plugin. -->","yoast_head_json":{"title":"DMs for Dollars - Technology and Operations Management","robots":{"index":"index","follow":"follow","max-snippet":"max-snippet:-1","max-image-preview":"max-image-preview:large","max-video-preview":"max-video-preview:-1"},"canonical":"https:\/\/d3.harvard.edu\/platform-rctom\/submission\/dms-for-dollars\/","og_locale":"en_US","og_type":"article","og_title":"DMs for Dollars - Technology and Operations Management","og_description":"Individuals and businesses in America enjoy access to a mind-boggling array of financial services.\u00a0 Borrowing is ubiquitous – consumers swipe plastic to their heart’s content, smaller firms tap into bank loans, and big corporations issue public bonds.\u00a0 And while societal […]","og_url":"https:\/\/d3.harvard.edu\/platform-rctom\/submission\/dms-for-dollars\/","og_site_name":"Technology and Operations Management","og_image":[{"width":810,"height":540,"url":"https:\/\/d3.harvard.edu\/platform-rctom\/wp-content\/uploads\/sites\/4\/2018\/11\/African-Fratstar-1.jpg","type":"image\/jpeg"}],"twitter_card":"summary_large_image","twitter_misc":{"Est. reading time":"5 minutes"},"schema":{"@context":"https:\/\/schema.org","@graph":[{"@type":"WebPage","@id":"https:\/\/d3.harvard.edu\/platform-rctom\/submission\/dms-for-dollars\/","url":"https:\/\/d3.harvard.edu\/platform-rctom\/submission\/dms-for-dollars\/","name":"DMs for Dollars - Technology and Operations Management","isPartOf":{"@id":"https:\/\/d3.harvard.edu\/platform-rctom\/#website"},"primaryImageOfPage":{"@id":"https:\/\/d3.harvard.edu\/platform-rctom\/submission\/dms-for-dollars\/#primaryimage"},"image":{"@id":"https:\/\/d3.harvard.edu\/platform-rctom\/submission\/dms-for-dollars\/#primaryimage"},"thumbnailUrl":"https:\/\/d3.harvard.edu\/platform-rctom\/wp-content\/uploads\/sites\/4\/2018\/11\/African-Fratstar-1.jpg","datePublished":"2018-11-14T00:06:59+00:00","breadcrumb":{"@id":"https:\/\/d3.harvard.edu\/platform-rctom\/submission\/dms-for-dollars\/#breadcrumb"},"inLanguage":"en-US","potentialAction":[{"@type":"ReadAction","target":["https:\/\/d3.harvard.edu\/platform-rctom\/submission\/dms-for-dollars\/"]}]},{"@type":"ImageObject","inLanguage":"en-US","@id":"https:\/\/d3.harvard.edu\/platform-rctom\/submission\/dms-for-dollars\/#primaryimage","url":"https:\/\/d3.harvard.edu\/platform-rctom\/wp-content\/uploads\/sites\/4\/2018\/11\/African-Fratstar-1.jpg","contentUrl":"https:\/\/d3.harvard.edu\/platform-rctom\/wp-content\/uploads\/sites\/4\/2018\/11\/African-Fratstar-1.jpg","width":810,"height":540},{"@type":"BreadcrumbList","@id":"https:\/\/d3.harvard.edu\/platform-rctom\/submission\/dms-for-dollars\/#breadcrumb","itemListElement":[{"@type":"ListItem","position":1,"name":"Home","item":"https:\/\/d3.harvard.edu\/platform-rctom\/"},{"@type":"ListItem","position":2,"name":"Submissions","item":"https:\/\/d3.harvard.edu\/platform-rctom\/submission\/"},{"@type":"ListItem","position":3,"name":"DMs for Dollars"}]},{"@type":"WebSite","@id":"https:\/\/d3.harvard.edu\/platform-rctom\/#website","url":"https:\/\/d3.harvard.edu\/platform-rctom\/","name":"Technology and Operations Management","description":"MBA Student Perspectives","potentialAction":[{"@type":"性视界Action","target":{"@type":"EntryPoint","urlTemplate":"https:\/\/d3.harvard.edu\/platform-rctom\/?s={search_term_string}"},"query-input":{"@type":"PropertyValueSpecification","valueRequired":true,"valueName":"search_term_string"}}],"inLanguage":"en-US"}]}},"_links":{"self":[{"href":"https:\/\/d3.harvard.edu\/platform-rctom\/wp-json\/wp\/v2\/hck-submission\/35497","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/d3.harvard.edu\/platform-rctom\/wp-json\/wp\/v2\/hck-submission"}],"about":[{"href":"https:\/\/d3.harvard.edu\/platform-rctom\/wp-json\/wp\/v2\/types\/hck-submission"}],"author":[{"embeddable":true,"href":"https:\/\/d3.harvard.edu\/platform-rctom\/wp-json\/wp\/v2\/users\/11388"}],"replies":[{"embeddable":true,"href":"https:\/\/d3.harvard.edu\/platform-rctom\/wp-json\/wp\/v2\/comments?post=35497"}],"version-history":[{"count":0,"href":"https:\/\/d3.harvard.edu\/platform-rctom\/wp-json\/wp\/v2\/hck-submission\/35497\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/d3.harvard.edu\/platform-rctom\/wp-json\/wp\/v2\/media\/35498"}],"wp:attachment":[{"href":"https:\/\/d3.harvard.edu\/platform-rctom\/wp-json\/wp\/v2\/media?parent=35497"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/d3.harvard.edu\/platform-rctom\/wp-json\/wp\/v2\/categories?post=35497"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}