TransUnion Botswana announces the launch of three new intelligence solutions designed to help financial institutions make smarter lending decisions, strengthen risk management and responsibly expand access to credit. Supported by an enhanced dataset that provides a richer view of consumer payment behaviour, the new solutions will help lenders unlock greater economic participation while supporting sustainable growth across Botswana's financial sector.

Following the recent licensing process, TransUnion is continuing to invest in Botswana's financial ecosystem through enhanced data capabilities, advanced analytics and new solutions designed to support lenders and consumers alike.

"The launch of these three new solutions represents an important investment in Botswana's financial future," says Kabelo Ramaselwana, chief executive officer, TransUnion Botswana. "Financial institutions need deeper insights and stronger analytics to support responsible growth. By combining richer data with advanced intelligence solutions, we are helping lenders make better decisions, expand access to credit and support greater economic opportunity."

New Intelligence Solutions for a New Credit Environment

TransUnion is introducing three new capabilities designed to help Botswana's financial institutions grow responsibly, improve decision-making and unlock new opportunities.

• Industry Scores use sector-specific predictive models to help lenders assess thin-file and credit-invisible consumers with greater confidence.
• Collections Solutions enable smarter, data-driven collections strategies that improve recoveries while reducing operational costs.
• Business Intelligence Reports provide market and portfolio benchmarking insights, helping organisations understand performance, identify growth opportunities and make more informed strategic decisions.

Together, these three solutions equip organisations with the intelligence needed to expand access to credit, strengthen risk management and drive sustainable growth.

Enhanced Data for Better Lending Decisions

These solutions are underpinned by an enhanced dataset that brings together broader payment and credit information to provide a more complete view of consumer payment behaviour and credit obligations. By reducing fragmented views of borrowers, financial institutions can make more informed decisions across the credit lifecycle, from origination and portfolio management to collections.

For lenders, access to richer information means decisions can increasingly be based on a broader understanding of borrower behaviour, helping institutions identify opportunities while maintaining sound risk management practices.

Unlocking Access to Credit and Economic Growth

Botswana's financial sector is entering a period of significant transition. While the country remains one of Africa's most financially included markets, lenders face increasing pressure to balance growth, affordability and risk amid changing consumer credit profiles, rising living costs and broader economic pressures.

At the same time, significant opportunities remain to broaden access to credit. Although around 72% of adults have access to a bank account or mobile money service, a large share of the population remains outside the formal credit system. As a result, lenders often struggle to assess creditworthiness using traditional risk models, limiting borrowing opportunities for consumers and small businesses.

TransUnion analysis indicates that richer data and enhanced scoring models could increase loan approvals by 4% to 6% annually while maintaining credit quality, potentially unlocking up to P5 billion in additional lending across the market. Enhanced collection capabilities have also demonstrated a 38% increase in visibility and a 40% improvement in collections yield, helping institutions strengthen portfolio performance and support sustainable economic growth.

Supporting Consumer and Business Growth

The opportunity extends beyond personal credit. Botswana's MSME sector employs approximately 175,000 people and generates an estimated P14 billion in annual turnover, yet many businesses continue to rely on manual record-keeping, making it more difficult to demonstrate creditworthiness and access finance. Enhanced commercial credit information and business analytics can help financial institutions better assess these businesses and support their growth through improved access to funding.

As financial institutions navigate an increasingly complex environment, access to deeper market intelligence is becoming increasingly important. TransUnion's Business Intelligence capabilities are designed to help organisations understand portfolio performance trends, monitor market developments and identify emerging opportunities, enabling more informed strategic decision-making.

Investing in Botswana Financial Future

TransUnion remains committed to supporting Botswana's evolving financial sector through ongoing investment in data, analytics and innovation. By combining global capabilities with local market expertise, the company aims to help lenders serve consumers and businesses more effectively while supporting broader economic growth.

"Growth and risk discipline are no longer opposing objectives," says Ramaselwana. "More complete information allows institutions to identify and serve the right consumers and businesses with greater confidence. That is good for lenders, good for consumers and ultimately good for Botswana's economy."

According to TransUnion’s (NYSE:TRU) Q3 2024 South Africa Industry Insights Report, consumption credit products (credit cards, personal loans, retail revolving lines) continued to experience growth, with originations growing by 14.4% year-over-year (YoY) in Q3 2024 as consumers find ways to adapt to the persistent high cost of living in South Africa. Retail revolving credit experienced the highest origination growth among all major products, up 21.9% YoY, and average new credit limits assigned rose by 13.3% year over year.

Additionally, the credit card market experienced steady positive momentum in consumer demand and supply. Cards have benefitted from greater consumer adoption, likely driven by the resilient ecommerce sector that has outperformed the overall retail sector. Furthermore, the increased usage of digital wallets, embedded in smartphones that integrate digital copies of credit cards, has enabled consumers to tap into an amplified purchasing convenience at point of sale. This is especially important for younger consumers, who prioritise convenience and speed above other factors when it comes to payment channels of choice.

TransUnion’s Q3 2024 Consumer Pulse Survey (CPS) showed that 13% of consumers surveyed cut back on savings for retirement, potentially leading to more disposable income. The survey further showed that 25% of consumers (higher by three percentage points compared to Q2 2024) responded that their household income is not keeping up with the rate of inflation. As inflation dropped below the South African Reserve Bank’s target range in October 2024, the market anticipates further interest rate cuts, which may help in alleviating the high cost of living and borrowing.

An improving picture of credit performance observed in Q3 2024 further indicates consumers’ priorities for maintaining access to credit, as well lenders’ strategies for managing risk effectively. As inflation and interest rates ease, consumers may experience an improvement in affordability, which would renew confidence in making larger purchases. In anticipation, lenders need to deploy strategies for identifying consumers with shifting needs and preferences to build and maintain loyalty among their existing bases. While portfolio growth is evident across major consumption-led products, implementing predictive analytics to sustain prudent growth becomes crucial.

 Table 1: Key South African Credit Market Metrics (Q3 2023 vs Q3 2024)

*Includes both bank-issued and non-bank-issued personal loans

** Account-level serious delinquency rate, measured as a percentage of accounts three or more months in arrears

Vehicle Loans Recorded First Growth in Originations Since 2022

The vehicle finance market has experienced significant slowdown since Q3 2022, given the high cost of vehicles and cost of borrowing pressures. In this context, consumers have preferred to buy used vehicles over new vehicles to manage affordability pressures. This quarter marks a shift in the vehicle finance industry, with a YoY growth of 1.1% in vehicle loans originated – the first quarter of growth observed in two years.

While vehicle loan originations were up, vehicle sales overall dropped in the same period, down 7.1% YoY. Sales of new vehicles drove this drop, with a decline of 13.9% YoY. As new vehicle prices start to subside with cheaper manufacturers entering the South African market, and with a lower cost of borrowing easing affordability pressures, vehicle finance institutions are optimistic that they will see some recovery in the industry, particularly in new vehicle sales.

With vehicle loan originations increasing by 1.1% during Q3 2024, along with average new account amounts growing by 2.4%, this quarter’s data could indicate the beginning of an upturn in vehicle financing. This trend was supported by the September and November interest rate cuts, lower fuel prices, and the anticipation of further interest rate cuts early in the new year which may add further momentum.

A recent TransUnion study of South African consumers showed that the share of new vehicle loans opened by Gen Z consumers increased from 13.7% during Q3 2023 to 16.6% in Q3 2024, while other generation tiers declined in share. Within the first-time vehicle finance consumer segment, Gen Z^[1] consumers accounted for 30% of these first-time buyer loans in Q3 2024, up from 25% in the same quarter of 2023, and 18% in the same quarter of 2022. More importantly, first-time vehicle loan consumers tend to perform better or the same compared to repeat borrowers in this market, even when controlled for borrower risk scores, based on Transunion’s vintage performance analysis measured for vehicle loans originated from 2019 through 2022.

As the industry anticipates a recovery, it is pertinent for vehicle finance institutions to consider enhanced strategies to enable consumers entering the market to fulfil pent-up demand that was not met in the last few years due to lack of affordability. These strategies include prudently expanding credit access for consumers buying their first-ever vehicle, and empowering younger consumers with effective education tools to influence positive repayment behaviours that will equip them for a healthy financial future.

“As inflation slows and the cost of borrowing declines, there is potential for more consumers who previously only held unsecured credit products to graduate to the next step in their credit journeys by taking out a vehicle loan,” said Lee Naik, CEO of TransUnion Africa. “As levels of financial inclusion improve and more underserved consumers are able to secure vehicle and other loans, lenders have a real opportunity to create greater loyalty as well as improve credit education efforts. Putting consumers’ needs first will ensure better credit management and a healthier economy.”

^{[1] TransUnion age distribution: Gen Z (Born 1995 – 2010); Millennials (Born 1980-1994); Gen X (Born 1965-1979); Baby Boomers (Born 1946-1964).}

Despite increasing optimism about household finances and repaying their debt faster than a few months ago, South African consumers are becoming more concerned about the rising cost of housing. This is according to the latest Consumer Pulse Study for Q3 2024¹, published by information and insights company, TransUnion.

With the local economic environment showing signs of stability and GDP growth projected at 1.3%² this year, there is a sense of cautious optimism, particularly after inflation settled at a three-year low of 4.6%3 in July 2024. Most economists are expecting an interest rate cut before the end of the year suggesting that there is reason for a more positive approach to the market.

According to the TransUnion study, 76% of consumers expect their incomes to increase over the next year, up from 70% in the same quarter last year. Furthermore, 73% of consumers are optimistic about their household finances for the next 12 months, a seven-percentage point increase year-over-year (YoY). In the three months prior to the Q3 survey, 39% of South Africans reported an increase in their incomes, compared to 36% in the same quarter last year.

"Even though increasing consumer optimism is a promising indicator of economic recovery, it is essential not to diminish the financial challenges that many South African households continue to face,” said Fatgie Adams, Head of Credit Risk Solutions at TransUnion Africa.

Some of households’ most significant financial concerns over the next six months include inflation for everyday goods (38%) and jobs (20%). Housing prices remain a concern for 12% of consumers, a three-percentage-point increase from the previous quarter. This underscores the complexities of the local economic market, particularly around consumers’ access to affordable housing and mortgages while maintaining the financial capacity to service debt.

"While the easing of inflationary pressures and potential interest rate cuts provide a glimmer of hope, the rising cost of housing remains a significant concern for many South Africans,” says Adams. “Our latest Consumer Pulse Study highlights that even as household income expectations improve, the affordability of housing continues to be a critical issue that requires attention.”

Financial challenges persist

Despite growing optimism, many consumers report struggling with their financial commitments. The study found that 36% of consumers do not expect to be able to pay at least one of their current bills and loans in full, a small improvement from 37% in Q2 2024 and 38% YoY. Among those who said they’d be unable to pay at least one of their current bills and loans in full, 38% indicated that they intend to pay a partial amount that they could afford, but not the whole balance. Others said they would pay their current bills and loans by borrowing from a friend or family member (24%), while a small group (9%) admitted they did not know how they would pay their bills or loans.

"Our findings show that while some consumers are seeing income growth, the struggle to meet monthly obligations is still very real for more than a third (36%) of the respondents," says Adams. "This indicates that economic recovery is uneven and that many households are still operating under significant financial stress."

Regarding household spending, the study revealed that just over half of consumers (52%) said they’ve cut back on discretionary spending, such as dining out, travel, and entertainment in the past three months. Additionally, a considerable number of consumers (28%) reported cancelling subscriptions or memberships in that time period.

Access to credit considered to be important

The study also sheds light on the perceived importance of credit and lending products.

Most of the consumers surveyed (92%) believe access to credit and lending products is important to achieve financial goals. Despite this, only a portion (36%) of respondents plan to apply for new or refinance existing credit within the next year. Interestingly, more than half of consumers (51%) have considered applying for new credit or refinancing but ultimately decided against it. The main reasons given include the high cost of new credit or refinancing (31%), fears of being rejected due to their income or employment status (29%), no longer needing the credit (26%), and concerns over their credit history potentially resulting in a rejection (25%).

Most consumers regularly monitor credit

Monitoring credit reports is also a focal point for South African consumers. More than half (54%) said they check their credit report at least monthly, although a smaller portion (17%) said they don’t monitor their credit report at all. There is a strong sentiment among consumers that it is extremely or very important (69%) to monitor their credit report. Interestingly, when asked if their credit score would change if businesses used alternative data sources typically not included in standard credit reports such as rental payments, gym membership payments and short-term loans, responses varied. The majority (50%) of consumers believe their score would increase, others think there would be no change (25%), and the smallest percentage feel their score would decrease (10%). The other 15% of respondents are unsure what would happen.

"Regularly monitoring credit reports is a critical step for consumers to take control of their financial health," Adams explains. "Understanding your credit status allows you to make informed decisions and plan effectively, especially in today’s dynamic economic environment."

Rising fraud risks

Identity risks continue to be a concern for South African consumers. The study found that among the 60% who said they’ve been targeted with an online, email, phone call or text messaging fraud attempt in the last three months, 34% reported being targeted by phishing schemes, up from 28% in the previous quarter. Similarly, there has been a 12-percentage point rise to 32% in vishing schemes (fraudulent phone calls that try to trick people into revealing data).

Consumers are eligible to receive one free credit report every 12 months. Consumers can get their free annual credit report from TransUnion here.

ENDS

¹The survey of 952 South Africans 18 years of age and older was conducted 16–31 July 2024 by TransUnion in partnership with third-party research provider, Dynata.

² https://www.afdb.org/en/countries/southern-africa/south-africa/south-africa-economic-outlook

³ South Africa Inflation Rate (tradingeconomics.com)

‘My Credit Manager for Business’ leverages TransUnion’s rich credit data, scoring, and alerts to provide risk solutions that are robust and reliable, integrating real-time data with internal policies and business-specific requirements to produce intelligent, informed credit risk decisions that support enhanced, consistent, digital decision-making.

The solution improves risk predictions by 25%, boosts revenue by up to 10%, and cuts costs by up to 20%^[1], via an easy stand-alone plug-and-play system that can be seamlessly integrated into businesses of all sizes. It is a data-rich, compliant, future-ready credit risk mitigation solution that is positioned to enable sustainable growth for businesses of all sizes.

“Our ongoing partnership with DCS to support the ‘My Credit Manager for Business’ solution is a key driver for economic growth by facilitating the financial inclusion of more consumers,” said Lee Naik, CEO of TransUnion Africa. “The consequences of poor credit decision-making can be even more costly than operational inefficiency, and this solution helps mitigate risk and promotes stability in these sectors.”

Greg Nosworthy, Managing Director at DCS, said that ‘My Credit Manager for Business’ blends top-tier trade credit expertise with TransUnion’s carefully stewarded traditional and alternative data resources to offer a robust credit risk management solution that is purpose-built for South Africa’s current challenges.

“Our solution, supported by TransUnion’s deep, reliable and robust insights, actively drives financial inclusion and uplifts credit-dependent enterprises and their SME trade partners by combining traditional credit scores with alternative data and providing real-time decisioning and reporting,” he added.

Driving digital and financial inclusion

SMEs in our market are relatively unknown and unquantified and represent elevated risk and higher cost of acquisition. Trade credit can be a vital catalyst for the growth of a small business. Imagine a scenario where an established local supplier extends favourable trade credit terms to an SME, allowing them to procure essential building materials without immediate cash outlay. This flexibility enables the business to take on more projects, meet client demands promptly, and bid competitively for larger contracts. With improved cash flow, the SME can invest in advanced equipment, hire skilled labour, and expand its footprint in the market. Trade credit acts as a financial bridge, empowering the small business to navigate the challenges of growth in the dynamic construction industry.

Historically, the biggest barrier to SME growth and sustainability in South Africa is access to financing^[2], which is further compounded by the current high interest rate, high inflation environment. At first glance, the SME sector appears to be thriving, boasting a contribution to South Africa’s GDP of 34%^[3]. However, after adjusting for inflation, per capita terms GDP is at the same level today as in 2007² and five out of seven SMEs don’t survive past their first year¹.

Knowing that revenue is the lifeblood of any business, and that growth is critical for sustainable success, ‘My Credit Manager for Business’ is designed to facilitate a fast, profitable revenue stream for trade credit providers. Businesses that provide trade credit to SMEs need access to tried and tested credit scoring solutions – but the solution doesn’t only lie in simple trade credit management.

“Current trading conditions demand smart solutions for trade credit providers, which are tailored to address the many challenges of the modern economy, including digital transformation and improving business efficiency to reduce operational costs and boost revenue,” said Nosworthy.

Business efficiency does not always mean doing more with less; it can mean doing more with what the business already has.

“Business owners can reduce their operational costs by automating and streamlining existing processes, and credit partnerships can be enhanced by digitising a fast-tracked assessment process to reduce the approval time on low-risk customers,” said Naik. “In a world where credit applicants have more options than ever before, making the shift to a digital solution is not just an operational decision; it is a strategic move to unburden a business’s resources and unleash its full potential.”

ENDS

Notes to Editors:

About “My Credit Manager”

The platform has been operational since 2017 and is a tested, tried and trusted solution with seamless integration capabilities. Plug-and-play functionality ensures accelerated implementation.

“My Credit Manager” transforms paper-driven trade credit processes into streamlined dashboards within 10 days, giving trade credit providers an edge over competitors still mired in paperwork, and enabling accelerated turnover. The solution also digitally manages the entire credit lifecycle, from risk scoring to buyer financing, trade credit insurance, and debt collection, and is fully compliant with the requirements of the National Credit and POPI Acts.

[1] The-value-in-digitally-transforming-credit-risk-management.pdf (mckinsey.com)

[2] Factors Affecting Small and Medium Enterprises’ Financial Sustainability in South Africa | African Journal of Inter/Multidisciplinary Studies (journals.co.za)

[3] News - SMEs need support to thrive – Prof Stan du... (sun.ac.za)

Research by information and insights company TransUnion shows that, even within the context of higher-than-expected inflation, the risk of yet more interest rate hikes, and soaring food and fuel prices, consumers remain optimistic about their finances.

According to TransUnion’s Q4 Consumer Pulse Study, 74% of the observed households expect an increase in their incomes over the next 12 months and only 6% expect a decrease. This is despite the reality over the last quarter being somewhat different: only 34% of households reported actual increased incomes during that time, and almost a quarter (22%) have seen a decline.

Lee Naik, CEO of TransUnion Africa, says that this optimism suggests that there is potential for recovery and growth: “Under a magnifying glass, the interplay between consumer income, spending, and debt shows a determination to improve long-term financial well-being by cutting non-essential spending in order to save more and reduce existing debt levels.”

Consumers have adapted their budget strategies over the past three months, with 29% paying down their existing debts faster, 25% saving more in emergency funds or stokvels, and 18% saving more toward their retirement.

As economic headwinds batter disposable incomes, nearly half (47%) of consumers said they would cut down on dining out, travel and entertainment, and spend less on retail shopping and big purchases in the next three months. South Africa’s retail trade rose by 0.9% from a year earlier in September 2023, following a downwardly revised 0.3% decrease in the prior month and better than market forecasts of a 0.1% increase. Retailers are hoping for a further recovery in spending during the festive season but, with the cost of goods having risen by 5.4%, consumers are mindful of affordability.

Financial health

Optimism over future earnings is also being tempered by the rising cost of credit commitments. With the prime lending rate at 11.75%, a significant increase from 10.5% in Q4 2022, only 59% of households expect to be able to meet their current bills and loan obligations.

In a demonstration of proactive debt management, 34% of respondents will dip into their savings to service their debt in the short-term, while 31% plan to make at least partial payments within their means.

A larger proportion of Gen Z (born 1995-2004) and Millennial (born 1981-1996) respondents indicated that they were struggling, while they will not be able to meet their credit commitments in the coming quarter (34% and 42% respectively), many intend to increase contributions to their retirement savings (44% and 40% respectively) and are prepared to curtail large purchases to do so (35% and 40%, respectively).

Financial inclusion

Attitudes towards credit remain largely unchanged from Q3. Although 92% of consumers (marginally up from 90% in Q3) believe that access to credit is essential for financial inclusion and economic participation, only one in three intends to apply for new credit, or to refinance existing credit, in the next year. Within this segment, 29% are interested in a credit card and 31% in a personal loan.

During the quarter, only half of the consumers (50%) who considered taking out credit applied. The rest were deterred by the high cost of new credit (33%), or they feared rejection due to their income or employment status (24%). Another 24% tapped an alternative funding source.

Naik notes that access is also seen as an impediment to borrowing: “Thirty-eight percent of respondents said they do not have sufficient access to credit. This shows a need for bureaus to include alternative data, like mobile data in credit scoring. It will also be interesting to see the effect of including overdraft facilities in credit scoring, which is in the implementation stages.”

Half of the surveyed consumers (50%) believe their credit scores would improve if alternative data was included.

Consumers agree that monitoring their credit reports is very important (31%), if not extremely important (35%), with 67% saying they check their credit reports at least every quarter.

Consumers can get their free annual credit report from TransUnion here.

According to TransUnion’s Q3 2023 Consumer Pulse Study, seven in every 10 (70%) South African households expect an increase in their income over the next 12 months, and nearly the same number (66%) are optimistic about their household finances in the same period. More than one in three (36%) have seen an increase in their income in the past quarter, with one in five (23%) seeing their incomes drop.

However, debt management remains a major concern, with more than one in three South Africans (38%) unable to meet their current bills and loan obligations. Of those unable to pay their bills and loans, 39% plan to make partial payments, 36% will dip into their savings, 24% will borrow money from friends and family, and 11% plan to take out a personal loan. Another 10% said they don’t know how they’re going to pay.

Weihan Sun, Director of Research and Consulting at TransUnion Africa, said the survey revealed diverse income trends and an environment of varied financial stability across the population.

“Economic pressures remain top of mind for many South Africans, with concern about inflation and high interest rates affecting consumer behaviours. Consumers are worried about debt, and taking on additional credit, and as a result, there’s been a clear pullback in spending to help cope with these economic realities,” said Sun. “This will have a knock-on effect in sectors like retail and automotive, as ordinary South Africans postpone big purchases.”

Around 60% of survey respondents have reduced discretionary spending, with 26% going as far as to cancel subscriptions or memberships. Gen X (born between 1965-1980) and Baby Boomers (born between 1946-1964) have made the most significant cuts in discretionary spending, at 67% and 72% respectively. Looking ahead, Baby Boomers (30%) expect an increase in bills and loans, while younger Gen Z (born 1997-2010) consumers (30%) predict a rise in their retail expenditure.

Interestingly, both Gen Z and Millennials (born 1981-1996) intend to increase contributions to retirement funds and investments and curtail large purchases, which they predict will decline by 39% and 46%, respectively. These expectations reflect a generational pivot towards securing long-term financial stability in the face of the current economic climate, says Sun.

Access to credit

Nearly all respondents (90%) believe access to credit and lending products is crucial to achieving their financial goals, but only 36% of respondents believe they have sufficient access to credit. As a result, fewer than a third of consumers (31%) plan to apply for new or refinance existing credit in the coming year. Around half (49%) of the consumers who intended to apply for credit or refinance abandoned their plans, due largely to high costs of new credit (33%) and fear of rejection due to income or employment status (26%).

Consumer Empowerment

The overwhelming majority of consumers (92%) believe that keeping track of their credit reports is crucial to effective financial management. But while 30% of respondents check their credit reports monthly, one in five (21%) never do. Consumer perceptions also vary around the potential impact of non-standard data (such as rental payments, gym membership payments, or buy-now-pay-later services) on their credit scores: 48% believe their scores would improve, 25% expected no change and 10% feared a decrease.

Identity Protection

Digital fraud remains a pervasive issue for South African consumers, with 48% of respondents saying they have been the target of fraud schemes in the last quarter, and 10% falling victim to these scams. Worryingly, 42% of respondents were unaware of any fraud schemes targeted at them, which suggests they could unwittingly become victims without their knowledge.

The most prevalent type of fraud is phishing (trying to trick people into divulging personal information by email, 38%), money and gift card scams (34%), and smishing (trying trick people into divulging information by SMS, 33%).

Designed to be one of the most powerful and predictive scores yet, it will be available in late 2022 through TransUnion.  The new version of the score can help lenders build healthier portfolios based on the latest consumer credit data and trends.

The score was developed using the latest TransUnion data, making it ideal for South Africa’s large and dynamic population. TransUnion’s recently released Financial Inclusion study showed that more than 20 million South African consumers were credit unserved and a further 7 million underserved, i.e. credit active but with limited participation, at the end of March 2022.

“Our data shows that only 16 percent of these underserved consumers migrate to being credit served every two years, despite our analysis showing that these consumers perform as well, if not better, than the credit served consumer community. With improved predictability and granularity, FICO® 6 can play a significant role in bringing these low participation consumers into the formal economy. Furthermore, FICO® Score 6 can help lenders offer consumers the opportunity to get the financing they need to overcome any pandemic-related setbacks, or even enter the economic mainstream for the first time,” said Lee Naik, CEO of TransUnion Africa.

FICO and TransUnion have been working together for more than two decades to empower credit grantors in South Africa and key neighbouring countries with credit risk scores. The new tool improves the assessment of a borrower’s credit risk over previous versions by providing a strengthened predictor of a consumer’s likelihood to default and expands on the modelling approach with additional features and insights.

It presents a familiar range of 300–850, with higher scores indicating lower credit risk. Based on the score, lenders can make better informed decisions on borrowers across customer segments, credit products, and lifecycle phases from account origination to account management.

Expanding Credit Access

FICO® Score 6 includes an Expansion Risk Indicator (ERI) that scores people who do not have enough credit history to calculate a standard FICO® Score boosting financial inclusion. The ERI captures additional insights from expanded/alternative TransUnion data, and provides eight indices to differentiate credit risk, enabling lenders to make more informed decisions for consumers. For currently credit invisible people, the new ERI model will allow lenders to score twice as many applicants as the model it replaces and make more effective choices for consumers with thin credit files or no credit history.

Explainable Credit Decisions

Reason codes and narratives give insight into why a consumer did not receive the maximum score. FICO® Score 6 not only maintains the previous reason codes, but enhances the insights to lenders with four additional reason codes.

“The FICO® Score 6 is a game changer for credit understanding. By adding positive reason codes, we can give lenders more insight into how a borrower is managing credit, and this may be used to personalize engagement, sales, and credit education,” says Michelle Beetar, vice president, Africa and the Middle East at FICO.

FICO is one of a broad range of products offered by TransUnion to help lenders better assess risk and make more informed credit decisions. It will be available for businesses in South Africa, Namibia, Botswana, and Eswatini. More information about how organisations can benefit can be found at: transunion.co.za/product/fico-score-6

The latest report comes amid significant political changes in South Africa after the appointment of a new president and personnel in critical economic and regulatory ministries in February. The February 2018 national budget also formed an impactful backdrop to the latest CCI, containing more tax hikes for households to weather in the coming financial year, starting April 2018.

As in Q3 2017, the CCI dropped marginally in Q4 2017, this time from 53.7 to 53.4. The index remains above 50, though, indicating ongoing gradual improvement in consumer credit health. An index level of 50 is considered the ‘break-even’ point, with lower scores reflecting worsening credit health, which is characterised by an increase of new accounts in default (3 months in arrears or “MIA”), as well as distressed borrowing (rising utilisation of store cards and credit cards).

The report highlights the many conflicting trends impacting consumers. On the positive side, rand appreciation, low food inflation, stable-to-lower interest rates and moderate economic recovery are leading to gradual improvements in consumer behaviour. In particular, TransUnion notes, the number of accounts 3-months in arrears continued to fall in Q4, as did the incidence of distressed borrowing by the excessive use of credit and store cards.

However, Stephen de Blanche, regional vice president, financial services for TransUnion Africa, warned that consumers were not in the clear.

“Real household income growth remains weak, the job market is not very strong, and now households will face a raft of new tax increases from the start of the second quarter, including on VAT and the fuel levy. While we’re somewhat encouraged by the trend in the CCI since 2016, now is no time for complacency in the industry,” de Blanche said.

According to the CCI report, accounts that are more than 3 months in arrears (3+ MIA) make up nearly 11% of total outstanding credit balances by value and 22.5% of total accounts. This implies the bulk of the 3+ MIA problem is in low-value accounts, but recently more higher-value accounts have been lapsing into 3+ MIA.

“We continue to see a lot of contrasting points in our extensive data universe, and the Q4 CCI broadly seems to reflect an industry showing both good and not-so-good signs,” said de Blanche. “The proportion of accounts more than 3 months behind on repayments has fallen slightly since 2016, but the total value of those outstanding accounts is rising. Credit providers should pay special attention to this fact.”

In light of the importance of well-managed credit policies during difficult operating periods, TransUnion has developed CreditVision^TM, an improved model for credit scoring. When TransUnion compared the outcomes of generic models run on ‘old’ data to models that use trended and alternative data, they saw an overall increase in risk predictability of 56%. “We found there were three million South African consumers who could not be scored using traditional credit data but were well-performing consumers when they did become credit active.

CreditVision can enhance our ability to assess these so-called thin-file consumers.” de Blanche explained. “We believe this can help credit providers safely expand their borrower universe in a competitive market and we think this is a big informational advantage in tough times.”

The CCI measures borrowing and repayment activiy across over 20 million individual borrowers and nearly 53 million credit accounts. The index also incorporates key macroeconomic data compiled in partnership with ETM Analytics, a macroeconomic advisory firm.

^{About the CCI}

^{The CCI takes into account rates of early defaults, distressed borrowing, household income and inflation, and debt repayment costs to gauge the degree of household financial duress.}

Traditional credit scoring models only provide a limited view of a consumer at a specific point in time. TransUnion is the first credit bureau in South Africa to utilise alternate and trended data to gain a more holistic view of a consumer and identify trends in their credit behaviour. “When lenders use this information and can access it broadly across the consumer wallet, it allows them to better tailor their products to consumer performance, which builds better loan relationships and helps everyone in the long run,” said Lee Naik, CEO of TransUnion Africa.

This is a proven TransUnion model which has already seen success in the United States, Canada, India and Colombia. “Our colleagues in Colombia identified an additional 4.7m consumers (13.1% of the credit active population) using this approach. We now have the opportunity to unlock this type of potential locally, and drive financial inclusion and growth in the South African financial services sector,” said Naik.

In South Africa, the potential benefits are clear. “We have seen as much as a 56% increase in risk predictability when using our CreditVision model locally. In addition, we have seen as much as a 20% improvement in approval rates and a 29% decrease in bad debt amounts,” added Naik.

A survey of 1,000 South Africans found that consumers would support this approach, with around 63% of respondents indicating they would approve of financial institutions understanding more about them with the knowledge that it could provide a more comprehensive view of their credit health. This could lead to improved interest rates and more access to credit for them.

“We all need to play a part in tackling the lack of financial inclusion in South Africa, and we feel that TransUnion’s CreditVision can play a key role by allowing people to access the credit they need at a cost that reflects their true risk profile and ability to repay,” said Naik.

For more information about the findings, and how to benefit from TransUnion’s CreditVision solutions, please visit https://transunioninsights.co.za/score-savvy

^{About TransUnion (NYSE: TRU)}

^{Information is a powerful thing. At TransUnion, we realise that. We are dedicated to finding innovative ways information can be used to help individuals make better and smarter decisions. We help uncover unique stories, trends and insights behind each data point, using historical information as well as alternative data sources. This allows a variety of markets and businesses to better manage risk and consumers to better manage their credit, personal information and identity. Today, TransUnion has a global presence in more than 30 countries and a leading presence in several international markets across North America, Africa, Latin America and Asia. Through the power of information, TransUnion is working to build stronger economies and families and safer communities worldwide.}

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The CCI dropped slightly to 53.9 in Q3 from 54.1 in Q2, but because it remained above 50.0, this is an indication of some improvement in consumer credit health. An index level of 50 is considered the ‘break-even’ point, with lower scores reflecting worsening credit health, which is characterised by an increase of new accounts in default (three months in arrears), as well as distressed borrowing (rising utilisation of store cards and bank-issued credit cards).

“Despite some encouraging trends in the industry in the past few quarters, we have been cautioning for some time now that low economic growth, high unemployment, low wage growth and uncertainty in a volatile global economy all pose significant pressure and risk for consumers,” said Lee Naik, CEO of TransUnion South Africa. “The increases in the CCI since 2016 should not be seen as justification for complacency, but rather the opposite: doing more to restore lenders and borrowers to a healthier, more robust financial position.”

According to the Q3 report, the gradual rise in the CCI since Q1 2016 reflects some of the benefits of cautious lending, deleveraging, a stronger currency, and a global growth upswing since then. However, the index is still not yet reflective of a broad-based, substantial improvement in credit health.

The CCI measures borrowing and repayment activity across 20 million+ individual borrowers and nearly 53 million credit accounts. The index also incorporates key macroeconomic data compiled in partnership with ETM Analytics, a macroeconomic advisory firm.

In compiling insights into distressed borrowing, TransUnion measures over R140 billion worth of revolving credit card debt, assessing how much of their available credit limits consumers are utilising. “We regard rising utilisation of revolving credit as a good indicator of more household financial distress. What’s encouraging is that utilisation has fallen slightly over the past year,” said Naik. The TransUnion South Africa CEO added that data showed the rate of new defaults had been slowing, but cautioned that with millions of accounts deeply in arrears, credit providers faced an important challenge in nursing their loan books back to better health. “The number of accounts more than three months in arrears shows millions of South Africans are in highly distressed credit situations. Typically, wealthier households have far more manageable debt loads. Aggregate data can obscure important differences between consumer segments which show up in some of our more granular data.”

The Q3 report also looked briefly at the problem of rising government borrowing and debt levels and found that a high deficit will likely keep the currency vulnerable and the Reserve Bank more reluctant to cut interest rates. “Volatile macroeconomic conditions keep companies cautious to invest and lend, which in turn raises job and wage insecurity,” said Naik. “We think it is prudent to assume that the economic environment is going to remain challenging, which underscores the importance of well-managed credit policies.”

About the CCI

The CCI takes into account rates of early defaults, distressed borrowing, household income and inflation, and debt repayment costs to gauge the degree of household financial duress.

With the Score Card, TransUnion Kenya is helping more Kenyans to become active in the economy and its related financial services industries – pushing unscrupulous loan sharks out of the picture. In addition, TransUnion Kenya has seen a need to empower lenders with predictive, customisable risk views, and consumers with alternative access to credit as needed, as well as a means of building up a positive credit score by making use of mobile lending platforms. This mobile money ecosystem has outgrown necessity-based transactions and peer-to-peer lending, and is now ready to dive head-first into the next phase – mobile credit and loans. Mobile loans already play an important part in the functioning of the economy, and have an empowering effect on small trader businesses that would have previously been unable to access any form of credit.

“Today, Kenyans perform more transactions on mobile platforms than they do inside banks,” said Billy Owino, CEO of TransUnion Kenya. “Transacting with conventional banks can be difficult, as many banks require documentation such as payslips and credit history, in order to apply for credit or transactional accounts. The younger generation in Kenya is also not as willing to spend time queueing in banks for services, especially when they can simply turn to their mobile devices.”

The TransUnion Mobile Score Card is a database solution that continually ‘learns’ based on mobile transactional history, providing mobile lenders with a customisable, reliable risk view of their mobile loans. This solution will appeal to banks, SACCOs (Savings and Credit Cooperative Organisations), and mobile disruptors alike, as it delivers a much-needed consumer mobile loans risk management solution.

The Score Card provides on-demand risk profiling for faster and more profitable mobile credit decision making. Unlike other credit score solutions, it is able to predict repayment behaviours based on existing repayment data. Each new customer is an opportunity for growth, and the Score Card assists in identifying opportunities at the account management stage. This maximises sales and identifies upselling and cross selling opportunities in the mobile segment.

“It’s clear that those financial players that are able to meet the needs of their customers on the platform of their choosing, by offering real-time loans based on accurate risk views, will be the ones that find the opportunity for increased growth in times of change,” said Owino.

This is according to Rose Muturi, Acting Country Manager for TransUnion Kenya, who says efficient and effective scorecards are becoming increasingly essential in Kenya. The country capped commercial interest rates at 400 basis points above the central bank’s benchmark rate in August 2016. “The recently-implemented interest rate cap has made it crucial for lenders to bring down their own costs,” says Muturi, “One of the most effective ways to achieve that is by automating the application process.”

An international bank and one of the biggest mobile lenders in Africa, headquartered in Kenya, have since implemented TransUnion’s recalibrated scorecard as a variable in their own scorecards. These scores form part of a highly automated, mobile application process.

“This has helped these lenders boost their businesses by identifying more eligible customers through a streamlined and cost-effective process. Lenders can also be confident that the scores are highly predictive, as well as supplied in real-time, which improves accessibility to credit in Kenya,” Muturi says.

The recalibration provides TransUnion with greater depth of data, including historic information, which has helped improve the effectiveness of its scorecards.

Muturi says the recalibration has resulted in an increase in TransUnion’s Gini coefficient – which measures the predictability of the score against the effectiveness of the loan – in Kenya from 37% to 58%. “By global standards, this is a highly predictive Gini coefficient for generic scorecards as anything above 40% is considered quite predictive,” she says.

The high-level data variables in the recalibrated score now include credit history, utilisation of facilities, exposure, product type, demographic information, the recency and frequency of enquiries, delinquency and thick or thin file.

This means that the number of records in TransUnion’s Kenyan database has grown exponentially – from 3 million in 2014 to over 16 million records by July 2016.

“At TransUnion, we believe in the power of information for good. The recalibration of credit scores in Kenya demonstrates that we are constantly looking for innovative information solutions to help our partners streamline their processes and boost their profit margins,” Muturi says.

This continued upward trend in the CCI indicates consumer credit health improved at its fastest pace since 2011. However, this nonetheless represents only a moderate improvement in the last two quarters following 11 straight quarters of deteriorating credit health when compared with the strong improvements seen in 2010.

“While the index shows the CCI rising further above the 50 mark, which is encouraging, factors such as loadshedding, labour disputes, a weak job market, and an unstable rand are lurking risks to household financial improvement,” said Geoff Miller, CEO of TransUnion. “Household cash flow improved fairly substantially in the first quarter due to a sharp drop in consumer inflation, but the sustainability of this relief is questionable. Fuel prices are already rising sharply again and income taxes were increased in March. We expect households to begin to feel a little more financial pressure in the second quarter.”

Loan repayment behaviour continued to improve in the first quarter, with the rate of new defaults (accounts three months in arrears) continuing to fall on a year-on-year basis. Miller pointed out that the trend in loan repayments has been an encouraging one for the past few quarters already, and that it showed the credit industry had worked hard at repairing some of the excesses of the unsecured lending cycle. “We noted in 2014 that credit providers had adopted more prudent lending standards, and I think we’re still seeing the benefits of this being felt into 2015.”

TransUnion data shows that repayment behaviour is improving fastest in the personal loan, credit card and telecommunication sectors, all benefitting from more prudent lending practices after arguably excessively loose standards prior to 2014. On a negative note, however, vehicle impairments are up strongly by nearly 20% year-on-year.

In addition, TransUnion’s report found that its distressed borrowing indicator still shows some financial distress, but not enough to raise added concern, while debt service costs were effectively unchanged in Q1 due to stable interest rates and steady repo and prime lending rates. Revolving credit utilisation rose at a rate of only about 1.9% year-on-year in the first quarter, driven predominantly by credit cards but also by other revolving store cards. The usual seasonal spike in distressed borrowing in the 1st quarter was again evident, rising 1.6% q/q, but it was notably less pronounced than in the 1st quarters of 2013 (2.7%) and 2014 (2.5%).

TransUnion data nonetheless show that currently one third of consumers utilise 70% or more of their credit limits, which amounts a 1.6% y/y increase. “We’re seeing some improvements in lending and repayment behaviour, but there’s still a lot of work to do by credit providers to help the broad base of customers adopt more sustainable credit habits,” cautioned Miller, ”For certain market segments revolving credit is still a key supplement to monthly budgets. This is a long-standing trend now and one which shows just how tough the macroeconomic environment has been.”

Interestingly, TransUnion noted that improving disposable incomes in the first quarter (as a result of lower inflation and low fuel prices) likely continued to support a rise in cash spending relative to credit spending. Miller pointed out this was in line with numerous recent retailer results which indicated greater cash purchases by their customers. “This is hardly surprising when one considers just how sharply unsecured retail lending has slowed in the past two years”, Miller added.

Released on a quarterly basis to the public, the TransUnion CCI measures aggregate consumer loan repayment records; tracks the use of revolving consumer credit facilities as an indicator of distressed borrowing; estimates household cash flow as a means of determining financial pressure/relief; and quantifies the relative cost of servicing outstanding debt. These aspects are then combined into a single numeric score of consumer credit health. The index is compiled by the TransUnion Credit Bureau with technical support from market intelligence firm ETM Analytics.

TransUnion’s indicator combines actual consumer borrowing and repayment behaviour obtained from the extensive TransUnion credit database with key, publically available macroeconomic variables impacting household finances. Unlike other indices in the market, the CCI is driven by objective market data rather than consumer surveys or questionnaire responses.

Analysis suggests that the CCI may be a good leading indicator for business activity in certain economic sectors, particularly those more closely related to consumer spending. A full report on the quarterly TransUnion CCI can be found on www.transunion.co.za

Traditionally, brokers have acted as the intermediary between insurers and underwriters and the end consumer. This broker channel has been the status quo in the insurance industry for many decades. However, recently there has been an increasing move to ‘cut out the middle man’ by going direct. Insurers and underwriters are now increasingly offering their services directly to consumers without the need to deal with a broker, offering reduced premiums as a result.

One of the drivers of this move to go direct is the need to gain greater insight into the customers, the risk they present as an individual and their claims history. Within the traditional broker channel, access to this insight has been limited, and insurers are only able to gain visibility into claims against a portfolio of businesses being underwritten. There is no explicit detail about who these claims relate to, and as such, no insight that can be gained as to the risk of any client at an individual level. The upshot of this is that premiums may not reflect individual customer risk, and insurers may have to inflate pricing in order to cover the risk of the book of policies, as opposed to individual policies and history. This information can be invaluable to insurers in helping them to more accurately predict and model customer behaviour as well as manage and mitigate risk, which is vital for more accurate and appropriate pricing.

Despite a growing trend more toward direct insurance, however, there are still around a million policies in South Africa that are managed via the broker channel. This represents as much as a quarter of the entire insurance policy base, of which the underwriters have no visibility. In order to improve visibility into this data, one of the biggest current drivers is to increase the number of brokers who submit claims data via the industry-leading Insurance Data System (IDS). The IDS has been developed under the auspices of the South African Insurance Association (SAIA) and is a comprehensive database of all personal lines claims and policy information collated by participating members of the short-term insurance industry.

IDS enables participating insurance organisations to access an integrated view of policy applications and claims prior to taking on further risk. The system holds information on over nine million claim records and more than three million policies. With a significant focus not just on data density but also data quality, and the integration of data from other sources to cross-validate information and provide greater insight, IDS enables insurers and underwriters to leverage a comprehensive view of their customers.

The IDS database effectively offers an industry-wide consolidated view of claims behaviour in the local insurance industry. This view, along with access to value-added solutions, helps insurers to expedite the claims process, reduce risk, predict loss ratios and more. Essentially, it offers more insight for improved decision-making ability and reduced risk. However, the accuracy of insight is always affected by the completeness of available data, upon which the lack of visibility within the broker chain has a negative impact.

Without being able to assess risk as effectively as possible, insurers are put under strain from a loss ratio perspective, because they are unable to quantify potential loss ratios on customers they cannot see. This in turn has implications for the cost of insurance, which is then passed down to the customer. With improved insight into who exactly is being insured, their profile, and their history, amongst other details, a higher degree of certainty around risk can be determined, which in turn can lead to more accurate, individually tailored pricing. Insurers need to incentivise the broker channel to become more active participants in IDS, enabling better risk assessment, which in turn will allow for improved insurance products and a wider market of customers for both insurers and brokers to target.