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BusinessDay www.businessday.co.za Thursday 20 February 2025
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CREDIT MANAGEMENT Powering opportunities to create a better tomorrow.
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Global risks cloud outlook Following a challenging economic period that peaked in 2024, the turn in the interest rate cycle and the end of loadshedding boosted local consumer and business sentiment. The subsequent rise in spending and investment, coupled with the formation of the government of national unity, lifted the economic outlook. “There is an overall sense that the economy is improving, with the ANC predicting 3% growth,” says Frank Knight, CEO at Debtsource. While this is more than double the latest IMF growth forecast of 1.1% for 2025, the positive trend has supported spending and credit activity. Frank Blackmore, Lead Economist at KPMG South Africa, confirms the outlook for secured and unsecured lending has improved. “The more positive economic environment encourages credit providers to lend more as the ability of consumers and businesses to repay loans improves.” Blackmore says the outlook for secured lending in the consumer sector is particularly
Frank Knight. positive with lower interest rates. “People tend not to buy new cars or move houses when interest rates are high. As such, this year may provide a chance for more of this activity.” Businesses also want to access credit to exploit improving market conditions. Debtsource witnessed a 20% increase in inquiry volumes relative to last year, with the biggest rise in Q4 2024. “More companies are applying for business-tobusiness credit facilities, with the average account size increasing by 15% in the
commercial sector,” says Knight. Brent Downard, Head of Risk at Merchant Capital, believes many business owners will use the favourable credit conditions to scale operations and invest in growth. “SMME owners have started moving from working capital requirements to expansion, with seasonal businesses, predominately from the retail and hospitality sectors, showing an increase in comparative month-on-month figures in November and December 2024, indicating rising consumer confidence.” Downard also expects continued growth in unsecured lending, particularly among
Brent Downard.
SMMEs, which often struggle to obtain funding from traditional institutions such as banks. While this activity will likely continue into the first half of 2025, global factors are clouding the longer-term outlook. “The new US administration threatens the economic progression because proposed policies, including increased tariffs, would result in higherthan-expected inflation, meaning fewer interest rate reductions and less money in people’s pockets,” adds Blackmore. “Current sentiment suggests SA may only see a single rate cut in 2025,” says Brett van Aswegen, CEO of Wonga. “While every rate cut offers some relief to monthly disposable income, a slow and limited rate-cut cycle would hinder any meaningful real or nominal growth in credit extension. The lack of inflation adjustments to regulated lending fees since 2015 compounds this challenge. As a result, higher-risk consumers may be pushed out of the formal credit market and into informal lending, where pricing remains unaffected by interest rate changes.”
Tech helps lenders navigate complexity histicated •dataSopderivatives
transform how lenders, insurers and retailers make decisions, writes Pedro van Gaalen
L
enders are turning to technology to navigate rising market complexity caused by fluctuating interest rates, evolving regulatory requirements, shifting consumer trends, emerging risks and economic volatility. “In today’s rapidly evolving financial landscape, lenders need more than just data. They need precise, actionable insights. They need attributes,”
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Francois Grobler. says Francois Grobler, Chief of Decision Analytics at Experian. “These sophisticated data derivatives are transforming how lenders, insurers and retailers assess risk and make decisions.” According to Grobler, traditional risk models that rely on static data and outdated methodologies struggle to keep pace with this dynamic environment. “They lack the granularity needed for precise decision-making, and can leave lenders vulnerable to unforeseen market shifts.” Grobler says attributes solve these multifaceted challenges by revealing hidden patterns and complex relationships that drive consumer credit behaviour. “By analysing, aggregating and combining millions of individual data points, from payment histories, credit utilisation and demographic trends to alternative data sources, attributes paint a more detailed and nuanced picture of individual creditworthiness.” Andre Fredericks, Chief Operating Officer at Sanlam Studios, says incorporating alternative data sources is important to broaden access to credit products and reimagine other aspects of the credit management value chain and life cycle.
“Traditional credit scoring focuses on things such as bureau scores and bank histories, which excludes many responsible people who don’t have a formal credit record,” explains Fredericks. “Incorporating alternative data, such as mobile top-ups or paying rent, can help providers assess creditworthiness and bring more non-credit active consumers into the formal lending sector.” More granular insights also empowers lenders to make faster, more informed decisions across the entire lending life cycle, from customer acquisition to portfolio management. “This deeper understanding empowers lenders to move beyond a one-size-fits-all approach to credit assessment, tailoring lending decisions to individual needs and circumstances,” says Grobler.
INCORPORATING ALTERNATIVE DATA SOURCES IS IMPORTANT TO BROADEN ACCESS TO CREDIT PRODUCTS “This personalised approach improves risk management, fosters stronger customer relationships and promotes financial inclusion.” A recent Experian research report reveals how analysing alternative data sources using generative AI has emerged as the top use case (56%), highlighting its ability to consolidate datasets and unlock valuable insights from nontraditional data to create better decisioning models and a more holistic picture of the customer to enhance the customer experience. “When done right, using AI and alternative data could open
up credit opportunities for millions, especially in regions such as SA, helping individuals and small businesses grow and thrive,” says Fredericks. This type of digital-led innovation is also opening the market to new players who are reshaping the credit management value chain, explains Itumeleng Nomlomo, Senior Business Solutions Manager at SAS in SA. “This includes nontraditional credit providers that now offer solutions such as embedded lending, where credit is accessed at the point of sale, online or in-person and mobilefirst solutions that enable consumers in remote areas to apply for credit via an app.” Nomlomo also highlights how technology is transforming customer experience and customer management with end-to-end digital onboarding, chatbots, digital assistants and gamification to help improve collection efforts. In the business sector, Frank Knight, CEO of Debtsource, highlights important technologyled developments supporting second-tier financing. “In the past, businesses would go to banks for loans, but technology is transforming the trade finance space.” By making purchase order and invoice funding and invoice discounting more secure, Knight says more businesses, including medium-sized companies, are adopting these credit solutions. “Enhanced risk analysis capabilities have moved the debt security requirements away from the business, using the debtor as the security. “This means businesses can now access trade finance at a rate of prime plus 1%-2%, compared to the 60% per annum charged three years ago due to the risk premium, which meant business owners used it only as a last resort,” says Knight.
Proactive approach to fraud prevention needed A research report by Experian reveals an increase in fraud losses driven by identity theft amid a rise in more sophisticated attacks that leverage generative AI (GenAI). The research, conducted by Forrester Consulting, surveyed 449 senior fraud leaders and decision-makers from eight countries, including SA. “The report revealed how GenAI is transforming the fraud landscape, making it more complex and sophisticated,” says Mark Wells, Chief Customer Officer at Experian. Wells says GenAI has enabled the “industrialisation of fraud”, where fraudsters, including highly organised syndicates, create and deploy synthetic identities, deepfakes and other tactics at scale and with ease. David Minty, Head of Credit for Investec For Business, identifies cybercrime, email interception and data theft as other prolific threats. “As criminals keep changing their modus operandi, banks constantly develop and enhance technical controls to keep up with these threats.” Nick Harris, Head: Financial Crime at Capitec, adds that authorised push payment fraud is another prevalent scam, which gets victims to unknowingly initiate payments to fraudsters. “These include investment scams, Ponzi schemes and pre-
Mark Wells. payment and advance-fee scams that require victims to pay upfront fees, deposits or full amounts for goods, services or prizes that never materialise,” says Harris. “Fraudsters impersonate bank representatives claiming there has been fraudulent activity on a victim’s account, requiring urgent payments via cash send, real-time clearing or other instant transfer methods to protect their funds.”
CONSUMERS TARGETED
In TransUnion’s H2 2024 State of Omnichannel Fraud Report, nearly half (49%) of consumers reported being targeted by an email, online, phone call or text messaging fraud scheme, and 9% said they fell victim from January to May 2024. However, a significant portion (51%) said they were
unaware of being targeted by fraud schemes. Among those who were targeted, smishing (37%), phishing (34%) and vishing (33%) were the leading types of fraud consumers reported experiencing globally. In response to the evolving threat landscape, Wells recommends that businesses take a more proactive approach to fraud prevention. “This should include the adoption of advanced, AI-driven solutions and robust machine learning-based security measures while integrating multiple tools via orchestration platforms. These measures will allow businesses to more accurately call fraud checks based on risk threats, enhance detection accuracy and reduce costs,” he says. While technology plays a central role in fraud prevention, Minty says training and awareness remain key protection mechanisms. “An individual’s actions are often the weakest link. The public must become more sceptical of offers that seem too good to be true. Verify the authenticity of requests for personal information and research any investment opportunities, ensuring they are offered by authorised financial service providers.” Harris adds: “Never click on links in unsolicited messages, and be wary of payments from unknown sources.”