Credit Opportunities And Near Misses

A journey past a credit card sales counter is painful. The collateral on display is attractive, the offers very tempting. Take a holiday! Get a premium piece of luggage! Find discounts on everything! But like that ice-cream tantalizingly out of reach when you were a kid in the market, it is verboten for some. "Give us a salary slip after 12 months of....salaries", the well-meaning executive smiled. "It will be a breeze." He looked at the red suitcase in the corner. "It will be yours". 

As a contemporary cliche goes, I can't wait. But you see, there are many reasons why a person may have income and not a salary. Nor indeed, why someone might be well-endowed and not have a salary. We constructed our dreams around salaries. It appears that financial products have shaped themselves likewise. This places urban Asia in a peculiar position, where credit misses a critical segment by less than an inch.

Let us call this segment the Forgotten Sandwich. These are  often white-collared and self-employed-the folks who are consultants, run their own little companies, do part-time assignments across multiple companies or have small fleets of vehicles. They also include relatively older people who used to be employed but have transitioned to consulting or advisory work; women (and increasingly men, too) who are on the entrepreneurship route or focused on family. An important criterion that we need to bring is this-current work status should no longer define people of means. This is not only due to  the  increasing numbers of aging and active around us. Consultants, freelance workers and start-up founders have to wait their turn in the revenue cycle. It does not happen every month. Beyond that, retirees, recently resigned or retrenched, those on a temporary break-all these individuals have some source of income or savings that are not insubstantial. 

The Forgotten Sandwich is difficult to size from a casual reading of secondary data. Spend some time at a hot-desking place or in a Starbucks. They are there. They are also in malls, industrial areas and office towers. Some are owners of established businesses who may not draw a salary but take dividends.

You see the elderly gentleman in the morning carrying a briefcase, heading to his car with his wife and daughter. Files, lunch boxes, water carriers. The  daily luggage of a business life. Others are at home writing, on the phone with clients and prospects. Some are trying hard to make sense of life. They are well-off or making do and even if otherwise, hate to accept handouts. One might dare to call them the Reagan Democrats of Asia. Many are on the edge, one missed opportunity or an illness or a failed shipment being the cause of catastrophe.

This is not the cosy, predictive world of the salaried-though ironically many in this segment have come from there. In a city of 6-8 Million, they could be around at least 30,000-40,000 and with their families, the numbers might go upto 200,000. This is of course my guess. But then, if you take a midsized population and look for records of freelancers on a Payoneer-like site, you will find almost a million registrations. Micro-businesses registered for taxes tend to be upwards of a million. Bigger countries will have larger cohorts. Who is servicing them? This is a large credit market. In the near future, as social contracts change, this will be the prime driver of consumption. 

It would serve everyone well to design a baseline credit product for this segment and their family members. The deposit-enabled credit card is a possibility. But credit requirements-and financial product needs, in general-are quite complex. There is opportunity here for some creativity. The problem of risk might present itself right away. How would one evaluate an entrepreneur or his family members? There's corporate or personal cash flow. Then there are liabilities linked to his/her name in terms of business. Personal assets and the degree of liquidity of these assets should be considered as well. 

Spouses and parents may have significant personal assets which have probably been disregarded so far. They deserve an appraisal for products in their own right. A mother who inculcates saving habits and a stay-at-home spouse who provides sound advice are ideal investors as well as growth borrowers. It is a reflection of how our information flows and structures have evolved that these core contributors to society find little mention. It is true that salaries help evaluate risk because there is some degree of predictability. But as we have seen, the premise itself may be interrogated as abrupt layoffs become more common. Recognition of actors and then of their wealth and capabilities calls for a relook in the way we assess risk and architect product.

I am tempted to say that by bringing in open banking, we will be able to assess a person right away. Perhaps so. But we will also need to find ways to safeguard data, prevent fraud, keep synthetic persons at bay and ensure money does not disappear from accounts. In other words, open banking may be the architecture of choice to make this possible but the enabling environment has to be put in place first.