‘Mobile lending underwriting process lacks transparency’

DESPITE the popularity of mobile lending in the Philippines, the underwriting process followed by the financial technology (fintech) players remains to be “very opaque,” a report noted.

The Foundation for Media Alternatives (FMA), in its February report titled “Loan Apps: Financial Inclusion At What Cost?” said that many are still in the dark about the exact process of underwriting the loans for the borrowers.

“Although most people are aware that they process data using algorithms and proprietary lending models, very few—even among their employees—know exactly how they work,” FMA said.


The lack of transparency when it comes to credit standards by mobile lenders can pose some concerns, the report stressed.

“How can one determine if specific groups are discriminated against, or are being unfairly targeted with predatory lending, without insights into how these companies evaluate their borrowers and marketing recipients?” FMA wondered aloud.

While the mobile lending apps have privacy notices and terms of use, FMA said these were not enough for transparency because “many of these documents are just as problematic.”

Some are just poor replicas of other policies, inaccurate and deceptive, the report explained.

Apart from this, FMA flagged the perceived excessive collection of the borrowers’ data given that their credit score assessment process is confidential in nature.

The report said that many do not understand why certain information are being collected and if whether such data have weight in the loan application.

For example, FMA said many customers were puzzled after some lenders required the following information: borrower’s location, text messages, file storage, vibration control, flashlight, calendar, web bookmarks and history, battery statistics, and even the phone’s system settings.

“Lending companies may face criminal charges for violating data protection laws, if they are unable to provide any valid explanation,” FMA said.

With this, FMA said the lenders should have a sound privacy program being led by a qualified data protection officer. The program is expected to establish an opt-in model for data collection instead of relying on default method of “collect-everything mindset.”

The lender’s privacy team should also give priority in putting up strong consent mechanisms that offer the borrowers meaningful alternatives and allowing them to withdraw easily at the same time.

“Cybersecurity ought to be a priority, instead of an afterthought,” FMA said. “Many technology enthusiasts commit this common mistake of thinking of technology solely in terms of convenience and profitability.”

On the part of the regulators, FMA expects them to be more proactive in addressing the concerns involving mobile lending operators.

The group said additional industry-specific rules are often necessary in these cases. “They [regulators] need to be made in coordination with stakeholders, so that they actually respond to the issues, without negatively impacting legitimate business practices,” it explained.

Borrowers, meanwhile, are urged to do research about the mobile lenders before doing business with them online to avoid future lending problems. It would be helpful if customers read the reviews of the mobile lending operators and check their privacy notices and terms of use first, the report suggested.

“If, despite all these precautionary measures, one still ends up with a delinquent lender, all available remedies must be exhausted to make sure the company is held to account,” FMA said.

According to the Philippines Fintech Report 2020, there are currently over 190 fintech players in the country, mostly offering services in lending, payments, digital wallets, and remittances.

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