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Tokopedia makes strides in credit scoring

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In The Top Up this week, we dive into Tokoscore, Tokopedia’s internal credit scoring arm, and S

In The Top Up this week, we dive into Tokoscore, Tokopedia’s internal credit scoring arm, and Singapore’s recently launched BNPL code of conduct. [Read from your browser]( The Top Up 💵 Welcome to The Top Up! Delivered every Wednesday via email and through the Tech in Asia website, this free newsletter breaks down the biggest stories and trends in fintech. If you’re not a subscriber, get access by [registering here](. Written by Melissa Goh Fintech Journalist Hello {NAME} This week’s featured story is about the unsung heroes behind every fintech lender. As more firms - including ecommerce companies, super apps, and even mortgage platforms - venture into lending, demand for reliable and robust credit-scoring tech has gone up. These lending enablers are rarely talked about, but here’s what you need to know: According to an industry source, the quality of most credit scorecards on the market are mediocre at best. "Alternative data" can also sometimes be irrelevant to the companies or products they're being applied to - or require a lot of work to treat and qualify. This not only has repercussions for the segment of individuals and businesses currently overlooked by formal financial institutions but also for the firms extending loans to them. My colleague Budi’s Big Story this week deep dives into Semangat Digital Bangsa or Tokoscore, the credit-scoring business of Indonesian ecommerce platform Tokopedia, and considers how it might fit into the GoTo ecosystem. Tokoscore analyzes the behavior, activity, and transaction history of users on the Tokopedia platform to assess their creditworthiness. It can also extrapolate that data to predict income levels and even identify fraud. The service is currently used by Dhanapala - Tokopedia’s peer-to-peer lending platform - as well as third-party financial institutions like buy now, pay later firm Kredivo. Speaking of BNPL, Singapore unveiled an industry code for the sector last week. While the implementation of the code is undoubtedly progress for the sector as a whole, there are caveats - as I outline in this week’s Hot Take. – Melissa  --------------------------------------------------------------- THE BIG STORY [How credit analysis can help Tokopedia score against ecommerce rivals]( Tokoscore has the potential to increase the loan books and reduce non-repayments for not just its parent firm GoTo but also for third parties.  --------------------------------------------------------------- THE HOT TAKE Singapore’s new BNPL code of conduct Here’s what happened: - A working group made up of the Singapore Fintech Association and eight buy now, pay later players in the country have launched the [BNPL code of conduct]( under the guidance of the Monetary Authority of Singapore. - It limits the amount of outstanding payments that an individual can accumulate - in the absence of credit checks - with a provider to S$2,000 (US$1,043) at any time, among other safeguards. - The code will be rolled out in phases, including the setting up of a credit information sharing bureau, completing the accreditation process, and awarding the trustmark to accredited BNPL providers. Here’s our take: All good things must come to an end. For BNPL operators in Singapore, the days of laissez-faire are over. Well, not entirely. We first discussed the [dark side of BNPL]( early last year, as it was [gaining traction]( in the city-state. While it’s common in the industry for players to charge a flat repayment fee that doesn’t compound over time (unlike credit cards), we found that the presence of such fees - as well as how they’re calculated - were often either listed in fine print or deeply buried under pages of FAQs or a terms of service. Now, nearly two years since BNPL became popular in the city-state, regulation has come - or at least something that approximates regulation - in this previously uncontrolled sector. The code aims to address the problem of over-indebtedness as well as put in place industry best practices. These include: - A S$2,000 limit that consumers can rack up at any one provider, preventing an already vulnerable person from incurring further debt. - A credit information sharing bureau - separate from the national credit bureau - to encourage the sharing of customer information and credit behavior among BNPL providers. - Committing to not initiate bankruptcy proceedings against borrowers in the event of non- or late repayment, and considering providing financial assistance where necessary. - A trustmark, to be placed at the point of sale, that will distinguish between compliant and non-compliant players. (The above is not exhaustive.) At a glance, the code looks similar to the one laid out in Australia since March 2021. Like Down Under, the code is self-imposed, stresses clear and transparent communication around fees and marketing, has dispute resolution processes in place, and has additional checks for transactions beyond a certain limit (Australia’s is A$2,000 or US$1,265), among others. But there are caveats. For one, the sector still isn’t officially regulated the way traditional credit or lending firms are. For instance, BNPL operators do not have to trigger official credit checks with the Credit Bureau of Singapore. Information collected in the private credit bureau, which will be built by Experian, will remain separate from the official credit bureau. In Australia, this has already proved to be limiting. BNPL firms have not been required to report information, including a customer’s repayment behavior, to official credit bureaus - which many lenders access when reviewing loan applicants - even though missed payments could be a sign of deeper financial issues. As with many other codes, this one is set out and agreed to by the players, with terms that aren’t strictly enforceable. In the event of non-compliance or violations of the trustmark, the Singapore Fintech Association will raise the matter to the oversight committee - which is made up of members who have been voted in by the BNPL working group. Another caveat is that the S$2,000 limit (not including the first installment payment) is applied to each provider and not across the various BNPL operators in the country. In theory, this means that an individual could incur outstanding payments that are higher than the proposed S$2,000 ceiling, across multiple BNPL providers, without triggering any additional credit checks. Not a problem if the person can afford it, of course, or if it’s picked up by BNPL operators conscientiously checking against other BNPL activity in the credit sharing database. To give BNPL providers the benefit of the doubt, there’s a high chance that they’ll do so given that it’s hardly in their interest to overextend installment payments to any one person. Providers could also, in theory, set a limit that's lower than S$2,000, depending on what it considers to be reasonable. Finally, the code doesn’t distinguish between segments of customers, so long as they are above 18 years of age. As a result, the most vulnerable segments of Gen Z - arguably the students who still don’t earn their own income - remain at risk of incurring more debt than they can take on. On the whole, though, I’d say the new code is still a win for consumers. Better transparency and ethics must surely count as progress, though how robust and effective the code will be in terms of enforceability - self or external - remains a question mark. With countries like Malaysia also exploring the feasibility of launching similar rules for BNPL firms, codes in Singapore and Australia will also go a long way in creating industry best practices, especially as BNPL becomes more ubiquitous across the region. – Melissa Currency converted from Singapore dollar and Australian dollar to US dollar: US$1=S$1.43; US$1=A$1.58.  --------------------------------------------------------------- NEWS YOU SHOULD KNOW Check out Tech in Asia’s coverage of the fintech scene [here](. 1️⃣ [Gojek-backed Bank Jago doubles revenue to $24m for Q3]( The digibank recorded US$750,000 in net profit for the quarter, driven by a network of partnerships with 38 companies and financial firms to disburse loans. 2️⃣ [Indonesia’s BTPN Syariah sees 21% revenue growth in Q3 2022]( The Shariah-compliant bank, which focuses on women entrepreneurs, saw loan disbursements increase 11% for the quarter compared to the same period a year ago. 3️⃣ [Warburg Pincus to pour $350m in insurtech platform Oona]( The investment in Oona Insurance, which was formed in partnership with former FWD Group CEO Abhishek Bhatia, is the US private equity firm’s largest in Southeast Asia. 4️⃣ [MoneySmart launches own insurance brand, Bubblegum]( The insurance firm, which offers car and travel coverage, will build upon data on consumers that the personal finance marketplace has amassed over the past decade.  --------------------------------------------------------------- That’s it for this edition - we hope you liked it! Do also check out previous issues of the newsletter [here](. Not your cup of tea? You can unsubscribe from this newsletter by going to your “edit profile” page and choosing that option in our preferences center. In the meantime, if you have any feedback or ideas, feel free to get in touch with Terence, our editor-in-chief, at terence@techinasia.com. See you next week! P.S. Don't miss out on the biggest tech news and analysis. Add newsletter@techinasia.com to your address book, contacts, or safe sender list. Or simply move us into your inbox. Too many emails? Switch to a different frequency or get new content through our [preference center]( or [unsubscribe](. You can also break our hearts and remove yourself from all Tech in Asia emails over [here](  Copyright © 2022 Tech in Asia, All rights reserved. 63 Robinson Road, Singapore 068894

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