Easy Yet Risky?

With fintech, getting a loan has never been easier for customers, but how does the new technology minimize risk?

- Ester Christine Natalia

Harris Setiajid, 48, need-ed no complex requirements when he applied for a personal loan from a fintech peer-to-peer (P2P) lending application named TunaiKita in April 2018. All he needed was to upload pictures of his ID card, tax identification, and profile picture through his mobile phone. The lecturer at a private university in Yogyakarta also verified his email, e-commerce, online travel agency, and social media accounts to connect to the application. In less than an hour, he received Rp 1.75 million in his bank account.

“The more accounts we connect to TunaiKita, the higher the amount of loan we get offered,” he says.

It would be a different story if Harris had applied for the loan from a bank or other conventional financial institution. Not only would he be required to bring a stack of documents to be verified, the bank might also check his ability to pay through various processes. The extra prudent measures are part of banks’ know-your-customer (KYC) procedures, which involve 5C and 7P in calculating a borrower’s credit score. The 5C principles comprise character, capacity (referring to a customer’s financial situation), capital (relating to a customer’s assets and wealth), collateral, and conditions (referring to the macroeconomic situation). Meanwhile, the 7P principles comprise personality, party (referring to customer classification based on character and loyalty), purpose, prospect, payment, profitability, and protection. Banks and financial institutions obtain a borrower’s financial data from the Financial Information Service System from the Financial Services Authority (OJK) to assess his or her potential performance. Previously, a similar system was known as “BI checking” and was provided by the central bank Bank Indonesia. All this, of course, takes longer compared to what fintech companies have to offer.