If you hit an unexpected bounty of Rs. 100,000, what would you do with it? Buy an Apple iPhone X or travel to Bali on a vacation that you always desired to? Or put it in bank deposits or invest it in mutual funds? Or donate a part of it to an NGO? Or another question could be: do you pay your bills on time? Mark response from strongly disagree to strongly agree.
We see questions such as these in personality tests and a few times even when applying for jobs. Your responses are used to help understand your personality, attitude, and behavior using what’s called psychometrics, a scientific way of identifying hitherto hidden personality traits of an individual. And the companies looking to hire the best fit for the role aren’t the only ones interested in psychometrics. The banks and FinTechs are getting in on it, too. What if, instead of a finance company checking your credit score, itgave you a psychometric personality assessment test?
Can a personality test predict your creditworthiness?
The Credit and Lending industry heavily depends on reliable information to be able to make accurate lending decisions and manage risks. One of the key sources of this information is credit reports and credit scores from credit information bureaus such as CRIF High Mark. CRIF High Mark has credit histories of nearly 38 crore Indians. Despite having a full data coverage of formal lending channels, Credit Bureaus with only traditional data sources miss out on data of population which is not served by the formal lenders. These include unserved or underserved individuals and even small and medium-sized businesses, which tend to be at a disadvantage when they apply for loans due to the scarcity or unavailability of reliable third-party information on them.
Human Behavior is the central piece in traditional credit scoring as well psychometrics: In absence of reliable financial data points, a bank or a lender is looking for a basis to trust on such a borrower that the borrower will repay. A traditional credit score predicts the likelihood of repayment on the loan based on the past repayment behavioral track record of the borrower. Similarly, a psychometric personality test can list out the hidden personality and behavioral traits including value and belief system of the borrower. Conscientiousness, a trait that psychometric tests help discover, is a strong indicator of willingness to repay. An honest and disciplined person is more likely to repay on its loan, assuming the ability to repay is unaffected.
Personality is available with everyone: People who have never availed credit through formal banking channels will not have a traditional credit score. People who are not on social media and may not be using smartphones may not have social credit scores. However, everyone has a personality, therefore has data available under Psychometrics. Even for small and medium-sized businesses, a promoter is a real brain and body behind the business. Therefore, his psychometrics will reflect his value and beliefs which are likely to drive the way business operates.
The use of psychometrics to measure attitudes, behavior and personality traits could make information more available, that too at relatively low cost. Psychometric tools have been used extensively over years in recruitment by employers, with strong results – many say that these tests are better predictors than the level of education, employment interview results and reference checks. An outcome of such a test can enablelike it does to an employer on a prospective employee, a bank decide whether to trust the borrower with the money or not
What traitscan psychometrics discover?
Questions about how many friends you have and whether you make your bed every morning provide a look into your soul.If you answer that you would feel excited about taking a different route to work on different days, it might indicate you are an explorer and are likely to take risks. Feel quickly frustrated when stuck in traffic? You probably lack patience and thus, are likely to make hasty decisions.
A psychometric assessment involves a series of such questions and the responses to each of these questions are taken into collective consideration to come out with the result. A typical Psychometric Credit Scoring Test is designed to evaluate your personality traits such as self-control, confidence, conscientiousness, responsibility, social desirability and yes, bed-making acumen. These personality questionnaires remove the masks of socio-economic background, level of education and other learned behavior to provide a dive into who you really are – psychometrics is a leveler.
How can psychometrics be used in lending?
FinTechs and lenders across the globe are trying out Psychometric credit scoring, even though it is a relatively new concept for this purpose. Successes in some markets have helped improve access to credit to the previously “unscorable” population without a significant change in the credit risk profile of the portfolios.
Psychometric personality assessment can, therefore, help lenders extend credit to a growing number of consumers who are new-to-credit or even new-to-bureau, thus triggering next round of financial inclusion. It can also bring hitherto intangible data at the disposal of lenders for even those consumers who have credit scores available for them in the credit bureau, thus enabling the lender with a more holistic view of the consumer.
Improved credit risk assessment and higher financial inclusion through low-cost easy-to-administer psychometrics tests of the complex streaks of human personality is a worthwhile possibility.
CRIF High Mark is India’s only credit information bureau catering to all borrower segments – MSME and Commercial borrowers, Retail consumers, Microfinance borrowers. It is the pioneer in building and operating the country’s first and world’s largest Microfinance Bureau Database. CRIF High Mark provides Analytics, Data Management and related Software solutions promoting a more mature credit culture in the Indian economic system and sustaining the financial needs of businesses and consumers.
[This is an authored article by Parijat Garg, Vice President of CRIF Highmark. All views, opinions and expressions are personal and limited to the author.]