This article first appeared in Digital Edge, The Edge Malaysia Weekly on February 15, 2021 - February 21, 2021
It is interesting to note that credit rating agency CTOS got its start in 1990, just as the country embarked on its first earnest attempt at digital transformation via the Multimedia Super Corridor (MSC) initiative. This effectively makes it one of the earliest so-called big data companies in Malaysia, yet it is almost never spoken about in that tech-centric context.
“I think we were never associated with the technology scene because over the decades, most of our clients have been banks [as opposed to retail businesses and individuals]. But we have increasingly reached out to small businesses and, more recently, individuals, which is why we now have a lot more visibility in the economy,” group CEO Dennis Martin tells Digital Edge.
In fact, he does not rule out the possibility that the homegrown company is the country’s largest private-sector data repository. And in recent years, it has taken to flexing those muscles.
The current Covid-19-induced wave of digital transformation efforts has seen a lot of new business flow to CTOS, but Martin notes that the company’s own digital transformation began at least a decade ago. “While the CTOS credit report has and continues to be our bread and butter, our CTOS Credit Manager — a digital tool — was launched some years ago.”
The service allows businesses to have access to key credit information on potential customers. This helps them make informed decisions about the nature of the credit terms to extend to a customer or whether a potential customer could be a credit risk.
“A business can pull a report on another business to find that, in its last few transactions, that business or person hasn’t paid on time. That being the case, you can generally assume that it will not pay you on time. So, you can either extend credit terms that are shorter than usual or insist on immediate payment as part of the contract,” says Martin.
“Alternatively, if you may find that a particular customer actually has a good track record as a paymaster. Thus, it may make sense to offer the person more lenient credit terms, particularly in the current environment.”
CTOS Credit Manager has seen strong growth in the present environment as businesses become increasingly selective about who they do business with, he says. “Before Covid-19, a lot of small businesses contracted with one another almost on the basis of a handshake. But it’s not that simple anymore.
“SMEs (small and medium enterprises) understand, now more than ever, that cash flow is king. They see how important it is that businesses pay on time and pay regularly. That is why we’ve had a lot of new sign-ups to the Credit Manager service.
“Small businesses want to understand who they are doing business with. Since the start of the pandemic, we have actually seen a 20% increase in the volume of transactions [people looking at others’ credit information] online.”
A more recent innovation is CTOS’ Application and Decisioning (CAD) tool. It is a service that enables lenders to automate much of their decision-making process, effectively allowing lending services to be done quickly and over the web or mobile phone.
In fact, it is a service that underpins a lot of the financial decision-making in the burgeoning peer-to-peer (P2P) financing ecosystem. This ecosystem has grown by leaps and bounds in recent years, with issuers and investors alike seeking out new financing and investment opportunities respectively.
Incidentally, P2P financing platforms also use CTOS’ SME Credit Score mechanism in their evaluation of issuers for the benefit of prospective investors.
“In addition to P2P financing platforms, other fintech players and non-banking lenders also utilise the CAD service. It removes much of the subjectivity and bias in the decision-making process,” says Martin.
On the whole, CTOS has the largest market share among the credit rating agencies in the country. According to Martin, it enjoys about 80% market share in the banking industry, but that figure drops to about 70% when small businesses are taken into account.
Nevertheless, CTOS still has a lot of room for growth. “We know that in Malaysia, there are between 800,000 and a million small businesses. Of that number, we estimate that roughly 100,000 are in need of our services as they provide customers with some form of credit. Of that 100,000, roughly 15,000 are our customers, and we add 500 customers per month,” he says.
Going forward, CTOS is looking to expand its already formidable regional footprint. In addition to its local operations, which cover most of the big cities in Malaysia, it is a majority owner of the oldest credit rating agency in the Philippines. It has also invested in a Thai entity.
“We’re looking forward to taking all that knowledge and expertise that we’ve built up here in Malaysia and bringing it to the rest of the region,” says Martin.
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