A slow start

Australia was one of the last developed countries to implement comprehensive credit reporting.  The implementation of CCR internationally has seen positive changes to their respective credit industries, consumers have felt more involved in their credit journey and credit professionals have seen an increase in returns to their businesses through lower arrears and better consumer engagement.

Unfortunately, the complexity of implementing CCR in Australia, both the supply and use of comprehensive reporting, has resulted in a low uptake of the practice. These challenges have allowed for the propensity of the status quo, whereby assumptions and negative information builds the foundation of credit reporting.

A study performed in 2000 using US data, compared the findings of a simulated negative-only reporting system with a full-file, comprehensive system.  Assuming 100%engagement from the whole industry, it found that for a target 3% default rate, a negative only reporting system accepts 39.8% of the applicant pool for a loan, whereas a full-file system would allow 74.8% of the pool to obtain a loan.¹

Further, they concluded that with comprehensive reporting:

·      Credit becomes more available (particularly for lower socio-economic groups)

·      Risk becomes lower

·      Credit Providers reduce loan losses

·      And it makes consumers more economically mobile

While Americans are generally more engaged with their credit report than Australians, this study was performed without full recognition of the value of consumer engagement in the process. This leads us to the opportunity at hand.

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Hurdles

From a credit providers perspective, the same concerns typically emerge in relation to engaging with comprehensive credit reporting:

1.      The complexity of providing positive information is often seen as significant issue. There is at least one less well-known credit reporting agency that has placed significant focus on minimising this pain. Utilizing technology to simplify providing data and the interpretation of the data itself.

2.      Adding to the complexity is the Principles of Data Reciprocity (PRDE), which you are required to sign and adhere to for most bureaux in Australia. What you may not know is that it is not mandatory to be a signatory to engage with comprehensive data. The PRDE was developed to help the credit reporting industry to transition from negative to positive reporting.  There is at least one bureau in Australia that started as a positive bureau and does not need to make that transition.

3.     Often larger participants in a particular vertical believe that they are disadvantaged in the information exchange because they believe that they are giving up more data.  The reality is that they will receive more data to help increase their conversion rate to more than justify their investment of data.

4.     Sometimes they also believe that their data will be "published" or "broadcast" to a wider audience. This is also a fallacy, as the data provided will be disclosed to third parties only in instances where the consumer has provided consent. The real term market wide insight consequences for the data provider are negligible.

5.      Time and Cost is often a major issue in relation to engaging with comprehensive information, however, the data clearly demonstrates the business advantage of engaging – as discussed below.

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Customer engagement around CCR is good for your business

Aside from the inherent benefits to the credit industry of engaging with comprehensive credit reporting, as described above, it also provides a new and better way to engage with your customers.

The opportunity lies in two key areas:

1.      By providing greater transparency your customer about what data is being shared with the industry at the time of onboarding, you help the consumer to understand how the system works, and the behaviours they need to exhibit to make the system work for them

a.      Further you can suggest to the consumer that they gain access to and monitor their credit reports so that they can see the information shared.

2.      By providing messages of encouragement each month when reporting comprehensive information, you can provide additional value to your customer, above and beyond the credit itself.

Some credit providers are already prosecuting on the opportunity to demonstrate that they are helping their customers with positive information on their credit report.

They do so for two reasons:

1.      It further lowers their arrears rate and demonstrates to the consumer the value of paying their obligations on time.

2.     And it builds loyalty to their brand because they are demonstrating additional value to their customers.

Finally

With the rapid advances in technology, new financial products and ever-growing competition, credit providers are looking for the edge that enhances the experience that credit providers can present. Done correctly, consumer engagement through CCR is a tool that facilitates better conversion rates and lower arrears, while growing the overall credit market and lowering risk for credit providers.

The advantages of CCR speak for themselves, the time taken, and costs involved are almost negligible if you partner with a credit reporting agency that practices comprehensive reporting. There is at least one such agency, so the real question that remains is “what’s holding you back?”.

It’s time to redefine credit worthiness with a partner that is innovating financial data insights.

_1.^{Barron, John M. and Michael Staten. “The Value of Comprehensive Credit Reports: Lessons from the U.S. Experience,” in Margaret M. Miller}

^{ed.,Credit Reporting Systems and the International Economy. Cambridge, MA and London, England. The MIT Press. 2003.}

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