Wider sources of data could prove vital in extending the level of financial inclusion in the UK. Jonathan Westley outlines the impact new sources could have.
People who are financially excluded struggle to access the mainstream financial products and services that many of us use every day. Experian’s research found there are nearly six million adults in the UK who are ‘invisible’ to the mainstream economy.
The invisibles do not have enough information available on their financial track record, so they have thin or no credit files. Due to the lack of data to base a decision on, lenders find it difficult to calculate the level of risk in lending to these people and so decline them or can only offer higher rates.
Our research found a wide variety of people make up this population of 5.8 million, for a range of reasons. It includes young people who have not accessed credit before and older people who haven’t needed credit for a long time. People who have recently moved to the UK and those struggling to make ends meet can also fall into this category.
Introducing new and appropriate data sources is the key to broadening access to financial services for the Invisibles. With the industry’s help, we’re adding information which will help mainstream lenders to gain a better understanding of groups of potential customers who, up until now, they have struggled to serve.
We have already made some progress in recent years. Our work with Big Issue Invest, the social investment arm of The Big Issue, on the Rental Exchange has added rental payment data from social housing tenants to the bureau.
We’ve also worked with utilities companies to add their data, so water, gas and electricity accounts now make up approximately one in four items on Experian credit reports.
This work has helped to reduce the number of invisibles by 765,000. From a lender’s point of view, data sources recently added to the bureau have already been shown to increase the predictive power of Experian credit risk scores.
But more can be done. Our analysis suggests that by adding private rental, council tax, and data from the remaining utilities companies to the bureau - together with Open Banking solutions - the Invisible population would be reduced by a further 1.5 million.
To ensure new data sources fulfill their potential, we’re pioneering the next generation of products equipped and powered by this information. It will help organisations to make higher quality decisions and offer people more affordable products and services.
This data-led technology will put organisations in a better position to deliver for their customers because they are able to adapt to the ever-changing digital business landscape. We’ll continue our work with the industry to bring forward innovative solutions to create better outcomes for millions more people.
Download Experian’s whitepaper, Making the invisible visible: Exploring the power of new data sources, here.