The nation’s use of subscription services can broaden access to credit, even in the absence of traditional financial information, explains Jonathan Westley, chief data officer at Experian UK&I.
In years gone by, if you had a subscription, it was likely to be for a local gym or satellite TV. Nowadays, we have subscriptions for everything from music and TV to groceries and beauty products.
According to research published by Barclaycard, Britain has become a nation of super-subscribers - spending over £550 a year on new digital services and signing up to an average of seven services per household.
Although interesting to see, these numbers aren’t surprising. There’s no doubt that we are spending more and more of our time online. The Covid-19 pandemic has only served to accelerate the digital disruption we’ve seen across all sectors in recent years.
What’s less obvious is the impact that this behavioural change is having on the provision of financial services. There is a big opportunity to utilise the financial information created through the payment of subscription and other digital services to help lenders to understand affordability in a more robust and intuitive way. One which is more appropriate for the digital age.
By building out financial track records with these new sources of information, lenders will be able to understand credit risk in a way that is fit for purpose in a rapidly changing marketplace. For the individual, this has the potential to help them access better deals on credit, even when there’s a lack of traditional information to strengthen their credit history.
For example, someone without a loan repayment history on their credit report might be making regular, accountable payments for an online subscription service, such as Netflix, Amazon Prime or Spotify. These payment histories could demonstrate to lenders that an applicant can afford to repay a loan they’ve applied for, even in the absence of enough traditional financial information to inform the same decision.
The arrival of Open Banking makes it possible to take into account other payments consumers are making, and to look more deeply at their payments over time, building up a picture that does more than deliver an immediate snapshot which cannot keep up with the pace of change in individual circumstances.
In the current context, this information could be vital. As many lenders prepare for a surge in people requiring some form of support following the expiration of agreed furlough schemes, freezing of interest and charges, and the end of emergency payment holidays.
Against this challenging backdrop, there’s even more of a need to make a sound assessment of vulnerability and affordability, which requires full understanding of a customer’s current circumstances and financial exposure, and therefore the breadth of their indebtedness across all credit commitments.
New data sources created through digital subscription services, as well as those available through Open Banking data sharing, can be harnessed to help develop better credit options for consumers.
The next step of this journey is helping more people to add their own consumer contributed data directly to their credit files and improve their credit scores.