As Credit Awareness Week approaches, Experian managing director UK, Ireland and EMEA Charles Butterworth, discusses technology and what he hopes can be achieved through the campaign.
Having little or no credit history can prove enormously burdensome for the 5.8 million people in the UK who are virtually invisible to the financial system.
That lack of information often means those customers have very limited credit options available to them, frequently finding the only lenders willing to consider them are drawn from the high-cost, short-term sector.
Not only that, but in many cases, they are locked out of the system altogether.
The deficit of relevant financial information can also present problems for people trying to access crucial public services, owing to difficulties verifying their identity using online credit-report driven services.
Improving the range and quality of data on these customers is central to the cause of Credit Awareness Week, a joint project between Credit Strategy and Experian.
The aim is to promote a better understanding about how the credit economy works, so that people can take control of their financial situation with positive, proactive decisions.
New sources of data, made available through the roll-out of Open Banking and the inclusion of datasets such as rental data, have the potential to help with the financial inclusion of thin-file customers.
As these sources of data mature and are used more widely, it is hoped both access to credit and the quality of decisioning will improve.
For Charles Butterworth and Experian, the solution lies in a combination of industry-led financial education coupled with the use of new, relevant data sources which can help build out thin credit files and deliver better financial products and services for customers. He sat down with Credit Strategy editor Calum Fuller to explain why.
CF: Last time we spoke, it was following last year’s inaugural Credit Awareness Week and there were signs that the campaign is having an impact, but there’s still work to do. What are you hoping to see come out of this one in 2019?
CB: “There are a number of themes that are really important at the moment. From a financial inclusion perspective, there’s a pretty significant agenda. We still have a challenge with education and consumers’ understanding of their credit status and how to use credit safely and effectively, but some of the developments in the last six-to-12 months will really help drive that forward.
One of key examples of that is the advent of Open Banking, which I continue to be very positive about. The ability for consumer consented data to be a force for good in the credit arena, in particular in the context of the financially excluded, a new source of data that will help provide affordability assessments that will help facilitate access to credit where previously the file was too thin, is a very big plus.”
CF: We’re a year into the introduction of Open Banking and the use of rental data is in its nascency too. What’s your assessment of the progress there?
CB: “On the rental side, we’ve made great progress and effectively we now have a whole raft of social housing rental data. What we’re working on is some of the more commercial rental data as well.
“Don’t forget we’re talking about helping consumers get access to credit. One of the reasons that high-cost, short-term credit charges such high APRs is because there isn’t the data, and when there isn’t the data, they lend to people who can’t pay back and therefore they have to cover it. It’s not a great system, as we know, but it’s a system that’s needed. People are being forced into that system because mainstream credit can’t provide given the current structures. Rental is a great example of, if you’ve been in that system, it’ll have a direct impact on your credit score.
“The uptake of Open Banking is still at a relatively early stage. I see a huge amount of innovation, whether it’s big banks or small fintechs, attacking all sorts of different arenas. I’m hugely positive that it’s going to take off because 12 months in, I see so much innovation that we are either participating in, whether it’s across credit cards, loans, insurers, pensions, they’re all going to be impacted over time.”
CF: Are there any other technologies you’re excited about utilising in terms of consumer credit in the near future?
CB: “One we’re excited about it the use of big data analytics. We announced a couple of months ago that we were bringing a capability called Ascend to the UK market.
"It’s effectively a big data analytics platform. We’ve been able to parcel up all of our data into an analytical platform where clients can come and bring any data they would like and put it into a sandbox and perform analytics.
"They could be stress-testing or looking at where they want to market their next products and historically that capability didn’t exist in the marketplace. We’ve been able to harness the very large amounts of data into a consumable, safe regulatory-approved environment. We’re very excited about that and it’s been received very well.
“We’re also bringing in SaaS-enabled decisioning capabilities for a more flexible execution of the different credit strategies and we’re able to link it into the big data analytics platform so people can build strategies and export them straight into execution.”
CF: What do you see as the main impediments or challenges to greater understanding and awareness of credit in the UK? Is it still simply education, or are there wider factors to consider too?
CB: “I think we are making great strides because of the capabilities we now have to come to you and say ‘would you like us to help you reduce the cost of your borrowings? We can see you have debts across three different providers. You have this credit card, this is your balance and what we can suggest is this off the back of it’.
“The reason I’m so positive about Open Banking is the ability to use data correctly, to help inform on how to improve your position, is a massively strong educational tool and I think that will come through in the marketplace. I still think there is a broader educational challenge about people’s understanding of credit and how it works. I think one of the areas that we as a business will continue to drive into will be to put more visibility and clarity into what affects your score.”
CF: What are the factors behind the 5.8 million people with thin credit files? What do you believe the solution is? How do we mitigate these people’s thin files?
CB: “A lack of transactional credit history, a lack of borrowings on the file. It could be that they’ve had issues in the past and they’ve got marks against their name and they’re trying to rehabilitate. It could be that, for example, that they’ve been in the rental market. That has been a very big play that we’ve had, to try and ensure that rental payments can be contributed to the bureau and will count toward a credit score. That’s a classic example of how bringing a new source of data into the bureau enables the people looking at those individuals to see a history of regular payments that will really allow them to bear that out.
“This is happening around the world. In emerging markets, we’re using telco data where there’s no bank data. It’s the same concept: What can data tell you about someone which will show a set of behaviours which suggest a propensity to repay?
“I was in government this morning advocating to try and get access to the additional data sources in government, like Universal Credit data, HMRC data or council tax data. Things which will allow us and lenders to see the patterns.”
CF: There are plenty of services available to people in difficult financial positions, but by its very nature, there’s a disconnect and, as such, those provisions end up going unused. Is that a fair assessment?
CB: “The ultimate goal here is not to give everyone credit. It’s actually to make sure that the people who can’t afford it don’t get into debt. It’s as much that as it is including people who are excluded.
“Part of the agenda that we’re working through with government on the Financial Inclusion Policy Forum and other fora like it, is to try and facilitate that working far better.
There are several million consumers who could and should get access to affordable credit, but there’s also a job to make sure sustainability and affordability are at the centre of it so customers don’t end up in a distressed situation.”
CF: Do you see similar levels of understanding (or lack thereof) among the public in other countries around Europe and the world?
CB: “There are different cultures of credit. In some European countries, such as Germany, they don’t have such a high propensity to take out credit. There are definitely differences between the markets in how they operate, but broadly speaking across Europe, you’re going to find consumers with similar levels of understanding.
“Where things differ is if you go to Africa, where we also operate, where financial literacy and inclusion is at a different level.
Some of the solutions to solving it will be different to how we do it here, but still ultimately trying to find a way to score a broader group of people.”
Credit Awareness Week takes place alongside Credit Week, the week commencing March 18, 2019. To find out more, visit the Credit Awareness Week site.