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The case for comprehensive credit reporting.

June 6, 2022

Regardless of the size and volume of your business, CCR will help grow your business, and help you engage with your customer in a more progressive manner. It’s not something to be feared or be hesitant of, instead it should be embraced to produce beneficial results to both credit providers and their customers.

Photo by Tima Miroshnichenko

Brief background

In 2014, Australia was one of the last countries in the developed world to introduce “positive” credit reporting into legislation. Up until that point, credit reporting in Australia was regarded as a repository for predominantly negative credit information.

Unfortunately, the complexity of integrating with credit reporting bodies, and the complex rules in the credit reporting code, has meant implementing both the supply and use of comprehensive credit data has been relatively weak.

The benefits of positive credit reporting are so compelling (underpinned by international experience) that in 2021 a new bill was passed that made the reporting of comprehensive information mandatory for the big banks to entrench the practice in Australia.

The principles of data reciprocity in providing comprehensive credit data were intended to ensure the transition from negative credit reporting to full comprehensive credit reporting occurred in a fair and equitable manner. Through ARCA, the PRDE was developed to define the supply of comprehensive data, the rules of reciprocity and participants.

However, in general the complexity and discipline required to participate in comprehensive reporting imposed significant additional processes and costs for lenders, eager to reap any benefits. In brief, despite any business advantages this reporting framework was intended for, it has been the key reason for lenders to not participate in CCR.

Most common objections

The three main concerns lenders raise to not participate in positive data exchange are:

1. I don’t want to provide a competitive advantage to my competition by reporting on my customers complete payment behaviour.

2. The rules around how to provide information in a compliant manner are complex. Reporting frameworks for the data are rigid, and my sector requires an interpretation and result that is not easily extracted from the existing reporting framework.

3. The benefits of comprehensive reporting are dependent upon all competitors supplying the same level of information.

At face-value these concerns appear valid, however the resistance to change is largely driven by a fear that the risks (and costs) outweighing any value comprehensive reporting might hold.

Fear 1: Providing Advantage to my Competition

The first concern is based on the fear that any comprehensive information presented to a bureau is “published” on their platform. This is clearly not the case. In reality, only those credit providers who have received consent (from your customer) will see the information, and only ever on a case-by-case basis.

In brief, there is no manner from which a competitor could derive extensive insights across your customer payment-data that would approach providing a competitive advantage.

What positive information exchange does do is provide your competition the opportunity to make better credit decisions. However, this advantage is afforded to all participants. By that definition, the larger market participants have more to gain than to lose by providing positive credit information.

Fear 2: The cost and complexity of implementation

Unfortunately, the complexity of the positive information exchange is still a significant issue, hopefully one that will be addressed through the latest review of the credit reporting code.

Some credit reporting agencies have placed significant focus on minimising this pain. They can ensure credit providers have an easy path to providing the data and help simplify the interpretation of the data itself. I would encourage you to scan the market to find the best-fit for your business.

While most of the credit reporting industry engages through the PRDE, it is not mandatory to be a signatory to engage with comprehensive data!

One of the primary functions of the PRDE was to support the transition away from negative reporting to comprehensive reporting. There are credit reporting agencies in Australia that have elected not to align with the PRDE and operate purely under the required Australian legislation/regulations. This pathway can lead to significant implementation savings.

Fear 3: Coverage of information

Unfortunately, for a variety of reasons, coverage of 100% of the industry is currently a dream rather than a reality. This should not sway you from garnering the value of comprehensive information. Receiving more relevant information will only support your lending decisions and will help your business.

Lack of engagement from some of your competition, holds them at a disadvantage. Why hold your business back, due to the fears of other lenders not wanting to progress?

The opportunity before us

Whilst there is much room for improvement in comprehensive credit reporting, the existing benefits are substantial - as are future opportunities.

Proper implementation of comprehensive reporting changes the role of the bureau, to identify information to support an application rather than to reject it. A clear understanding of the how you wish to leverage the data to your advantage it essential to effectively drive your integration and implementation.

Before implementation, focus on gathering the most recent point in time understanding of a consumers repayment behaviour first (i.e. last three months) relative to the credit reporting code. Once this has been successfully adopted then it may well be beneficial to expand the consumption of comprehensive payment data beyond this window.

Engage with a credit reporting agency that is willing to help you with the interpretation and on-boarding of your information. One that will work with you to effectively derive all benefits.

Communicate in a transparent and open manner with your customers both in where their information resides, and how this information is used in a beneficial manner to them.

Well executed, comprehensive credit reporting will:

1. Improve your overall conversion rate, increasing your customer base.

2. Encourage positive payment behaviour from your customers.

3. Enhance trust in your brand, through increased transparency.

Lastly

Regardless of the size and volume of your business, CCR will help grow your business, and help you engage with your customer in a more progressive manner. It’s not something to be feared or be hesitant of, instead it should be embraced to produce beneficial results to both credit providers and their customers.