Incorporating customer engagement and credit reporting.

Traditionally, credit providers engaged credit reporting agencies on one basis: sharing information among themselves to weed out the bad customers, with the consumer left out of the exchange entirely. Comprehensive credit reporting opens up a better option, engaging the consumer to encourage positive repayment behaviour and to show that you're helping them build their creditworthiness. Done well, that engagement reliably increases conversion and lets you accept a larger pool of applicants.

A slow start

Australia was one of the last developed countries to implement comprehensive credit reporting. Where it has been adopted internationally, the results have been positive: consumers feel more involved in their credit journey, and lenders see lower arrears and better engagement. Here, the complexity of supplying and using comprehensive data has held uptake back, letting the old model, built on assumptions and negative information, persist.

A study using US data compared a negative-only reporting system with a full-file, comprehensive one. Assuming full industry participation and a target 3% default rate, the negative-only system accepted 39.8% of the applicant pool for a loan, while the full-file system accepted 74.8%.¹ The same work concluded that with comprehensive reporting:

• credit becomes more available, particularly for lower socio-economic groups;
• risk falls;
• credit providers reduce loan losses; and
• consumers become more economically mobile.

And that was before fully recognising the value of consumer engagement, which is the opportunity at hand.

The usual hurdles

From a credit provider's perspective, the same concerns tend to surface:

• Complexity. Supplying positive information is seen as hard, though some agencies use technology to simplify both the supply and the interpretation of the data.
• The PRDE. Most bureaux require you to sign and adhere to the Principles of Data Reciprocity. What many don't realise is that being a signatory isn't mandatory: at least one agency began as a positive bureau and never had to make that transition.
• "I give up more than I get." Larger participants often feel disadvantaged in the exchange. In reality they receive more data back, more than justifying the investment through higher conversion.
• "My data gets published." A fallacy. Data is disclosed to third parties only where the consumer has consented; the market-wide consequences for the provider are negligible.
• Time and cost. Often cited, but the data clearly shows the business advantage of engaging.

Engagement around CCR is good for business

Beyond the inherent benefits to the industry, comprehensive reporting gives you a better way to engage your customers. The opportunity sits in two areas:

• Transparency at onboarding. Explain what data is shared with the industry, so consumers understand how the system works and the behaviours that make it work for them. You can even encourage them to access and monitor their own credit reports.
• Encouragement each month. When you report comprehensive information, a short message of encouragement adds value beyond the credit itself.

Some providers already do this, for two reasons: it lowers arrears by showing consumers the value of paying on time, and it builds loyalty by demonstrating you're helping them.

Finally

With rapid advances in technology, new products and growing competition, credit providers are looking for an edge. Done correctly, consumer engagement through CCR lifts conversion and lowers arrears, while growing the overall market and lowering risk. The time and cost are almost negligible with the right partner. So the real question is: what's holding you back? It's time to redefine credit worthiness with a partner that's 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. MIT Press, 2003.