Embryonic opportunities for predictive analytics with the roll-out of Comprehensive Credit Reporting regime in Australia
Australia has recently introduced a new form of consumer credit reporting known as ‘Comprehensive Credit Reporting (CCR)’. This form of reporting allows credit providers such as banks and other lenders to share positive information about consumers through a credit bureau. Pricing based on credit worthiness is commonplace in mature markets such as the US and UK, where consumers actively use credit scores to seek out better deals.
What makes this form of reporting more exciting for a software vendor like Nucleus Software which is venturing into these developed markets is that, the positive information shared by the credit bureaus when coupled with advanced predictive analytics solutions can help lenders with better risk management capabilities while enhancing customer service right from the ‘lead’ stage to drive business growth.
Comprehensive Credit Reporting – Negative & Positive Credit Reporting:
A negative credit report provides ‘negative’ information on an individual’s credit worthiness by capturing information like previous credit enquiries, ‘Negative’ or adverse information of the past 5 years (applications for credit – including mobile/gas/electricity accounts, defaulting on a loan which the consumer does not pay even after 60 days of the due date, bankruptcies, insolvencies, judgements) along with the usual account information like name, address, date of birth etc. In contrast, a positive credit reporting involves ‘positive’ information about the individual’s credit position. It consists of five additional pieces of information relating to the person’s current credit commitments which when coupled with a strong predictive analytics solution can help banks with even more powerful analysis and information about its customers.
Mentioned below are the additional pieces of information captured and what they can be indicators of:
|1. Type of account (e.g. credit card, home loan etc.)||Ø Customer’s risk appetite and product mix|
|2. Date the account was opened and closed||Ø Level of risk – Measured using age of accounts – Long term account relationships implies lower risks (Loyalty)|
|3. Details of the credit provider||Ø Customer’s risk appetite and product mix along with choice of lender|
|4. Credit limit placed, credit utilisation rate and balance of the account||Ø Customer’s exposure|
|5. Repayment history*||Ø Strong risk measurement characteristicØ Proof of borrower’s willingness to meet loan commitments|
* Repayment history refers to monthly payment performance over the previous 24 months. Telecommunications and utilities companies cannot share repayment history.
The impact of using predictive analytics on such additional information provided by positive credit reporting can be as follows:
- Enables banks to gain an asset quality which is stable as the risk is dispersed between the broader range of customers accessing loans
- Accurate and real time detection of theft or fraud with stronger information base recorded on customers
- Enhances bank’s focus on customer centricity by providing interest rate cuts based on loyalty and positive credit score –selling the right product to the right customers
- Enables banks to serve its customers better by providing advice to avoid financial stress based on their financial position
- Provides an alarm to the banks about the current hardship of its customers
While some lenders may be reluctant to contribute data due to competitive disadvantage, a number of lenders in Australia are in the process of implementing large scale technology programs which may impact the timing of their contribution to comprehensive reporting.
Though there are many transitional issues as mentioned by the Australasian Retail Credit Association (ARCA), Australian transition from negative reporting to comprehensive reporting is a unique approach which will create challenges for the government, regulators and the industry. Hence, keeping a constant watch over this subject and implementation of CCR in banks will be critical for software vendors like Nucleus Software which looks at Australia as a strategic growth market to create a product which suits the requirements of the market.