• Credit revolution close to crunch time

Credit revolution close to crunch time

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Veda Pilot Spotlights the Impact of Comprehensive Credit Reporting

  • Passage of Privacy Amendment (Enabling Privacy Protection) Bill 2012 to initiate new era for credit issuance in Australia
  • Australia now has a detailed case study of the benefits of Comprehensive Credit reporting – using de-identified account records from ten lenders to model the impact of additional data on credit risk assessment
  • The study indicates that more data, more often will drive up to 40% improvement in credit bureau scores predictive accuracy
  • With lenders having access to additional data, consumers, are likely to have greater accessibility to credit - recognising good credit behaviour while delivering a fairer system for those who may have experienced difficulties in the past.
  • Lenders will be able to provide more differentiated and segmented offers to consumers based on levels of risk

Sydney, Australia, 29 November 2012– Veda, Asia Pacific's leading provider of consumer and commercial data intelligence and insights has today released results from the largest Comprehensive Credit Reporting (CR) simulation ever undertaken in the region.
Timed to coincide with the passage of the Privacy Amendment (Enabling Privacy Protection) Bill 2012, the Veda Comprehensive Credit Reporting Pilot models outcomes from real Australian data to demonstrate the impact of the most significant changes to credit reporting since 1988*.
Under the proposed changes to the Privacy Act Australia will move away from negative reporting to introduce comprehensive credit reporting in line with the majority of OECD countries.
This additional information about consumers' credit obligations (such as a mortgage, personal loan, credit card) will include the following information about the account: status (open/closed), limit, type of credit and for licensed lenders up to 24 months of repayment history.
The Veda Comprehensive Credit Reporting Pilot has combined de-identified account records across ten lenders, mapping real data from credit cards, mortgages, personal loans and auto loans to create cross-industry view of millions of Australian credit accounts.
Data shared under pilot conditions has identified that the predictive power of Equifax's bureau scores can be improved by up to 40%, with the modelling revealing new insights about the credit profiles and behaviours of Australian consumers. For example, consumers with a credit card and a mortgage are 20% less of a default risk than those without a home loan, whereas having a personal loan can increase the risk of default more than threefold.
Although the sharing and use of data will be opt-in only, Veda analysis of pilot data indicates that institutions who actively participate will be able to improve the performance of their portfolios - potentially granting greater access to credit for those previously shut out from the mainstream system, while keeping bad debt steady by controlling credit extended to others.
Nerida Caesar, Veda CEO, commented:
"Our pilot provides a new composite picture of accounts and demonstrates how different and better data will benefit all Australians. Lenders have the information needed to make responsible choices about what credit to extend, to whom, while consumers will be empowered to get the best deals for their own circumstances, developing a higher level of ‘credit consciousness' in the process.
"This change in legislation is effectively micro-economic reform. Comprehensive credit reporting provides improved sharing of information, leading to better credit issuance, credit product and services innovation, as well as increased competition across the financial services landscape – good news all round."
Other insights from the pilot show:

  • The riskiest combination of account holders were those with personal loans and credit cards (6.4% of the sample)
  • It's not the range of credit that necessarily makes a difference to an individual's risk, it's the range of lenders.
    • Only 10% of the sample had four accounts but of these, one third spread their credit over three or four lenders.
    • The most pronounced end of the spectrum, those with four accounts across four lenders, had a delinquency rate 6 times higher than those with four accounts with just the one lender

Caesar continued:
"The changes will be significant and the Pilot has helped our customers plan for the kind of shared data environments their international peers and partners have been working in for years.
"Based on experience overseas, we can expect to see consumer credit consciousness increase quickly as the industry uses the coming months to start rolling out new CR policies and products. Consumers now need to be more aware and understand that ‘how' they manage all their credit lines with lenders will now be visible on a credit file and used by lenders to help make credit risk decisions. Veda will continue to be at the forefront of public education and support, supporting borrowers and lenders to have fair, informed conversations about credit."