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A new approach to the SME credit lifecycle
Lenders need to consider whether they can automate many processes related to SME customers to reduce the high costs of servicing a small business portfolio.
Credit Bureau Services - What can it do for me?
A Credit Bureau is a critical part of the financial infrastructure of any country. It provides rapid access to accurate and reliable standardised information on potential borrowers, enabling lenders to evaluate credit risk more accurately and to reduce lending processing time and costs. This in turn promotes profitability and increased credit activity.
Experian assists in establishing and supporting Credit Bureaux in markets around the world with consultancy services and systems for Information Services Businesses
How can we help you?
Experian establishes Credit Bureaux or information services organisations in new markets around the world. It also supplies consulting and systems to organisations planning on establishing an information services business.
Experian offers a fully integrated set of Credit Bureau and risk management products and services specifically designed to address the challenge of truly knowing the customer.
A few key facts
The credit bureau products and services comprise: Credit Reference systems using a range of data types, Credit Reference data modelling, application fraud detection tools and consultancy services.
The benefits of a Credit Bureau include:
- Encouragement of data sharing within and across industry
- Encourage responsible use of credit
- Implement global best practice
- Reduce bad debt
- Increase new business profitability
- Improve customer profitability
- Identify potential fraud
The information sharing role of the Credit Bureau helps creditors to assess risk and allocate credit more efficiently, which means that borrowers don’t need to rely on personal relations when trying to obtain credit.
- Lenders can use Credit Bureaux to make better lending decisions
- Consumers can utilise Credit Bureaux service to gain access to credit
- Businesses can utilise Credit Bureaux to gain access to credit
- Governments and central banks can use Credit Bureaux to help manage consumer and business indebtedness
A Credit Bureau is an independent organisation that compiles public record data, statutory information, identity information, credit transactions and payment histories of individual consumers and organisations. By keeping track of both personal finances and business affairs of business owners, these institutions provide a valuable service to the financial sector. A Credit Bureau can also provide a valuable service to other industry sectors such as telecommunications, utilities, insurance and the government.
The role of a Credit Bureau is to:
- Facilitate a culture of information sharing amongst lenders
- Provide accurate information to lenders that can have a positive or negative effect on creditworthiness, thus assisting in an objective credit decision by the lender
- Reduce the risk of lenders granting loans likely to default
- Protect consumers against over indebtedness by helping lenders ration credit based on capacities to pay
- Enable lending to new low risk customers with no previous credit history
- Facilitate large volume access to credit without security
- Limit fraud
A Credit Bureau allows lenders to:
- Know the applicant’s credit history good or bad
- Be aware of known or suspected fraud concerned with the applicant
- Verify information supplied by the applicant
- Authenticate the applicant
- Discover any links between the applicant’s personal finances and business dealings
Experian Decision Analytics division provides solutions that enrich customer data and allow organisations around the world to proactively manage their relationships with their customers. As one of the world’s foremost decision solutions companies, Experian delivers more than five billion decisions annually and enables connectivity to over 70 Credit Bureaux worldwide.
What Experian does:
- Provides solutions that enrich customer data and allow organisations around the world to proactively manage their relationships with their customers
- Strives to increase the amount of, enhance the quality of and improve the cost effectiveness of credit information data and associated services throughout the world
- Already provides decision support solutions on a global basis, and has a keen desire to partner to create improved data sources and services
- Has an outstanding reputation for security and confidentiality in the management of sensitive data sources
- Has pioneered the concept of data sharing between institutions in many markets, enabling critical information to be shared in a manner that protects both the consumer and the lender’s interests
- Is a trusted partner of major financial organisations throughout the world
- Experian seamlessly integrate data with scoring, software, analytics and consultancy, making it uniquely qualified to offer innovative business intelligence solution that allow organisations to manage risk, reduce operational costs, deliver focussed and appropriate customer service and so increase overall profitability in areas such as customer management and customer acquisition.
- Experian establishes Credit
- Bureaux or information services organisations in markets around the world
Consulting and systems can also be supplied to organisations planning on establishing an information services business. Experian has become a trusted partner of organisations worldwide, working with over 30 Credit Bureau organisations globally.
Credit Bureau solutions and consulting services have been supplied to banks and banking associations, government organisations and supervisory bodies in both developed and emerging markets. These services have been particularly in demand in the fast growing economies of Central and Eastern Europe, South-East Asia and South America.
The Experian Group operates 15 national Credit Bureaux, which are the first or second bureau in each market. These bureaux solutions include the UK and USA, which offer a wide range of information, including consumer, business, vehicle, insurance and a number of value added services including authentication, fraud prevention and the indebtedness index.
Partnering with Experian to establish a Credit Bureau
“Experian is clearly the world leader in the provision of credit bureau services and meets all our needs in terms of reliability, ability, support, history of operating and launching credit bureaus in the developing world. For us, Experian is the perfect partner. CEO, Quest Holdings International (quoted in press release March 2008)
Quest Risk Solutions, as one of the first private credit bureaux in Kenya, will provide valuable decision-making tools to any company or financial institution extending consumer and SME credit in Kenya. Quest will use the Experian software to offer the following services to local businesses:
- Positive and negative credit account information on individuals and SMEs (a very large segment of the Kenyan business population)
- Information on previous credit applications
Kenya’s economy has been growing steadily over the last five years. In the past two years, the economy has grown at an astounding 6.5% and it is projected that the economy will grow at 5% in 2008. Kenya has over 42 banks, numerous MFIs (Microfinance Institutions) and Saccos (Savings and Credit Cooperative Organisations) and in 2007, lending of over 10 billion Kenya shillings was granted. The healthy state of the economy offers an untapped opportunity for the credit bureau business.
The donor community and Kenya’s development partners have noted that the existence of a credit bureau, credit scoring and a credit rating agency is imperative for the growth of the credit industry in Kenya. In that regard the Donor Agencies, particularly DFID are funding the mass education campaign on the value of a credit bureau in the country, through the East African Credit Bureau Association.
Commenting on the agreement, Roberto Giannantoni, Head of Credit Bureau solutions in Experian’s Decision Analytics division, said: “This operation fits our strategic objectives of expansion into exciting emerging economies around the world. Quest Holdings and its CEO, Mr Julian Kyula, have been in the forefront in the establishment of well-run and managed credit bureaus in Kenya. With an exceptional and highly experienced team sourced both locally and internationally, Quest Holdings is in a unique position to succeed in this project with the support of Experian as one of the world’s largest and most successful providers of credit bureau services and solutions for third party operators.
"Lenders need to base their decisions on relevant information about consumers, so automated and sophisticated credit information retrieval systems are key to managing credit risk. The predictiveness of decision making solutions has been enhanced by the introduction of shared credit information via credit bureaux, resulting in better risk management for lenders and improved profitability. Credit bureaux are key enablers for the growth of a nation’s consumer economy and the quality of consumer credit portfolios, whilst protecting the privacy and credit exposure of individual consumers.”
Reserve Bank of India awards Experian first full licence to operate Indian credit bureau
Experian is the first Credit Information Company to be granted a Certificate of Registration by the RBI under the CICRA Act of 2005. The move provides the Indian market with a credible alternative supplier of Credit Information and paves the way for the introduction of Experian’s globally proven value added products and services to enhance credit granting processes and portfolio management in India.
Richard Fiddis, Managing Director for Emerging Markets, Experian, said: “The RBI’s decision to grant us the first full licence to operate a credit bureau in India signals the next phase of our development. This creates a platform for us to introduce a wide range of new products and services to help India’s growing financial services and telecommunications sectors better acquire and retain profitable customers.
“In addition, we are delighted to have someone of Phil Nolan’s expertise to lead the development of our new Indian Credit Bureau. His extensive experience of working in established and emerging markets, coupled with his firm understanding of the Indian financial sector, will further fuel our innovation in the marketplace.”
Phil Nolan commented: “Domestic and international businesses in India will benefit from even greater access to our global data and analytics products. With an exceptionally strong local management team in India, we have the skills and global resources to enhance how our clients manage customers across the entire credit lifecycle.”
Prior to his appointment, Phil led the development of Experian credit bureaux in established and emerging markets. Having played an instrumental role in the creation of the Indian joint venture, Phil will spearhead the roll out of Experian’s global products and services into the Indian market.
In November 2009, the Experian Credit Information Company of India Private Limited was formed. The company represents a joint venture with seven of India’s leading public and private sector banks and non-banking financial institutions; Axis Bank, Federal Bank, Indian Bank, Magma Fincorp, Punjab National Bank, Sundaram Finance and Union Bank of India.
Credit Chex Turns To Experian To Develop Credit Bureau Scores For The Expanding Pakistani Consumer Credit Industry
Experian has been selected by Credit Chex, a joint venture between Jahangir Siddiqui Group & DCD Group, to develop credit bureau scores for the expanding Pakistani consumer credit industry.
This new service will give Pakistani credit grantors access to the Credit Chex Bureau Score, developed under licence from Experian, to enable them to make faster, better and more consistent credit decisions for new and existing customers. Pakistani banks, finance houses, credit card issuers, and other companies deemed appropriate by the Pakistani Banking Regulation and Supervision Agency will all benefit from the new service.
“Risk management is a crucial element in the lending process, not only when a customer first applies for credit, but throughout the customer life cycle,” said Roberto Giannantoni, Head of Credit Bureau solutions at Experian’s Decision Analytics division. “Credit scoring reduces the element of subjectivity in lending decisions, thereby allowing much more effective business management. A credit score represents the statistical probability of an account falling into arrears; it enables the use of statistical techniques to accurately predict the future performance of groups of customers or prospects, by examining the past performance of individuals with similar characteristics, and, therefore, improves the bottom line performance of the lender.”
Experian is one of the world’s largest and most successful providers of credit bureau scores and operates a range of bureau credit scorecards globally that allow lenders to effectively evaluate the risk associated with acquiring new customers, as well as drawing the lender’s attention to impending customer problems, allowing them to take appropriate action.
The basis of the system is sharing consumer credit information in a reciprocal and secure way among its member institutions. The system is the most sophisticated data sharing system in the Pakistani financial sector. Under the new agreement, Credit Chex will deliver credit bureau scores along with consumer credit reports provided to its members. With the inclusion of the Experian developed Credit Chex bureau scores, demand from Credit Chex’ member institutions is expected to increase significantly.
"This alliance is an important step towards our goal of providing a wide range of tools for the credit decision process in Pakistan, and it reflects the success of our previous relationship with Experian,” said Nabil Mowais, Director of Credit Chex.
The need for Credit Bureaux
In many countries around the world lenders have access to database information to help them assess the creditworthiness of an applicant for credit. The organisations that gather the data and operate these services are known as Credit Bureaux, Credit Information Services, Credit Registries, Credit Reporting Agencies or Consumer Credit Reference Agencies.
Relevant information is gathered from public records, statutory information, identity information, credit applications and credit accounts on the individual consumers and businesses. The lender accesses the service in the form of a credit report and uses it to assess the application risk prior to underwriting the credit. The credit line may be for anything from a house or a car to a credit card or a mobile telephone account.
The existence of a Credit Bureau in a country assists growth by stimulating the consumer credit economy. Borrowers can be assessed for risk in an objective way based on credit payment history so credit can be allocated more efficiently. Borrowing by high risk borrowers is controlled and the market is opened for new low risk borrowers.
Lenders, consumers, businesses, government and central banks all benefit from Credit Bureaux. This is why the World Bank, IFC and USAID organisations are all promoting and facilitating the development of efficient and capable Credit Bureau services around the world. The effectiveness of a Credit Bureau varies depending on a number of factors including data availability, data quality, operating ability and legislation. Supportive legislation and a sound technical infrastructure are crucial to effective operation.
The service provided by a Credit Bureau always starts with a basic credit report containing all relevant data within the bounds of the prevailing legislation. To keep pace with the developing market, more The need for Credit Bureaux advanced services such as scoring and fraud prevention need to follow quickly.
To maintain useful representative data in the Credit Bureau it is important to constantly encourage further data sharing between users of the services. The most important stage in the development of the database is the persuasion of lenders to share not just accounts with poor payment history (negative data) but also those with good payment history (positive data).
The sharing of positive data is a trigger to the development of more advanced and effective products and services that help both lenders and consumers. Consumers with good credit histories can borrow to more equitable limits, receive lower interest rates, and get access to more credit products.
Lenders can make better lending decisions, use risk-based pricing methods more effectively, actively manage credit lines, collect debt more successfully and reduce fraud. Because the overall level of the consumer’s indebtedness can be calculated it is easier to determine the probability of default and the potential loss, both aspects that help in adherence with Basel II.
Credit Bureaux are well positioned to be at the forefront of application fraud prevention. The information held by a Credit Bureau is invaluable to identify fraudulent consumer behaviour at the time of application before any loss is incurred. It is important to be aware of the warning signs of the need to improve Credit Bureau services in a country.
If improvements can be executed in a timely manner then consumer lending can be controlled whilst continuing to stimulate the consumer credit economy.
The establishment of a Credit Bureau represents a significant undertaking and success will be governed by providing simple and efficient access to predictive data. Consideration should be given to seeking consulting from an organisation with expertise in these matters.
Similarly, such organisations can offer software solutions that can be customised to meet local requirements.
This paper is therefore intended for:
- Those interested in establishing a Credit Bureau
- Those wishing to determine whether improvements are needed to an existing Credit Bureau
- Those wishing to know where to go for help to achieve either of the above
- The need for Credit Bureaux and what they do is discussed; the paper describes what services they should offer and where help is likely to be needed to establish the services.
- Credit Bureau services across the world vary greatly in their ability to fulfil the requirements of their market but most ultimately aim to satisfy the same basic requirements regardless of where they are.