In our last blog we looked at the collective responsibilities of lenders and credit bureau to maintain accurate customer data
In this second blog we’ll look at the steps you need to take to deliver better data quality and minimise the risk of poor outcomes for consumers, along with the benefits you can accrue from this.
Data quality issues can create foreseeable consumer harm
Data quality is fundamental to getting Consumer Duty right, and lenders without a complete and accurate understanding of who their customers are, where they live, or how they use their products create harm in several ways:
- Inability to contact and support customers: Incorrect customer addresses make it harder get in touch and offer support. If you can’t get in touch with customers when they show signs of financial distress, or you need to resolve a complaint you can’t offer them the understanding or support they may need.
- Poor identity verification and fraud prevention: Customers’ names, dates of birth and addresses are crucial data points for verifying identity. Lenders cannot easily check that customers are who they say they are if they don’t have accurate or complete information. This is inconvenient for customers, but it also makes it harder to identify potential fraud. Where critical pieces of personally information are missing or incomplete, it may also mean that lenders cannot meet basic KYC requirements.
- Disconnected or duplicated customer records.: Firms without complete and accurate customer information find it harder to bring data from multiple sources together to create a single view of the customer. This means valuable customers using multiple products from the same provider are seen and treated as multiple different customers, and that decisions about them are made in isolation rather than based on a full understanding of the relationship. Customers could be prevented from getting access to better value services from a firm’s inability to properly understand the extent of their existing relationship with them. It also creates inefficiencies, damages your brand and increases the cost of communicating with customers who expect you to know them.
- Inaccurate credit risk and affordability assessment: Credit reference agencies rely on crucial pieces of information to link customers across multiple lenders and provide the most comprehensive view of their financial circumstances. We can only offer that holistic view if lenders provide accurate or complete information. When one lender gets it wrong, other participants in the credit ecosystem can’t make fully informed credit risk and affordability assessments. They can miss critical signs of financial distress and potential vulnerability, such as consumers making multiple applications for credit in a short period, or grant credit to borrowers that cannot afford it because they are unaware of their other commitments. Failure to report complete and accurate information can also result in good customers being denied credit because their exemplary repayment performance is not logged correctly to their records.
- Monitoring customers. Identifying financial vulnerability: Poor or late submission of information on consumer’s credit repayment history can hinder the identification of financial vulnerability. The recent volatility in the UK economy and impact of inflation and rising interest rates on people’s disposable income has highlighted the need to have timely and accurate information on an individual’s financial well-being. Performance on repayment of credit and associated indebtedness is an essential part of this. The timely supply of information back into UK credit bureau, gives lenders the opportunity to identify emerging risk and support customers in managing their credit commitments so they can meet their financial goals.
- Failure to resolve complaints quickly: Credit bureau receive complaints from consumers and businesses on the accuracy of their financial information held within the bureau. Whilst the number of complaints are low, Lenders and bureaux have a responsibility to resolve these inaccuracies quickly when brought to their attention to ensure the information held on UK credit bureaux accurately reflects and individual’s or business financial well-being. Failure to correct data quickly, allows inaccuracies to persist undermining consumer confidence and the reputation of lenders.
Four steps to improving credit data quality
Step 1: Audit data sharing processes and the quality of data submitted to the bureau
Experian helps lenders understand how they perform regarding the quality of the data they submit with a rolling 13-month trend report. This is already available to lenders, alongside an objective assessment of their data-sharing processes, to highlight gaps in lenders’ data and procedures and how they compare with industry best practices. Use this insight to monitor your performance to ensure you’re ‘best in class’.
Step 2: Prioritise and progress opportunities for improvement
Once gaps have been identified, we perform root-cause analysis to show how they can be closed. We can identify quick wins to drive immediate improvements and help establish plans to address more challenging issues that will take longer to address.
Step 3: Monitor and report on progress
Experian helps lenders to identify the key metrics they can use to show data quality and data quality improvements so they can monitor and report the impact of these initiatives. These can be built into Consumer Duty governance plans and continued progress. Incorporate this analysis into your Consumer Duty governance plans, particularly complaint resolution and report back to the FCA as evidence of your commitment to driving good consumer outcomes.
Step 4: Innovate
Experian data quality experts have developed innovative software tools that can be deployed within businesses to help improve and streamline their internal file production and data quality processes. Using prebuilt workflows, validation rule sets and easy to use dashboards lenders can be equipped to produce data files in line with regulatory requirements and pre-screen for anomalies and correct these before the data is supplied to the CRA. The data can be profiled, compared to previous months submissions, and validated against Experian datasets and third-party data providing options to cleanse and improve the quality of data submissions over time. These tools provide the lender an auditable file production and data quality process that can help monitor their data submissions for issues, on an ongoing basis, to maintain the quality of their data and help ensure accurate representation of their customers in the market.
A best practice approach to credit data quality
For some firms, the Consumer Duty will be the continuation of the evolution of processes that they already have in place. However, for others, it will require significant time and resource to implement.
Even firms already meeting the standards involved will be expected to produce significant amounts of management information to demonstrate compliance with the new provisions.
Fortunately, it is an area in which it is possible to make significant and demonstrable progress at pace.
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