Download From Positive To Negative

An extract from Perspective:
The affordability and responsible lending issue
Essential insights into the issues facing your industry today
From negative to positive
Consider a scenario
whereby only negative
data is shared with Credit
Reference Agencies (CRAs)
but lenders still have to
meet responsible lending
requirements. This is the
reality for lenders in Spain.
Here, Jorge Hernandez,
Head of Partnerships,
Equifax Europe, takes us
through one of the projects
they’re undertaking to help
deliver a full picture of a
consumer’s financial status
to their clients.
Currently, Spain is one of the few countries in
been able to use negative credit data
Spain: Interest rates of new consumer
finance operations (%)1
and aggregated statistical information to
12
evaluate the financial status of a customer.
10
Transactional data adds another dimension
8
to this analysis and enables financial entities
6
to evaluate new customers with methods as
4
sound as those normally applied to known
2
customers where more data is available.
0
Historically, lenders in Spain have only
2008
It’s customary in Spain for a consumer to
rely on a single bank for all their financial
2009
Up to 1 year
2010
2011
2012
1 to 5 years
2013
2014
Over 5 years
Jan-Oct
15
Average weighted interest rate
Fuente: BBVA Reseach a partir de BdE
products: current accounts, consumer
loans, mortgages and more. It’s often only in
During conversations with some of our
the case of credit cards where a consumer
Spanish clients, we’ve discovered an
might shop around and look at different
increasing appetite for these types of
financial service providers for a better offer.
screen-scraping solutions, especially among
However, even in this case, the most likely
consumer-facing financial institutions. Their
scenario is that the consumer pays their
customer base has a similar profile to those
credit card bill through their current account.
of micro-loans companies, as well as the
Therefore, by looking at a consumers bank
type of product offered (small-medium loan
record, we can still obtain a close overall
amounts, short term, and no collateral).
proxy of their financial activity.
This customer profile, coupled with the
Europe – along with Finland, Norway, Iceland
lack of transactional information from their
and Denmark – where no positive CRA has
Data sources currently available for credit
own sources, makes the use of an account
been established. After a long financial crisis,
risk analysis in Spain are costly in terms of
browser type of solution very attractive.
consumer credit in Spain grew significantly
both time and resources – and some have
during 2015 (by 17% from October 2014
limitations in terms of availability and levels
Larger banks may need more time to
to 2015). With the economic landscape
of granularity (CIRBE – Bank of Spain Risk
verify end-consumer readiness to adopt
in Spain improving, financial institutions
Information Central).
this solution, as some people might find
are seeing more demand, leading to price
it intrusive. A different client profile, where
pressure and a need for financial entities to
New data sources, such as the bank
internal information is already available, and
improve their credit risk decision processes,
account information obtained from
doubts concerning reputational impact are
in order to handle increasing credit requests.
screen-scraping technology, provide a
some of the drivers for their reluctance to
unique insight into a consumer, including
adopt this type of solution.
From a regulatory perspective, the new
income (source and amount), regular
guidelines (Law 2/2001, the Sustainable
expenses, payment trends and more. This
To support this market need, Equifax Spain
Economy Act, or Law 16/2001, the
information is especially valuable when
is working with Instantor to bring a new
Consumer Credit Agreement Act)
interacting with disengaged or prospective
solution to the market: Risk Score Account
established by the EU for credit risk
customers, or for financial institutions
Browser (RSAB). It was created to provide
management that came into play in
without a regular transactional relationship
clients with insightful information to help them
the context of the recent economic and
with their customers. In addition, as this
improve their credit decisions and support
financial crisis, are clear indicators of
information is provided online, it reduces
responsible lending. The solution contains
the need to have a positive reporting
the amount of time and resources required
three data sources: attributes obtained from
system in place. These would enable
to obtain similar information through
bank account information (using Instantor’s
lenders to meet responsible lending
alternative sources, such as hardcopy bank
screenscraping technology), CRA data
requirements and help protect borrowers
statements, payslips and more. There is
and a hybrid score developed using both
from taking on unsustainable debt.
also the aspect of fraud. Hard-copy ‘proofs’
data sources.
of income and financial status are easier for
fraudsters to forge.
EQUIFAX
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PAGE 2 of 3
From negative to positive
The main element and key differentiator of
• Account and ID verification for fraud
Risk Score Account Browser, compared to
prevention purposes, based on the same
standard transactional data solutions, is the
principle of data coming from a trusted,
behavioural information.
non-declarative source.
Consumer transactional data is already a
In conclusion, the insights provided by Risk
crowded space. However, organisations
Score Account Browser allow financial
can easily find themselves swamped in data
organisations to evaluate prospective
that adds very little value to their decision-
customers using more detailed and robust
making. Our solution provides actionable
data sources, and enable the use of
insights in the form of attributes based on
behavioural models.
transactional data and calculated driven by
our team of experts; for instance, average
Anticipating the future is difficult in such a
balance trends from different periods,
dynamic, rapidly evolving market, but I’m
regular and extraordinary income, cashflow
sure there will be many more ways this data
and more.
will prove useful.
At the end of 2015, there were 18 retail
1
banks in Spain, 175 bank licenses granted
by the Bank of Spain, and 145 entities
registered as Consumer Credit Entities
(EFC – Establecimientos Financieros
Source: BBVA Research, “Situación del Consumo”,
Second semester 2015
Instantor is a Swedish company that provides online
identification and financial risk analysis by looking at a
consumer’s bank statement in real time using screenscraping technology.
and auto finance, among others. All of these
companies are required to prove that they
are lending responsibly. By accessing the
full picture of a consumer’s financial activity,
THE SITUATION
Lenders in Spain are only able to use
negative data from CRAs and still have
to meet stringent responsible lending
requirements.
THE CHALLENGE
Equifax Spain and Instantor are
introducing a new product, Risk Score
Account Browser (RSAB), to provide
clients with three new data sources but
how successful will it be?
THE TAKE AWAY
We’re confident there will be many
ways these new data sources will prove
useful to the Spanish economy.
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de Crédito), including pure EFC, bank
subsidiaries, renting and leasing companies
Idea in brief
Other contributors on this article were,
Guillermo Ramos, Head of Strategic Alliances Iberia; Loreto de Lucas, Analytics Development
Manager and Sergio Martin, Credit and Risk
Product Manager.
Spanish lending institutions can practice the
following activities:
• Affordability verification, by analysing
income and expenditure in detail
• Employee verification, by looking at
the sources of income, as well as
personal data coming from a trusted,
non-declarative source (data coming
directly from financial entities and
not from a form filled in by
consumers themselves)
EQUIFAX
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