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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 READ MORE... 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. CLICK HERE FOR MORE ARTICLES 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 PAGE 3 of 3