The founder and managing director of a personal loan provider has said that he believes open data should be “adopted by all lenders”, as more data sharing could lead to “better outcomes for customers”.
Touching on the comprehensive credit reporting (CCR) regime and recommendations by the Productivity Commission for banks to open data in a bid to improve competition, risk assessment and customer experiences (the final report of which was handed to government last week, but has not yet been released), Paul Walshe from Western Australian-based personal loan provider Fair Go Finance told the Elite Broker podcast the benefits of such data sharing.
He said: “Certainly, to make a lending decision, the more data you've got, the better. Certainly, where you can see payment history on that data in addition to negative data on the customer's credit file manual and what you see on their bank statements — which are only really a short-term recent history — the more data you can access, the better. Having said that, that's from our perspective [as personal loan providers].”
He added, however, that although open data would be beneficial for lenders, it would not necessarily be welcomed by customers.
Mr Walshe told The Adviser: “You’ve got customers who will be advantaged and customers who will be disadvantaged by data being more available… [for example] from a consumer point of view, if I got divorced three years ago… I might have missed a few bills at the time, but I'm going to be penalised for the next two years despite my recent history being perfect.”
Despite this, Mr Walshe seemingly backed the Productivity Commission’s calls for government to circulate draft legislation to impose mandatory CCR by 31 December 2017 should voluntary participation not meet targets. Mr Walshe said: “I think it should be adopted by all lenders… Where you've got the resistance to contributing that data, I suppose, is where you've got the historical market share and where you've invested billions of dollars building up that customer base. You're not necessarily going to want to share that asset freely…
“The freer that data is (and you see it in the US through FICO scores and that sharing), it certainly leads to a better outcome for consumers and that's what, certainly, we think should be the driver. But, if you're the CEO of Commonwealth Bank and you've got a major market share, are you going to give that up easily and freely? I can understand his reasons for not wanting to participate as quickly as he could.”
Mr Walshe noted that the way data is collected in Australia differs from that in the US, which could be something that needs to be looked at.
He said: “The FICO score [in America] is something that is generated by FICO and then pushed out. They're a hub between lenders and so you've got your centrepiece where all lenders look into. Australia is structured differently. To me, that's probably the key driver behind it. There's not that central body that all lenders refer to. You could refer to D&B [credit information bureau Dun & Bradstreet]. You could refer to Veda. You could refer to other bureaus…
“[In the US] you've had a long-time history of people contributing that comprehensive data, so the data is a complete data set. It's from all lenders and the score is then based on a lot more data, whereas in Australia it's not been compulsory and it's not complete, so the value in it isn't there. I think, because the value isn't there, lenders don't rely on it as much and as a result the consumer isn't aware of it as much either.
“To me, I think probably the structure of the data sharing between bureaus in Australia is probably the key driver to it.”
Mr Walshe said that his company was “very driven to empowering the customer [and] informing them as to their [credit] score” so that they “have a path that they can work towards to improve their access to finance, to lower the cost of credit for them and improve the amounts they can get”.
He said: “From a corporate perspective, for our company, it's critical to us as a small loan provider that we help our customers understand that and improve their outcome, which involves us talking to them about their credit scores.”