Boosting financial inclusion – unlocking the future of credit 

Q: Experian is partnering with Credit Strategy on the Credit Awareness Week campaign again this year, why is promoting credit education and promoting financial health so important to Experian?   

A: Helping people and business get fair and affordable access to credit has always been important. It’s no secret that households are under pressure, with inflation high and interest rates higher than we’ve seen in years. The news has painted a bleak picture.  

We’ve been helping our clients understand the situation with our data and analytics tools, because, as ever, the reality is more nuanced than the headlines.  

It’s no secret that there’s a squeeze on people’s spending, with consumers being forced into managing their money carefully. Although the UK has a very well-educated population, there are still a lot of people who lack confidence when it comes to managing their finances, and credit is a key part of that.  

Discretionary spending is decreasing, the cost-of-living crisis is changing the status quo – whether you are a consumer or a business, getting access to credit in these times is changing. Our analysis shows that household discretionary spending power has reduced by 10% and 61% of consumers acknowledge that cost-of-living crisis is having a significant impact on their finances.  

However, our analysis shows that approximately 35% of households expected to show continued financial resilience with sufficient income to continue to consume goods and services as normal.  

There are also some encouraging signs that people are making smart decisions by consolidating their debts. Searches for debt consolidation products have surged by 29% year-on-year – making them the largest share of product searches on our comparison platform, Experian Marketplace.  

With this backdrop developing a better understanding about how people can get access to credit - promoting ‘credit awareness’, if you like - has never been more important. 

Q: The cost-of-living crisis has put pressure on people’s household finances as well as adding pressure to businesses, what has Experian been doing to respond?  

A: Our approach has focussed on delivering financial education to marginalised groups - including younger people who were feeling the pressure of the crisis particularly acutely – coupled with a focus on product innovation which would deliver the type of solutions that could really make a difference.  

We’re trying to solve an asymmetrical problem in the industry – any lender only ever has a partial view of their consumers. Our job is to help mitigate that doubt, so a consumer’s situation can be better understood, meaning they can access the right credit – that’s our job. It’s like putting oil in the machine, without the oil the machine will grind to halt - we’re helping the instrument run smoothly. 

Being able to really understand what’s happening with consumers and giving consumers the right information is vital in knowing who’s really in a hard place and who isn’t.  

It’s so important that we’re not making generalisations about the consumer – we need to be precise, so people aren’t excluded unnecessarily and so those who are struggling get the right credit, not too much and not too little, but the right amount. 

Helping people to understand their own financial situation is something we have been working on a lot. In 2020 we launched our flagship United for Financial Health (UFH) CSR programme with the aim of delivering financial education to 100 million people by 2024. 

To date, the programme has connected with over 87 million people worldwide (35 million in the UK) through partnerships with not-for-profit organisations, including UK charities The Big Issue, National Numeracy, National

Literacy Trust, Trussell Trust and The Mix. It’s something we’ve got creative with this year as we’ve looked for different was to get helpful messages out.  

In 2022, as part of the campaign, we teamed up with the influential voices of Young Money blogger, Iona Bain, and celebrity footballer Bayo Akinfenwa, promoting credit education and helping young people take control of their financial health.  

We reached over 1 million 18–25-year-olds and over 3 million people in total and has been shortlisted for an award, which is great.  

Q: Why is this recession different from the last ‘credit crunch’? 

A: It’s a totally different scenario than we saw in in the past. Financial institutions carry more strength today than they did in the 2008 recession, which is still very much in our minds. The latest forecasts are predicting a much shorter and milder recession also, which is encouraging.  

That said, we are in a new world now - cheap credit, cheap energy and cheap logistics are a thing of the past. The next 18 months will see a new pattern emerge.  

Not that this is overly concerning, the last 20 years were in fact the anomaly – not the norm – the world is reorganising itself back to normal – there may be some transition, but nobody is predicting a disaster.  
 

Q: With this in mind, how important do you think it is to find new ways of promoting financial inclusion in the credit system? 

A: We have been working hard trying to find solutions which can help those sections of the UK’s society which need different types of support. One of the great innovations we’ve developed this year is the Support Hub.  

There are seven million people in the UK with special needs and require assistance with how they interact with banks and other financial institutions. The Support Hub provides a single platform that lets multiple organisations know about your support needs in minutes.  

The Support Hub journey began more than three years ago, after Experian identified what it felt was an issue with accessibility for those with disability and support needs. It has been developed in conjunction with numerous external parties including charities, disability accessibility experts and those with lived experience.  

The FCA’s Consumer Duty will introduce new obligations on firms from July, compelling them to provide better communication methods and better identify vulnerable customers, so they can put in place appropriate support. Support Hub will help enable firms to meet this challenge. Taking on and responding to the specific needs of their customers will help the companies communicate and serve their customers better, boosting financial inclusion. 

Q: Which new sources of information are going to be helpful to lenders as they try to understand affordability and find new ways to support those hard to score consumers – the credit invisibles? 

A: Often, financial exclusion can result from having little or no credit history or identity information available.  

Our analysis from Credit Awareness Week has highlighted the extent of the issue – with millions of people still virtually invisible to the mainstream credit economy.  

We believe that introducing new and appropriate data sources is fundamental to help bringing more people into the mainstream financial system and will continue to work with the industry to unlock these opportunities.  

Government data sets, such as council tax, HMRC income and universal credit, could also be valuable to help tackle financial exclusion. 

Further to this, open banking holds great potential to facilitate authorised data sharing between financial services providers. This is already helping lenders to understand people better and make more informed decisions on their affordability. 

Experian Boost uses technology to factor bank transactional information into their credit scores. The service can be used to thicken credit reports, potentially tipping the balance between someone being refused and accepted for credit. 

However, all this needs to be done with consumer consent – that’s why financial education is so important, consumers who are ‘invisible’ need to know that giving consent for us to use their data is helpful for them. 

The more we know, the easier it is to know a customer’s position and their capability to pay back loans – and financial services providers can have more products to deliver better results for the consumer. 

Q: What were your perspectives on the FCA’s credit market study? 

A: I think it’s a good step forward. We released a white paper in November 2018, which had some suggestions in line with what the FCA has published. It’s a step forward in terms of access to data and consumer protection – it makes sense to us and is in line with what we have planned. 

Generally, we are pleased to see the regulator taking action to ensure the UK financial system remains one of the most effective, innovative, and competitive in the world. 

Q: We’ve seen rapid digitalisation of financial services, what are the key trends you see emerging in the credit system as a result? 

A: We’ve seen rapid digitalisation of the economy and with that changes to the way people want to use credit. 

Digitalisation is going to come for everything – it’s going to be everywhere, and there’s places in the finance industry which desperately need more digitalisation. There is still a lot of paperwork with mortgages, for example.  

But we need to think about and protect against fraud in this new digital world. Think about if someone wanted to steal £30m from a bank, that’s a lot of cash to move, too much security to get through, even if it was £10m. But in the digital world, £30m disappears online every day. We need to protect the system from this threat, while continuing to use digital technology to drive better outcomes in the market.  

Q: How significant will the addition of BNPL data and other sources of data like payroll data be in changing the credit system?  

A: We’ve always responded to trends and continue to see the addition of more new information to help lenders understand consumer behaviour as the future of credit. 

It’s good that BNPL data now being added to the credit bureau, which is important. As we start to see these new payments added into affordability assessments it should help provide lenders with a fuller picture of a wider number of people – which will help both lenders and consumers.  

Equally, new data sets like payroll data can help us speed up the process of applying for affordable finance and improve outcome for consumers. Our research has identified a healthy appetite to share payroll data, with 72% of consumers being happy to share data in a mortgage application, and over 40% in other types of loans.  

People already share their personal financial information to access services digitally – whether that’s applying for a mortgage, starting a new job or renting a property. By drawing on the use of payroll data quickly and securely, with consumer consent, we can provide access to better value services and help people make better financial decisions.  

At Experian we now have 85% coverage of the payroll information market, and we look forward to bringing the benefits of our expanded reach to our clients so that they, in turn, can better serve their customers. This is another step in the UK’s adoption of Open Finance. And we are happy to be leading that evolution.  

Q: Why is innovation so important to Experian – tell us about your social innovation projects? 

A: We invest a lot in innovation, and we’re always looking at how this will help the market and drive better outcomes for consumers and businesses. We are currently piloting an exciting new initiative which will help people with no credit history to access fair and affordable credit for the first time.  

New to credit consumers – often people who are also new-to-country, like recent immigrants - will be able to confirm their identity and build their credit files using just three months of transactional data, provided via open banking, taken directly from their bank account. Consumers will also be able to build their files by signing-up with selected credit providers, enabling them to generate a score in as little as three months. 

The new concept is part of Experian’s Social Innovation Programme, which aims to build and recognise products that will have a positive impact on the financial health of consumers around the world.  

Our Social Innovation Programme was set up to fund, build and recognise products that will have a positive impact on the financial health of consumers. Between 2013 and April 2021 we invested over US$8m across 29 product ideas. Eighteen of those products have launched, reaching 61 million people, many of whom are from financially vulnerable backgrounds. And we aim to reach 100m before 2025.