Could mandatory data sharing improve customer outcomes?

It came hot on the heels of an interim report from the regulator back in November 2022 which found that – while the credit information market was working well in a number of ways – there were some issues and areas where the market could be working better.

These included the significant differences in data across Credit Reference Agencies (CRAs), as well as the fact that consumers lacked awareness of how to access and dispute credit information.

Among the proposals outlined by the regulator is the mandatory sharing of data with designated CRAs, as well as the introduction of a common data reporting format, and providing greater control for consumers over how they are viewed through making it easier for them to record non-financial vulnerability information.

To implement and manage these plans around the sharing of credit information, it has said it will set up a new industry body – namely the Credit Reporting Governance Body (CRGB).

Following this, the FCA set an Interim Working Group (IWG) to help develop the new governance arrangements in the credit information market. It will then produce recommendations to the FCA on the design, implementation and operation of the new CRGB. The group is expected to announce its consultations in September.

These plans were the topic of Credit Strategy’s latest members-only roundtable. Hosted by Novuna’s Lindsay Gustafson and featuring representatives from some of the UK’s biggest banks and fintechs, they explored how these proposals could shape the credit reporting landscape.

Among other aspects of the plans, the attendees said that – while they said most already engage in this practice – making data sharing across the CRAs compulsory would lead to better customer outcomes.

One commented: "The more information we have, the better it is for customers. It allows us to tailor the lending to their needs and circumstances.

"Of course we don’t always get it perfectly right, otherwise there’d be no job in credit risk and we’d have no default and that’d be great, but this is about getting as much information as possible to build that full picture of the customer profile and financial commitments."

Expanding on this point, another added: "As an industry, we have multi-bureau consumers or sole bureau consumers. You could have a lender which only shares with, for example, Equifax and therefore only consumes with Equifax – so are they going to make the best decision for a customer that has data that’s shared to another sole bureau only?

"They’re not going to have the full picture of that customer’s exposure and affordability to the industry."

Frequency of data sharing

Another hot topic of conversation in the data sharing space has been how to increase the frequency of data reporting. Most report this to the CRAs monthly; however, there has been talk of reducing this down to bi-weekly or making it even a daily process.

One attendee to the roundtable said it’s something their business has been discussing over the past eight months or so in a variety of forums, including with the FCA, UK Finance and with the IWG.

Off the back of these, they explained: "It’s a direction we do need to go down, but we need to ascertain the definition of frequency – because daily for a legacy lender that’s been around for 300 plus years, the technology’s not there.

"I know technology is moving fast everywhere, but the daily sharing of data is off the table. You’ve also got to think about consuming that data daily back from the CRAs – because there’s got to be a give and a take at the same time.

"But I think as a collective at an industry level, what we’re trying to focus on is more bi-weekly – because a weekly is a bit too much of a close time period."

This individual did, however, go on to say the future of data reporting is more likely to be driven less by frequency and will instead be more events driven.

They added: "We’ve been really focused on a two-weekly period, but event driven – not full file, but still do your own full file with the controls and governance that providers do on a monthly basis.

"But I think the daily was definitely off the table."

What role could open banking play

Another discussion topic was a debate around the future of open banking when conducting credit assessments. Such a tool can radically improve not just how up-to-date the information provided by the data is, but also how much detail there is in the data.

This can be particularly beneficial for thin file customers, with one attendee explaining: "We talk so much about getting people onto the property ladder, and getting a mortgage.

"And yet for people who’ve been renting their whole life and have very minimal credit use, just because they live within their means, they have very thin evidence that they can commit to regular repayments where this information would really help them to build a strong profile.

"This is something that can be seen in the open banking data."

Despite its benefits, and an increase in its use over the past few years, take-up has not been as widespread as many would have hoped with just over three million individuals and businesses using services enabled by open banking.

And for those who do receive open banking data, some don’t even use the information. Speaking about their experience at a previous company, one attendee explained: "It was data that we didn’t use enough in our decision-making processes.

"We were a lender predominantly, we had credit cards, loans, and we had the odd bit of savings – so transactional data wise, we didn’t have a lot to go on other than credit reference agency information.

"From a customer perspective, we probably let them down to a certain extent in terms of having a proper decision around what they could borrow, and that probably manifested itself in the mortgages that we ended up exiting because we just didn’t have that wealth of information to make a proper decision on behalf of the customer."

When discussing the broader topic of open banking, another attendee expressed concerns they have around customer consent, explaining that they have to "start that journey". They added: "Open banking is great, it has its complications, but I think 90% of the time it’s a really positive outcome for both lender and customer."

Another attendee explained: "Many customers are just not familiar with what it actually means, and therefore they don’t consent because they don’t know what it is." They could – for example – think fraud is being committed.

Customer education

It’s why education in this space is crucial, with one attendee saying the industry must detail how, for example, it will help them obtain products quicker, which could see more consent to linking their accounts.

This education piece extends to credit scores and lending decisions, with many attending the roundtable noting that consumers often misunderstand the relationship between generic credit scores and actual lending decisions.

One attendee explained: "I’m pretty sure most high street customers don’t understand it’s not the ClearScore or Experian score that drives decisions and it really varies depending on an individual bank’s risk appetite.

"So, I think there’s more education to be had there, and I think we as banks have a responsibility to bring that education. But CRAs also have a responsibility to provide that information as well – and I have never seen that written clearly on any CRA website."

Another attendee added: "I’d be interested in looking at banking websites to see how explicit, clear and transparent they are about what would drive a lending decision to be a yes or a no because that very much feels like a black box.

"I mean I’ve been working in the industry for a while now and sometimes I can’t explain the lending decisions I get back, which you should be able to do as a consumer."

In particular, they went on to explain, you should be able to understand how a lending decision compares to the headline rate. They said: "You see the headline rate, and then all of a sudden you get an offer at 20% APR – how do you explain that differential?

"I don’t think there’s any collateral from any of the banks in terms of education and how that actually comes about, and I think it’s one of the biggest issues that sits in this space."

Backing up this point, another attendee said that any information currently provided doesn’t give a "user-friendly explanation that the day-to-day consumer can understand". They added: "They’re not close to the industry, right.

"But I think if there’s a centralised platform which has a fact page that has much of that information then that’s probably going to have one of the best outcomes. This is the road the industry wants to go down to have a go-to shop for such queries to support consumers.

"Nothing’s obviously been decided at the minute, but this is the go-to discussion right now."