Metrics Monthly Q1 | 21

METRICS MONTHLY Lenders must prepare for surge

Q1 /21 31 March 2021

Bounce back, growth or recession? We're almost there The customer is still king

Lenders risk being overwhelmed by credit applications when the UK lifts lockdown restrictions, predicts David Wylie

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for BNPL on the road to regulation ? LendingMetrics' CEO has said that once vaccinations are well advanced and the lockdown has ended, the economy will bounce back rapidly, but many jobs and companies have already been lost, which will inevita- bly have consequences. We decided to ask YOU what you thought would be next for the UK economy - bounce back, growth or recession? - and the results were interesting! See the verdict and read the analysis here. Also in this issue, we're sharing the exciting news about partnering with Equifax , and an update about our multi-award-winning Auto Decision Platform, which has seen a major new functionality upgrade. If you haven’t already subscribed to Metrics Monthly, make sure you don’t miss our new quarterly editions by subscribing here!

digital magazine has made the exciting move to a quarterly release, in order to provide you with a broader roundup of industry news, highlights and insights. In this issue, we're pleased to include a summary of the market changes and trends from the last few months, as well as your usual dose of industry insights and thinkpieces. Our headline piece this issue is an interview with Commercial Director David Wylie, who says lenders risk being overwhelmed by credit appli- cations when the UK lifts lockdown restrictions. Read the full article on page 10. Buy Now, Pay Later has been a hot topic this quarter, with usage of the payment method quadrupling in the UK last year alone. But with the model facing intense scrutiny from FCA, and the potential harms of the service brought into the spotlight, what's next

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Metrics Monthly | 03

In this issue

03 Editor's letter 04 In this issue 06 In case you missed it

07

A handful of relevant news stories that may have slipped under the radar this quarter

07 Multi-bureau decisioning

LendingMetrics partners with Experian Ltd

08 We’re almost there

A collective sigh of relief could be heard across the country earlier this month

10 Lenders must prepare

Lenders risk being overwhelmed by credit applications when the UK lifts lockdown restrictions, predicts David Wylie

13

10

13

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Q1 | 2021

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12 LendingMetrics updates

Your latest LendingMetrics updates including new additions to the team and an exciting announcement

14 Bounce back, growth or recession? We asked you what you predict for the economy - check out the results! 16 Improved digital capabilities

16

Morses Club PLC partners with LendingMetrics

18 The road to regulation

Buy Now, Pay Later has been a hot topic over the past fewmonths, but what lies ahead?

20 Universal risk model adaptor

LendingMetrics releases major new functionality to their intelligent decisioning platform ADP

22 5 key things

20

Online gambling players' decisions are being driven by five key things - and they may surprise you!

24 Case study

Propensio Finance implement assisted decisioning in preparation for anticipated growth in volume

26 The customer is still king

David Wylie discusses how the collapse of big high street names shows there is a pressing need to change with the times

28 A / B testing

Find out how ADP can be used for A / B testing and champion / challenge scenarios

24

www.lendingmetrics.com

Metrics Monthly | 05

NEWS

In case you missed it CMA launched consultation on the future governance of Open Banking

The Competition and Markets Authori- ty launched a consultation on how the future government of the Open Banking revolution will be managed in the UK, which ran until 29 March 2021. The results of the consultation are expected to suggest winding down the Open Banking Implementation Entity (OBIE), which is the body currently charged with overseeing the roll out of the technology. This is largely due to the implementation of Open Banking nearing completion, and could result in a new body being created with a broader funding and governance model to replace the OBIE. UK Finance submitted proposals for a new body that will function separately from compliance and monitoring, and the CMA is considering this as part of the consultation, with emphasis on ensuring the successor to OBIE is truly independent and appropriately funded.

Open Banking now has around 3 million active users in the UK and it is esti- mated that more than half of small and medium enterprises are using the

functionality, so further governance will be essential in ensuring the continued rollout goes smoothly and the right parties are held accountable.

FCA finalises fair treatment guidance In a further bid to ensure the fair treat- ment of vulnerable customers, the FCA has published final guidance clar- ifying its expectations of firms. The newly released guidance emphasises the importance of firms being able to ensure that customers in difficult financial situations receive the same fair treatment and outcomes as others. Nisha Arora, Director of Consumer and Retail Policy said, 'protecting vulnera- ble consumers remains a key focus for us and given the impact of the Coro-

navirus pandemic, it is more important than ever that firms get this right.' Firms will continue to be held to account for their treatment of these customers and could be asked by the regulator to demonstrate how their business models, actions and cul- tures ensure this fairness. Alongside the guidance, the FCA released an infographic about treating vulnerable customers fairly, which can be viewed here.

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LMX

Multi-bureau decisioning

LendingMetrics partners with Experian Ltd LendingMetrics is delighted to announce it is partnering with Experian Ltd to help facilitate the growth of its LMX data platform.

service. Additionally, by aggregating transaction volume across its broad customer base, LendingMetrics is able to secure commercially attractive terms which can then be passed onto its cus- tomers. Lenders can therefore benefit from high service levels at a great price. Commenting on the news, LendingMet- rics’ Commercial Director David Wylie said, “the success of LMX to date has been amazing. We pay tribute to Equifax in helping us to achieve this and we strongly believe that they will continue to play a pivotal role as we grow further. As our market presence has expanded via the dramatic growth in our automat- ed credit decisioning platform ADP, so

have the demands and level of sophis- tication of our clientele. For this reason we see the added partnership with Experian, the UK’s largest credit refer- ence agency, as the natural evolution as we look to address requirements such as multi-bureau decisioning and sector specific coverage”. He added, “this announcement means that, for example, lenders can benefit from a multi-bureau solution via one unified LMX API, as well as one com - mercial commitment and one point of contact, all wrapped up in highly com- petitive terms. This is a unique approach and we look forward to sharing the ben- efits with our customers.”

LendingMetrics has enjoyed significant commercial success with its LMX plat- form since partnering with Equifax Ltd in 2012 and it now intends to build upon that success with the significant news that Experian products will also now be available via LMX. Lenders can now access multi-bureau credit reference data, affordability, AML and bank account verification servic - es via LendingMetrics’ “white glove”

&

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Metrics Monthly | 07

COMMENT

We’re almost there

A collective sigh of relief could be heard across the country earlier this month when Rishi Sunak unveiled a range of big spending measures in the Budget designed to underpin the economy as it emerges from the pandemic. The most signifanct of these was an extension of the furlough scheme to September. The Treasury is going to continue to pay 80% of the salaries of individuals who cannot work, providing many businesses and their employees with a much-needed lifeline until the return of more normal times. The only change to the scheme will be that com- panies will be asked to contribute 10% of the cost in July and 20% in August. Those on Universal Credit are going to

benefit from an additional thousand pound bonus, while individuals on Working Tax Credit are to get a one-off payment of five hundred pounds. This money comes on top of the minimum wage rising to £8.91 per hour from April. Alongside his boost to business and personal finances, the Chancellor gave the housing market further impetus with an extension of the successful Stamp Duty holiday to June 30, plus lender incentives encouraging the pro- vision of 95% mortgages. His ‘Budget for Recovery’, combined with the UK’s vaccination programme, is expected to limit the unemployment rate to 6.5% next year, as opposed to the 11.9% that was previously foreseen. Furthermore, the scale of his ambitious £355bn support package for this year and next has led forecasters to predict the UK economy will grow by more than

4% this year and 7% in 2022 - signifi - cantly ahead of France and Germany and a welcome contrast to its 9.9% con- traction in 2020. The restructuring of the High Street continued at a pace during the first quarter of 2021. Household names that we all thought would be with us forever have succumbed to the new commer- cial reality. These now include TopShop, Mothercare, Carphone Warehouse, Oasis, Evans, Brighthouse, Debenhams and Paperchase. The five billion pound fund for retailers announced in the Budget may well be a case of too little, too late. It seems unlikely anyone will want to bring failed stores back in their traditional form, so what will happen to the shells they have left behind?

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Related articles Lenders must prepare

The publication of Robert Jenrick’s proposed reforms to planning in Feb- ruary provides us with a big clue. His suggested expansion of permitted development rights is thought likely to lead to unused retail and even office space being converted into housing or hotel accommodation. On the High Street and elsewhere the pandemic has put rocket boost- ers under changes that were already taking place. Nowhere has this been more evident than in the migration of spending towards digital channels. Cash is no longer "king" and is going to struggle to gain its former foothold in people’s wallets. We have all got much more used to digital spending with cards, online and on smartphones, and the new £100 contactless limit can only accelerate this trend. The uplift, from £45, is undoubtedly going to make payment security and fraud even bigger issues than they already were. Thankfully, finance providers have been using the slower pace of lending to make back office improvements to ensure they are better placed to handle digital security and what could be a tsunami of spending when restrictions are lifted. Automated decisioning - in the form of ADP - has been at the top of many of their agendas. What better way to counter fraud and cope with the volumes of applications that are coming down the line than have a system that is the ultimate in scalability?

It is now even better than it was prior to the lockdown. Thanks to some intensive development work on the part of our skilled team of software engineers, a new Universal Risk Model Adaptor has been incorporat- ed to ensure lenders’ legacy score- card systems are fully utilised by ADP. Transitioning over to an automated platform has never been easier for lenders and their credit risk teams. Little wonder more lenders have been looking to install the award-winning platform - Morses Club and Decimal Factor being the most recent. What to all of us has seemed like an eternity of pandemic restrictions look set to be finally coming to an end. With luck we are only going to have to wait a few more weeks before our former liberties are returned. On April 12 non-essential retail is set to open its doors, along with hair- dressers, beer gardens, theme parks, swimming pools and gyms. Then, on May 17, we can begin to spend again in hotels and indoor hospitali- ty venues. On June 21, all remaining social contact rules are being lifted and the remainder of the economy opened. That is about 12 weeks from the date you are likely to be reading this edito- rial to the final phase of coming out of lockdown...We’re almost there!

Lenders risk being overwhelmed by credit applications when the UK lifts lockdown restrictions, predicts David Wylie

TAKE ME THERE

Bounce back, growth or recession?

We asked you what you predict for the economy - check out the results!

READ NOW

The customer is still king David Wylie discusses how the col- lapse of big high street names shows there is a pressing need to change with the times

FIND OUT MORE

www.lendingmetrics.com

Metrics Monthly | 09

INTERVIEW

Lenders must prepare

Lenders risk being overwhelmed by credit applications when the UK lifts lockdown restrictions, pre- dicts David Wylie.

David Wylie, Commercial Director of the company behind the award-winning automated underwriting platform, ADP, fears a leap in demand for finance when the country returns to more normal conditions. He predicts this to be likely by June or July, if the vaccine rollout allows a reopening of retail activity. What’s more, this substantial increase in applications could continue until the end of the year. Mr Wylie, who was being interviewed by credit risk commentator Chris War- burton on his YouTube channel, said: ‘There’s a big demand bulge that is going to lead to a very, very big bounce back in lender activity. We’re seeing a lot of spending that was suppressed but is not going away – for example on holidays and home improvements. Everyone’s going to want to make up for the months of lockdown, and we expect

people to really double-down on it in 2021.’ 'This is also the impression we're getting from our existing customers but also from new customers that onboard- ed with us in the second half of 2020. They see a significant opportunity where credit will rebound and that has motivated them to update their pro- cesses and automated their decision- ing with us.' Mr Wylie said that demand for credit would be particularly strong at point-of- sale and for specialist finance in areas such as holidays. However, some credit providers may not be ready for such a sudden upsurge in their application pipeline. ‘Lenders might not have the ability to stretch quickly to meet jumps in demand. What we’re concerned about

is that the surge may start from the summer and continue after that, leading to a huge increase in demand that finance providers may not be ready for. They need to be in a position to handle that increased level of business, and I am not sure some of them will be able to, which could lead to some significant problems.’ Mr Wylie suggests that lenders should ensure they do all they can in the run-up to the summer to prepare for the turn- around, prioritising investment in back-office efficiencies and considering automated underwriting decisioning. ‘Now really is the time for providers to test the existing systems that they have in place, to make sure they can cope with a surge in applications. If they can’t, there may still be time to do something about it,’ he added.

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On the subject of affordability Interviewer Chris Warburton noted that from a decisioning point of view, one of the problems that's arisen is that a substantial amount of decisioning and lending is made based on credit bureau data or historical performance data. This information has been changed fun- damentally by differing circumstances during the pandemic, for example, for those people that have had payment support holidays here in the UK. Mr Warburton said: 'some of the models and techniques we've used before

aren't necessarily going to be as appli- cable going forwards and lenders have to approach it in a new way.' Mr Wylie agreed, and said, 'the bench- mark for credit scores have clearly been recalibrated as a result of what's occurred but that is a work in progress.' 'We have seen a significant increase in demand for Open Banking data, which is a more timely supply of accurate information, and is more relevant and up-to-date than a credit file may be. It can effectively illustrate the current

affordability and potential creditworthi- ness of that customer. In conjunction with traditional credit data, that offers lenders a more accurate picture of what are rapidly changing circumstances for consumers in the pandemic.' You can watch David Wylie's full inter- view here, where he discusses with Chris Warburton the impact of the pan- demic and the evolution of lending deci- sioning technology.

Below: watch a clip from David Wylie's interview where he discusses the demand for lending post-pandemic

www.lendingmetrics.com

Metrics Monthly | 11

NEWS

LendingMetrics updates

Two new additions to the LendingMetrics team LendingMetrics welcomed two new additions to the team this quarter, and is looking forward to ex- panding further in the coming months.

Contracts and Compliance Officer Maxine Raleigh

Operations Assistant Natasha Lawal

Maxine Raleigh joined the company in a new role as Contracts and Compliance Officer in February. She brings a wealth of experience in claims and contracts, after many years of working in the legal sector. Maxine previously studied in Southampton and in her spare time can be found lifting weights at the gym.

A new Operations Assistant also became a member of the team in February. Natasha Lawal joined from a background in sales and finance administration, and has already hit the ground running with providing excellent support to the Operations and Sales teams. Natasha enjoys cycling and cre- ating entertaining videos for her chil- dren's Youtube channel.

The LendingMetrics team are still cur- rently working from home but with views for a gradual reintroduction to the office in the coming months, with staff safety remaining top of the priority list. To stay up to-date with the LendingMet- rics team, make sure you follow the company page on Linkedin.

LendingMetrics are delighted to announce that Decimal Factor have selected ADP for their assisted decisioning.

Business funding specialist Decimal Factor have chosen to use LendingMet- rics’ Auto Decision Platform (ADP) for their assisted decisioning in order to orchestrate their credit decisioning data and scale their business. Decimal Factor specialises in arrang- ing responsible funding solutions and their goal is to make funding availa- ble to SMEs who are struggling to get business loans from high street banks. Having specialised in the funding of small business loans for over 10 years, Decimal Factor required an automated decisioning platform that would allow themtocombine all of their data sources together into one approval process, including application and third party data. ADP was the solution chosen, as it

utilises proprietary data solutions and is a powerful decision engine builder that puts the lender in control of credit rule changes and allows operational/credit risk staff to control changes in real-time through its comprehensive, award-win- ning user interface. ADP is openly connected to all major CRAs plus many other 3 rd parties including Open Banking platforms. One of the key requirements of Decimal Factor was the ability to incorporate this Open Banking data, which Lend- ingMetrics were able to provide using their OpenBankVision (OBV) platform. OBV allows companies to make better lending decisions and their customers to take control of their valuable bank transaction data. The powerful platform

combination allows Decimal Factor to view their customers’ business’s bank statement data digitally in real time, thus being able to make more accurate lending decisions based on fully cate- gorised data. Commenting on the news, Madhav Soundalgekar, Chief Digital Officer at Decimal Factor, said: 'Our partnership with LendingMetrics is strategic and enables us to adapt to changing criteria and new needs such as CIBILS in the UK and PPP in the US. The platform is easy to configure by business analysts and helps in pre-pro- cessing the underwriting criteria of our lender panel to find the best product match.'

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New partners added to the LendingMetrics website LendingMetrics has worked in collab- oration with some big names in the industry and we've recently added more of our existing partners to our dedicat- ed webpage. To see the full list and read about each of our partners, check out the page by clicking the button below.

We're proud of our work and the people we work with; to find out more about becoming an integrated partner click here.

Partners we have recently added to our page include Experian, LTI Technolo- gy Solutions, Onfido, Credit Assist and more!

View partners

LendingMetrics are pleased to have been recognised by AI Global Media as the 2021 ‘Best Credit Reference Agency’

Established in 2010, AI Global Media is a British media powerhouse and pub- lishes SME News, a platform dedicated to providing insightful support, advice and news to the UK SME market. SME News’ awards aim to showcase the talent, hard work and commitment of firms from a wide variety of industries, and LendingMetrics is proud to have received recognition as part of the 2021 Business Elite Awards. By being awarded 'Best Credit Ref- erence Agency 2021', LendingMet- rics have again been identified as an industry-leading business, following wide recognition in 2020; they were awarded 'Technology Partner of the Year' at the Consumer Credit Awards as well as 'Best Credit Risk Solution' at the Credit and Collections Technolo- gy Awards for the fourth consecutive year. In the final quarter of 2020, they were included in Buzzacott's Organic Growth 25, a roundup of businesses that have scaled successfully without external investment, and Credit Con- nect's Power List as a top 20 'premier'

company, highlighting LendingMetrics as a business providing technological innovation and achievement. Based in the UK and Australia, Lend- ingMetrics has extensive experience in the field of online lending credit risk solutions and was even the first UK Credit Reference Agency to become fully authorised by the Financial Conduct Authority. As a result, they are proud to have been recognised as a leading CRA and financial services provider. The awards deliberation process was in-depth and, in order to showcase only the very best companies in each respective field, SME News' dedicated awards team researched the nominees thoroughly to ensure that the awards act as a reputable and unique resource for their readers.Whilst physical events are still off the table, you can still read about LendingMetrics’ accolade in the upcoming issue of SME News, out next month. In the meantime, you can read the latest quarterly issue of SME News (2020 Q4) here.

www.lendingmetrics.com

Metrics Monthly | 13

INSIGHT

Bounce back, growth or recession?

CEO David Wylie has said that once vaccinations are well advanced and the lockdown has ended, the economy will bounce back rapidly. But the uncomfortable truth is that many jobs and companies have been lost, which will inevitably have consequences. So we decided to ask YOU what you thought and the results were interesting! When the pandemic hit, we saw eco- nomic growth come to a standstill, and in the first few weeks we witnessed long-lasting damage being inflicted on the economy, with businesses closed, hospitality halted and travel severely affected. UK GDP was 24% lower in April 2020 than it was only two months earlier. Back then, many thought the pandem- ic would be over by Autumn, and the International Monetary Fund predicted the global growth to rebound to 5.8% in 2021, provided the pandemic lost momentum by the second half of 2020.

This failed to happen, however, and the pandemic is still affecting our daily lives now, with the UK in its third national lockdown. At the end of the year in December, GDP was still 6% below pre-pandemic levels and the IMF estimates that across the whole of 2020 the global economy shrunk by 4.4%. They even described the decline as 'the worst since the Great Depression of the 1930s.' This being said, there is now a light at the end of the tunnel, following the Gov- ernment's roadmap to cautiously ease lockdown restrictions in England being announced in late February. With the potential for hospitality and retail to reopen in Q2, the question is: will this result in a strong bounce back of the economy, a steady, on-trend growth or has the damage already been done and are we looking at a crippling recession? Around half of respondents (51%) agreed with CEO David Wylie's predic- tions, who stated that the demand bulge that lenders face will lead to a very big bounce back in the economy and lender activity. According to Mr Wylie, there is

a lot of pent-up spending that will not go away, from holidays to home improve- ments, as people rush to make up for the many months of lockdown. Interestingly, those who didn't vote for a strong bounce back, were largely split between on-trend growth and reces- sion, two very different sides of the coin. 29% of respondents expect on-trend growth throughout the year, and this is reflected in the Coronavirus Economic Impact report published in the House of Commons Library, which states that the average forecast for 2021 predicts a GDP growth of 4.3%. However, every economist current- ly seems to have a different opinion - some expect this pent-up consum- er spending to underpin strong rapid growth, whereas others think that the rise in unemployment and job security will lead to consumers being more cau- tious, and that the increase we may see in spending will not be enough to save us from a recession. This echoes the concerns of the 20% of respondents who voted that they expect another recession in 2021, and those concerns are clearly relevant.

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We have already seen the unpredict- able nature of the pandemic, in par- ticular when a new variant of the virus led to infection rates sky-rocketing in December, thus leading to another strict national lockdown and a longer roadmap to ease restrictions than we have seen before. This unpredictability has led to the aforementioned chang- ing predictions, with even the NIESR

- Britain's oldest independent econom- ic research institute - first forecasting a 2021 growth of 5.9% in November and then recently making a U-turn and slashing that figure to only 3.4%. With predictions changing as quickly as the weather, it's becoming increasingly difficult to know what to expect. What happens next, then, could depend on a

variety of factors, such as whether the current roadmap is adhered to and how quickly the majority of the population are vaccinated against the virus. The current vaccine program is already moving at an astonishing pace, with the vaccine now being offered to those aged 50 and above, or with underlying health conditions.

As the Government aims to offer the vaccine to everyone in priority groups 5-9 by the 15 th of April, if this goal is met we can surely expect the current restrictions to be lifted as planned and a gradual return to normality. Mr Wylie predicts that this could be likely by June or July, and, as a result, demand for credit will be particularly strong for point-of-sale and specialist finance , as consumers rush to book holidays and rapidly re-start the spend- ing that they put on hold during the pan- demic. However, some credit providers may not be ready for the huge upsurge

in applications that this will bring, and in preparation should be testing their exist- ing systems to ensure they can contend with the sudden boost in spending. Oneway for lenders to brace themselves for this upsurge is to look into automat- ing their credit decisions, and utilising initiatives such as Open Banking to precisely see what customers earn and spend, in real time. The ability to paint an accurate affordability picture quickly will be essential in lenders dealing with the expected increase in applications. Without such platforms in place ahead of the boost in consumer spending,

lenders risk either turning away too many relevant applications, or adopting a "yes to all" attitude, which could be equally as damaging in the long run. LendingMetrics provides both automat- ed decisioning technology and Open Banking software, as well as free con- sultations for lenders to ensure they are best prepared for the predicted spend- ing spree. To find out more, get in touch with our dedicated team of expert ana- lysts on +44 (0) 2394 211010 or send us an email today.

www.lendingmetrics.com

Metrics Monthly | 15

NEWS

Improved digital capabilities Morses Club PLC partners with LendingMetrics LendingMetrics, the company behind the intelligent decisioning platform ADP and OpenBankVision is delighted to announce that it has been appointed by the Home Collected Credit division of Morses Club PLC to deliver its credit decisioning solution.

LendingMetrics delivered ADP to Morses Club initially to implement an important upgrade to their affordabil- ity matrix, but now, as part of a wider transition, LendingMetrics’ technology executes the full decisioning process for Morses Club. The transition is now finalised, and Morses Club is in com - plete operational control over its credit policy optimisation and changes via the unique and multi-award-winning ADP Editor. ADP (Auto Decision Platform), being a universally integrated SaaS solution, also handles the real-time execution of credit reference, AML and afforda- bility calls to the major credit refer- ence agencies, facilitating instant deci- sion outcomes and a better customer experience. Morses Club effected the switch to LendingMetrics’s ADP after a very thor- ough tendering process supported by a number of face-to-face product and

requirements workshops. Even after choosing to work with LendingMetrics, Morses Club continued to operate their legacy provider alongside ADP until they were satisfied that the new solution was delivering the promised improvements.

Commenting on the news, Lending- Metrics said, “we are delighted to have been chosen by a company of the calibre of Morses Club and achieving this under such intense scrutiny. The Morses Team have been a pleasure to work with and we now look forward to helping them with their plans to build on their new customer-centric technology stack”. Morses Club PLC commented, “Lend- ingMetrics hosts a number of key plat- forms for our Home Collected Credit division, helping us to quickly and reli- ably assess customer affordability in line with our strong focus on respon- sible lending. The introduction of new customer identity and bank verification solutions has been key to improving our digital capabilities. The team at Lend- ingMetrics been very flexible and sup - portive, providing a seamless transition whilst helping us introduce new identity and bank verification solutions during the migration period”.

Above: the ADP dashboard provides a broad overview of your decision engines at-a-glance

16 | Metrics Monthly

Q1 | 2021

Auto Decision Platform

Our online Auto Decision Platform (ADP) saves on time, money and errors, driving more profits to your bottom line. ADP assesses your applicants in real-time, 24 hours a day, and delivers consistent and accurate lending decisions in milliseconds. It’s a multi-award-winning automated decisioning and collections platform that puts you in control.

Make better risk and compliance decisions

Convert more applications

Improve collections

Control using the comprehensive user interface

Run scenarios in real-time

BOOK A DEMO TODAY www.lendingmetrics.com

+44 (0) 2394 211010

1650 Parkway, Whiteley, Fareham, Hampshire PO15 7AH, UK

+44 (0) 2394 211010 info@lendingmetrics.com

COMMENT

The road to regulation

Buy Now, Pay Later has been a hot topic over the past few months, with usage of the payment method quadrupling in the UK last year alone. Recent figures from Worldpay show that BNPL is the fastest-growing online payment method, and 5 million people are estimated to have used the option to make purchases since the start of the pandemic last year. The increased popularity of BNPL can be attributed to several factors. For one, BNPL allows consumers to stagger payments across weeks or months, providing a more affordable option for many, especially during the pandemic when many jobs were at risk and one in six homeowners used payment defer- rals (or "mortgage holidays") to ease financial pressure in the first lockdown. Prior to the pandemic, the travel indus- try in particular massively benefitted from consumers' abilities to spread the cost of holidays, and is expected to see increased usage in 2021 as travel restrictions are eased. Travelers are

able to use BNPL to book trips early, when prices are typically lower, and repay in monthly instalments, offering a more flexible payment option. Another highly appealing factor of BNPL is that many firms, such as online shopping giant Klarna, offer the service inter- est-free, making the service cheaper to other forms of credit, which can have varied interest rates. There's not always gold at the end of the interest-free repayment rainbow, however, and this quarter we saw the BNPL model face scrutiny as the Finan- cial Conduct Authority warned that billions of pounds were being lent in unregulated transactions, putting many customers at a greater risk of getting into financial difficulty. In a review of the unsecured credit market led by Christopher Woolard, the potential harms of BNPL services were brought into the spotlight, and this led to the Government deciding to bring the service into regulation by the FCA in an attempt to mitigate these risks. The Woolard Review found that it would be easy for shoppers to accrue thousands

of pounds worth of debt by taking out multiple agreements with different providers, and the majority of this debt would be invisible to credit reference agencies and mainstream lenders. This creates a risk that consumers can end up taking on unaffordable levels of debt with less protection in place than regular loans. The rapid rise and ease of use of BNPL has resulted in consumers being less informed about the service, with many not realising that they were taking out credit agreements that could result in late payment fees. One bank showed that 10% of customers who used BNPL had already ended up in arrears. One of the key issues with the service is that consumers are not subjected to credit or affordability checks, like they would be with other forms of lending, and the payment deferral method simply appears as another payment option upon checkout. The Woolard Review, then, proposed that BNPL products become subject to FCA credit rules, such as providers having to carry out a credit check or affordability test when customers opt to use the service.

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As a reaction to the review, the Gov- ernment pledged to introduce the leg- islation necessary to bring BNPL prod- ucts under FCA regulation as a matter of priority. Economic Secretary to the Treasure John Glen said they would be bringing in 'the same protections you'd expect with other loans'. The Governments' swift response to the review could indicate a desire to get ahead of the game and prevent the UK falling into the same disarray as has already been seen in Australia, where BNPL has been booming with platforms like Afterpay and Zip Money reaping the rewards. Debt helplines down under have seen a huge rise in people accumulating significant debt on BNPL platforms, and prioritising these repayments over other essen- tial items or loans because of fears of being restricted from using the apps.

Unlike in the UK, however, Australian regulator the Australian Securities and Investments Commission is struggling to take similar regulatory action to that suggested in the Woolard review. It would seem that BNPL in Australia has found a loophole in the system, with products falling outside of ASIC's remit due to the law that requires a fee to be charged to consumers for their credit to qualify as a loan. BNPL fees are paid by merchants so not regulated as loans, leaving Australians unprotected when they fall into financial hardship from the payment deferral method. Accord- ing to ASIC, many consumers are now struggling to keep up with repayments and cutting back on necessities such as food. It could be said, then, that the UK has learnt a hard lesson from their counter- parts overseas and aims to clamp down on the practice before the industry ends up in a similar situation. The proposed legislation was largely received well, however payments companies claim to be surprised by the concerns. Klarna,

one of the largest online shopping payment deferral options, saw 100% growth year-on-year in the UK but has recently been compared to predatory payday lender Wonga. The lender was notorious for extremely high interest rates, and faced intense scrutiny after a surge of compensation claims, going into administration in 2018 as a result. Klarna CEO Sebastian Siemiatkowsk said he was upset when his company was compared to Wonga: 'Klarna is very different. We've been fighting the bank establishment for years. I'm surprised to see that there's not a more positive response'. But with the industry still picking up the pieces from the payday loans crackdown, it's no surprise that people are skeptical about payment methods that seem too good to be true. What happens next, then, will depend on how soon the Government can move to regulate the BNPL industry, and with lawyers suggesting it could be more than a year before rules are in place, it could be a long road ahead.

Changes are ur- gently needed to bring BNPL into regulation to protect consum- ers, to ensure that there is secure provision of debt advice to help all those who may need it, and to maintain a sus-

tained regulatory response to the pandemic. - Christopher Woolard

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Metrics Monthly | 19

ADP

Universal risk model adaptor

LendingMetrics releases major new functionality to their intelligent decisioning platform ADP

In the first of two major announcements surrounding the intelligent decision platform ADP, LendingMetrics are delighted to confirm the latest upgrade to seamlessly incorporate Python, R, SAS, PMML and JavaScript risk models, making the Best Credit Risk Solution even better.

Auto Decision Platform (ADP) has built an enviable reputation as a pow- erful enterprise decisioning platform and is used across the whole range of credit verticals, including banking, mortgages, commercial lending, con- sumer credit and car finance. It has done so largely as a result of its cut- ting-edge engine compilation capabil- ities which enable the most compre- hensive and sophisticated decisioning requirements to be generated using

“no code”. Credit risk professionals are therefore able to create and manip- ulate decisioning logic on demand and in real-time to address credit risk, KYC, fraud and affordability requirements. Recognising that many lenders may have invested heavily over time to build and perfect powerful and predictive risk models in other native languag- es, LendingMetrics has developed the Universal Risk Model Adaptor to ADP.

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This builds on the already compre- hensive platform capabilities to allow the native inclusion of multiple exter- nal languages within the decisioning process. Commenting on the news, David Wylie, commercial director of LendingMet- rics, said, 'this upgrade means that for the first time we can ensure these very useful models are part of an auto- mated decisioning process, thereby making the job of credit risk teams much easier.'

Credit risk teams familiar with the capabilities of languages such as Python (V2 and V3) SAS, “R”, PMML and JavaScript will be pleased to learn that all of these are supported by this new feature and, due to its “native inclusion”, the risk models can com- prehensively interact with ADP’s full range of features, thus making the job of the credit risk team to manage one platform much simpler. LendingMetrics' Head of Sales Claire Januszczak added: 'over the past 5

years we have had fantastic feedback from our clients and the industry. This has translated into our impressive commercial success, however, we are always listening to the emerging needs of our clients and now that we have completed this enormous project to deliver these additional integrations.' 'I know that they will be delighted to have this added functionality at their fingertips', she concluded.

The ADP landscape is both intricate and intelligent, with countless possibilities once deployed. Watch our video below to find out how it works!

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Metrics Monthly | 21

INSIGHT

5 key things

Online gambling players' decisions are being driven by five key things - and they may surprise you!

A new report surveyed more than 3,000 regular online gamblers about their attitudes towards online gam- bling payments, and had some surpris- ing results.

5

Probably the most surpris- ing find from the report is that online gamblers are driven by a want to gamble responsi- bly and be supported in this by their gambling operators. With 65% of respondents being more likely to use a site that promotes responsible gam- bling, features like affordability checks and spending limits are proving evermore important to consumers.

1

The report found that players value fast payments among their top priorities, with 80% of those surveyed citing quick payments as being important when choosing their gaming operators.

3

Online gamblers also preferred to pay by bank transfer, with 7 in 10 players using this method to pay into a gaming service in the UK, Germany and Nordic coun- tries. The revolutionary system of Open Banking is being used to simplify this method of payment, which will presuma- bly lead to a further rise in its popularity. Another significant insight from the report shows a need for fast and frictionless onboarding . Around two thirds of those sur- veyed said that they would not tolerate a signup process that lasted more than 5 minutes, stressing the importance of a seamless signup process. Speeding up onboarding is not an easy task, and many operators are looking to Open Banking in an effort to deliver new payment approaches to their platforms.

4

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These fast payments and instant withdrawals are shown to increase deposits, with two thirds of respondents stating that they are more likely to trust a gaming service that offered instant withdrawals.

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What does this mean? In these uncertain times, players may be in more financial difficulty than this time last year and this is now being reflected in their gambling decisions, with gam- blers more likely to use a site that pro- motes responsible gambling through features like affordability checks and spending limits. The topic of affordability is not new to online gaming, and you may remember our article about the House of Lords Select Committee's report detailing an increased focus on affordability, where we predicted affordability being a key player in the suspected government review of the 2005 Gambling Act. The government's response to the report was presented on 8 December 2020 and it recognised that gambling has undergone rapid change and stated that a review of the Gambling Act would be undertaken to assess whether changes to the regulatory system would be needed. The review has been in full swing, with a call for evidence to

run until 31 March 2021, and is expect- ed to inform changes to ensure cus- tomer protection is at the heart of the regulations. With changes to the legislation expect- ed, and with affordability at the fore- front, how can gambling operators ensure they remain ahead of the game? One clear solution is for operators to build affordability profiles to help decide what amounts they are able to responsibly lend to an online gaming customer. This allows operators to best prepare for upcoming changes to the gambling regulatory landscape, ensur- ing that their customers are 'betting within their means', and providing support for people to gamble responsi- bly, which they deemed as high priority in the recent survey. LendingMetrics' Auto Decision Plat- form (ADP) can provide a detailed con- sumer profile by pulling data frommulti -

ple feeds, including operators' customer betting data, in order to provide a robust affordability picture. The automated process can work alongside manual reviews where required, and linked cus- tomer betting data can be integrated with the affordability decisioning, along with responsible gambling related trig- gers such as bet frequency and unusual betting spend or volumes. In an age of affordability, it is appar- ent that operators need to adapt to the changing landscape and be pre- pared for new regulatory changes or risk penalisation and alienating their customers. If you are a gambling operator and are trialling various affordability possibil- ities, are wanting to discuss how best to approach affordability or have yet to automate your affordability process- es, then call us today on +44 (0) 2394 211010 or email sales@lendingmet- rics.com.

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Metrics Monthly | 23

CASE STUDY

Case study Propensio Finance implement assisted decisioning in preparation for anticipated growth in volume

About Propensio Propensio Finance is a specialist lender in the aspirational lifestyle sector and aim to help customers spread the cost of their purchase with a range of borrowing requirements and credit his- tories to suit prime and non-prime bor- rowers alike. With over 20 years’ expe- rience in the industry, Propensio can often accept applications that other lenders may not, for projects as diverse as buying a static caravan or installing a garden office or solar panels, with an emphasis on treating their customers like people. Why LendingMetrics? Propensio had already been working with financial technology provider Lend - ingMetrics since 2019, utilising their

Open Banking product OpenBankVi- sion (OBV ) to access bank statement data in order to accurately assess the affordability of their customers. They enjoyed working with LendingMetrics, and liked how the company operated, so when they recognised that there was a need to enhance their underwriting process, LendingMetrics’ competitively priced Auto Decision Platform (ADP) was the clear solution. The specialist lender had been hesitant about automation in the past but wanted to prepare for an anticipated growth in volume, and make their underwriting process more consistent, robust and scalable. Having used manual under- writing for 9 years, Propensio were apprehensive about moving away from this, but LendingMetrics demonstrated

how ADP could be used to assist deci- sioning, not only fully automated it, and this made the decision to adopt the underwriting platform much simpler. ADP can be used alongside manual underwriting processes and Open Banking solutions, in order to increase lending volume without increasing head count. What’s more, ADP has the ability to test improvements to a credit policy using passive engines, allowing testing of new logic and scorecards without effecting the consumer journey. In addi- tion, Propensio wanted to use a plat- form separate to their loan system in case there was a need to move things in the future, and ADP was able to provide just that.

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