such as affordability and product suitability. With this, a finance provider can get a deep transactional history from the cli- ent’s bank, perform modelling around it, and then determine whether a loan product can be afforded. And, because bank statements direct from the bank do not lie, fraud risks are reduced dramatically. Furthermore, this OB data is relatively cheap. Depending on the technology provider used, its marginal cost could be close to zero. So, it is little wonder that many are doing the maths and working out that they can reduce, or even remove, credit search costs by opting for OB data. Not having a credit file may mean some cases are turned down, but, given the comparatively high per-case cost of credit reports, overall savings are likely to be much greater. And with everyone having to set aside ever larger amounts of money for com- pliance as a consequence of the Royal Commission on Banking, any area of saving is likely to be leapt upon by CEOs looking to boost return on investment. So the landscape is changing fast for the big Australian credit bureaux, and they are going to have to adapt to this changing landscape. The signs are already there that the status quo is being challenged, with
some of the bureaux having to cut costs and manage margins. The big Australian credit bureaux must be asking themselves, how much longer will their existing client base habitually continue to accept the exist- ing terms of business. My answer to this question is, not long - if bureaux continue as they are. However, there is a way through this challenging landscape, if they are willing to adapt swiftly. It involves rethinking pricing and widening their customer appeal. They should accept that the model that sees customers paying up to 15 dollars for the cost of acquisition is almost over. The availability of real-time trans- action data basically means that the perceived value of credit reports has been diminished. The finance providers still paying for them at the current price are not going to be doing this forever. Those that take advantage of the cost reductions offered by OB, may come to be seen as having a competitive advantage. The key for bureaux is to hold on to the existing customer base by offer- ing credit files for considerably less than they have been. Costs should be brought down to be more in line with US and UK models. Bureaux data is still valuable - even in an age of Open Banking. A credit report,
in addition to all the transaction infor- mation obtained via OB, provides a much more comprehensive picture of a prospect. So why not price it right so that it can be used alongside OB? If this happens, it is more likely to be used more routinely, and in greater volume than it is at the moment. Although the income per search would come down, overall volume sales are likely to rise. The US and UK markets show that credit bureaux can thrive, despite the banking revolution. These markets have demonstrated that, by tapping established Open Banking and deci- sioning tech providers, who are ready and waiting to engage, and by chang- ing their pricing, bureaux can continue to flourish.
Andrew Tierney is a credit risk professional based in Queensland. Andrew.tierney@balanceriskmanagement.com.au
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