Metrics Monthly | January 2020 | AU Edition


Metrics M onthly

AU EDITION January 2020

In this issue SHIRAZ AND WAGYU BEEF The impact of Shiraz and Wagyu beef on lenders

In this issue Welcome Page 03

New year, new look Page 04

In the news Page 06

Shiraz and Waygu beef Page 08

The ADP Landscape Page 11

A new partnership Page 12

The Open Banking Movement Page 13

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January 2020 | AU Edition


January has been a month filled with making resolutions, breaking resolutions and new starts. The new year didn’t just mark the start of 2020, but the start of a new decade, and with this new decade comes a new look for LendingMetrics. On these frosty morning commutes, we’ve been reflect- ing on what’s important in life, and what could be more important than our most valuable resource: time? That’s why our new message for this new decade is: “it’s your time!”. Read our article on page 4 to find out the story behind the change and what this means for us going forwards. The FCA and Bank of England have also adopted the “new year, new me” mantra by unveiling their plans for a new digital Data Strategy, which you can read more about in our In the News section. Our headline piece is about the impact of Shiraz and Wagyu beef on lenders. What does steak and wine have to do with the credit industry? Head over to page 8 to find out!

If you haven’t heard about our Auto Decision Platform yet, head to page 10 to find out how it can save you time, money and errors, as well as watch our brand new video: The ADP Landscape. With the recent announcement that the implementation of Australia’s version of Open Banking has been delayed by 6 months, we were left wonder- ing how Open Banking regulations are changing and evolving in different countries across the world. Our handy map on page 13 covers the emerging regulations for 6 of the top players in Open Banking legislation and industry standards. Whether you opted to lock up the liquor cabinet for ‘Dry January’, sign up for the gym, try your hand at ‘Veganuary’, or something different altogether, take a break from your New Year’s resolution to sit back and enjoy this month’s issue of Metrics Monthly. If you haven’t subscribed yet, make sure you head to our website to sign up and receive monthly editions straight to your inbox.


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Metrics Monthly | 03 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.

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New year, new look

Our new message for this new decade

This new year more than most, we will all have thought a little harder about the significance of our new year resolutions. Moreover, many of us will have considered our longer term aims and ambitions; after all, this isn’t just a new year, it’s a new decade. We’ll ask questions like “what have I really achieved over the past 10 years?”, “is this what I hoped I would be doing?” and most crucially “what do I want for my business, my family and for me over the next decade?”. Career and business success will play a big part in seeing those plans come true and, to that end, the choices you make will shape and define that success. That’s why we all need to open up our

minds to the possibilities of what this new decade could bring. You only have to look at the last decade to realise that we are bound to see some huge unfore- seen changes in the dynamics of our day-to-day lives. 10 years ago, there was no Instagram, Uber or Snapchat, and today these are each multi-billion-dollar businesses in their own right that they have impacted our lives in one way or another. These businesses have thrived in our rapidly changing technology landscape and we hadn’t even considered 10 years ago that we might need or use such things. Which begs the question, what will we see emerge in the next 10 years? Fully autonomous electric cars? The near total eradication of polluting plastics? Electric aeroplanes? Day trippers to space? Who knows? The most likely scenario, however, is the emergence of something huge and innovative that we

haven’t even considered: “an unknown unknown”, if you will. But there is another school of thought when it comes to the significance of a new year or a new decade, and that view goes something like this: it’s a date that marks the milestones in our most valu- able possession……time! Time to travel, time to succeed, time to find love and yes, time to spend with those people dearest to us. So it’s about the choices you make every day and the principles you set for yourself and stick to them, every day, not just as a short-term new year promise! Increasingly, people are realising the importance of balancing their time between work and life. We all want to spendmore time with our family, friends and loved ones, but we also have an undeniable urge to work, succeed and provide a wonderful life for them.

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January 2020 | AU Edition

So, our new message for 2020 and the decade beyond is: “It’s your time!” “It’s your time!”, so use it wisely to share it with the people important to you. “It’s your time!” to grasp your plans and aspirations by the scruff of the neck and go for it. 2020 will see the 10 th Birthday of Lend- ingMetrics. Whilst we may not be Uber or Instagram, we are here to create and share the technology to save you time and help you succeed. Hopefully we can play a small yet important role in helping you put those plans into prac- tice, take control and make this “your time!”

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Metrics Monthly | 05

In the news

FCA and Bank of England unveil plans for new Data Strategy

We’re excited to welcome Phil to the UK LendingMetrics team as a Senior Developer. With over 35 years of experience, Phil will be largely focussed on research and development for our mul- ti-award-winning Auto Decision Platform (ADP). A warm welcome

The Financial Conduct Authority (FCA) and the Bank of England have recent- ly announced their plans to enhance their data and analytics capabilities, through a new dynamic ‘Data Strategy’ . The institutions aim to use advanced automation techniques and analytics to better understand the market and ease the regulatory process. The FCA’s updated strategy includes a plan to become highly data-driven, in order to better predict, monitor and respond to regulatory issues. By invest- ing in new technology and using exter- nal data more, the FCA intends to utilise high-quality, granular data sources. This approachwill include using data science units in certain parts of the organisation and is linked to the FCA’s migration to a cloud-based IT infrastructure. Executive director of strategy and competition at the FCA, Christopher Woolard, said: “Advances in technolo- gy are changing the nature of the firms and markets we regulate. Our Data Strategy provides a clear path for us to ensure we have the necessary skills and processes in place to remain at the forefront of this change. A data-driven approach to regulation allows us to anticipate harms before they crystallise, better understand the effect on con- sumers of changing business models and to regulate an increasing number of firms efficiently and effectively.’

Similarly, the Bank of England intends to improve timeliness and effectiveness of its data collection. The Bank’s recent- ly published Discussion Paper explains how the organisation will attempt to combat the issues facing their current data collection system with a number of potential solutions, which acts in response to Huw van Steenis’ Future of Finance report. In the report, Huw van Steenis suggests that the Bank is falling behind and recommends that they develop a new digital data strategy. The FCA and the Bank of England, along with seven other regulated firms, have jointly published a Viability Assessment report which outlines the potential of Digital Regulatory Reporting (DRR). This could allow firms to automatically provide data when requested by the reg- ulators, which will ease the process of providing said data by reducing the cost of collection and improving quality. The shift to a more digital landscape would require firms to automatically supply data in digital format and the FCA and the Bank of England are committed to jointly create common data standards and review the legal implications that could arise from reporting using code. The pair also committed to working together on collaborating closely with one another regarding future phases.

Senior Developer Phil Talbot

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January 2020 | AU Edition

Gambling on credit cards to be banned Following the Gambling Commission’s review of online gambling, as well as the Government’s Re- view of Gaming Machines and Social Responsibility Measures, gambling businesses allowing con- sumers to use credit cards to gamble will be banned.

The ban, which will come into force across Great Britain in April, will aim to add protection to vulnerable people, following recent research showing that 22% of online gamblers use credit cards to gamble. Over 24 million adults in Great Britain gamble, with almost half of these gambling online. The ban on using credit cards to gamble will have a clear impact on many of these people, as recent estimations suggest that around 800,000 consumers currently gamble using credit cards. The ban was announced on 14 January

and, in a press release on the day Gam- bling Commission chief executive Neil McArthur said: “Credit card gambling can lead to significant financial harm. The ban that we have announced today should minimise the risks of harm to consumers from gambling with money they do not have.” Following a consultation in November, the ban was expected to only apply to online gambling, however the recent announcement proves that this applies to offline betting too, with the exception of lottery tickets.

McArthur notes that gambling using credit cards is a two-fold problem, as card fees can increase the problem for vulnerable people: ‘“There is also evi- dence that the fees charged by credit cards can exacerbate the situation because the consumer can try to chase losses to a greater extent.” Whilst the news has been met with mostly positive feedback, some former gamblers and campaigners say that the ban is not enough, as gamblers can still use payday loans and online payment systems such as Paypal.

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Metrics Monthly | 07

Shiraz and Wagyu beef David Wylie considers the impact of the recent “Shiraz and Wagyu case” on UK lenders

I’ll bet that’s a headline you never thought you would see. But believe it or not, this is a serious matter which lenders and regulators need to start considering when planning their affordability policy. In August, a loan affordability case - now dubbed the “Shiraz and Wagyu case” - was heard in the Federal Court in Australia, brought by ASIC (the equiv- alent of the FCA in the UK) against Westpac of Australia, one of the coun- try’s “big four” banks. ASIC alleged that Westpac breached responsible lending laws when assessing the suit- ability of 261,987 home loans for cus- tomers between December 2011 and March 2015, using its computer-oper- ated loan approval system. They also claimed that Westpac relied solely on an expenses benchmark and did not take proper account of the customers’ declared living expenses.

The judge, Justice Perram, found Westpac did have regard to the declared expenses and went on to make an extraordinary and fascinating narrative opinion. When referring to the custom- ers’ declared income and the lender’s assessment of the customers’ bank statements, he said this: “I may eat Wagyu beef every day washed down with the finest Shiraz but, if I really want my new home, I can make do on much more modest fare”. He added, “the fact that someone takes an annual first class holiday to the US is not relevant to assessing whether the repayments will put them into circumstances of substantial hardship”, and “the fact that the consumer spends $100 per month on caviar throws no light on whether a given loan will put the consumer into circumstances of substantial hardship, nor for that matter does knowing that the consumer spends $500 per week on basic food items”.

Essentially, the judge was stating what, to most people, is a perfectly com- mon-sense view. Customers often live a certain lifestyle prior to a major life changing event, but they modify their behaviour afterwards. When a couple get married, I would hazard a guess that their expenditure profile will look very different to that of their “dating” phase (fewer posh restaurants, fewer expensive holidays, more mortgage and credit commitments). If they go on to have children, again, their spend- ing habits and priorities will most likely change significantly (more nappy pur- chases and nursery bills). So, it is rea- sonable to conclude that if a person takes on the responsibility of a new home or a dream car, they too are likely to make some sacrifices in other areas of spending. It is also worth noting that this case only went to trial after the judge refused

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January 2020 | AU Edition

to sign off on a deal between Westpac and ASIC whereby Westpac would pay a record fine of A$35 million (about £19 million). As a result of the court’s deci- sion, the fine was cancelled and ASIC is now liable for Westpac’s legal bill too. So, what does this mean for lenders in the UK, not to mention the Australian lending sector? Well, firstly, we must recognise and acknowledge that regu- lators closely watch what is happening in other similar markets to observe reg- ulatory innovation, market reactions, outcomes and judicial opinion. It will surely therefore be a matter on the FCA’s radar to monitor. Affordability has been the number one issue for the lending sector ever since the FCA assumed regulation of con- sumer credit in 2014. Over that period, numerous big lending names have been caught out by the affordability and suitability principles and have been forced out of business either through regulatory action and redress or as a result of huge tidal waves of no-win-no- fee complaints. The rest of the market heard the message loud and clear that affordability must be taken seriously and proper enquiries must be made, rather than simply allowing the cus- tomer to self-declare their income and expenditure (remember self-cert mort- gages prior to the GFC?) There have been numerous attempts to find solutions to the affordability chal- lenge including affordability products launched by the credit reference agen-

cies, and categorised bank statement products which show the customers’ income and expenditure in granular detail. These solutions do indeed add greatly to solving the conundrum, after all, a way has to be found which does not stifle product innovation and cus- tomer service. Consumers want speed of decisioning and convenience; they don’t really want to be sent on a wild goose chase to collate bits of paper. But what the Shiraz and Wagyu case shows us is that the affordability nut has not yet been cracked. There are so many moving parts to consider and so many data sources to interrogate, that even some of the most well-re- sourced and sophisticated lending organisations can inadvertently slip up. If we take the judge’s comments at face value, then he appears to be saying something to the effect of: even if it appears on paper that the custom- er cannot quite afford the loan, con- sumers are capable of modifying their spending habits, cutting their cloth as it were, and ensuring they make their repayments. I can almost hear the cheers and applause from lenders who see this judge’s decision as an indica- tion that consumers need to take more responsibility and the state needs to “nanny” less. It would also appear that that even the regulators are unsure as to where the line should be drawn to meet the threshold of “adequate affordabili- ty enquiries”, after all, both ASIC and Westpac had agreed with one another

that a fine was justified, it was the judi- ciary that stepped in to “draw the line”. One wonders how long it will be before the same test happens in the UK. My advice to lenders is this: afforda- bility and suitability is not a static concept, it is a constantly evolving entity impacted by updated regulatory guidance, emerging consumer trends and by new and innovative affordabili- ty alongside data tools. The message I hear from the marketplace is that the regulator expects you to make use of all the data available in order to make a fully informed decision. Is your process comprehensive and nimble enough to meet the challenges ahead? As a final note, ASIC announced that they now intend to appeal the court’s decision, so we will have to wait and see.

Above: LendingMetrics Founder and Director David Wylie

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Metrics Monthly | 09

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The ADP Landscape ADP is a multifaceted, multi-award-winning program, with countless possibilities once deployed. But how does it work? Watch our video below to find out.

Frequently Asked Questions What if I want to retain that human touch to my underwriting? The degree of automation is totally within your control. You can provide fully binding decisions or simply an approval in principle. You can even give binding answers to people above a certain credit threshold and an AIP to others requir- ing more in-depth investigation. The choice is yours. Isn’t this type of software expensive? Generally yes! However, ADP by LendingMetrics is a posi- tively disruptive force in the market and prices are tailored to your business. Affordable entry level pricing right up to enterprise. Put it this way: we think you’ll be pleasantly sur- prised when we show you what you get for your money.

Why is ADP different to other credit decisioning products? Unlike nearly every other product out there, ADP puts you in total control of changes to your decisioning; how you want to change it and when you change it. No more lengthy IT delays and no more charges for technical changes. The simple UI enables your operational staff/credit-risk officers to make changes at a user level (subject to permissions). Can I use ADP for champion/ challenge and retro analysis? ADP has several novel and unique tools to enable real time “what-if” and “champion/challenge” of your client’s data. This enables your business to test several possible improvements to your credit policy all at once, without impacting on your live lending activities.

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Metrics Monthly | 11

A new partnership LendingMetrics and WPS announce auto-decisioning partnership

LendingMetrics’ clients will soon be able to use WPS Analytics for data processing and advanced predictive analytics. The provider of multi-award winning auto-decisioning platform ADP has partnered with the company behind WPS Analytics – UK-based World Programming – to give users access to a heavyweight suite of data processing and analytics tools. ADP already has openly-connected inte- gration with major credit ratings agen- cies and other technology partners , so LendingMetrics is confident that the WPS integration can be completed swiftly and without issue.

Using WPS Analytics, finance providers will be able to devise custom analytics, such as scorecards, to complement information gathered on customers during application. And, when deployed within ADP as part of the decisioning process, they will be able to gain a more comprehensive insight into applicants’ background. David Wylie, Managing Director Lend- ingMetrics, said ‘LendingMetrics’ ADP solution is attracting interest across the lending technology sector, where it is forming the backbone of a sophisticat- ed credit-data and analytics ecosystem. By bringing together specialist provid- ers via our openly connected API suite,

we are delivering to our customers a best in class experience. We are there- fore excited to be welcoming on-board WPS, a truly forward thinking and inno- vative partner.” Oli Plaistowe, Head of Solutions WPS Analytics, said “Working with Lending- Metrics has proven how flexible the WPS Analytics technology stack is for building business analytics applica- tions that can be deployed and updated in real-time with a single click. Helping companies avoid the complexity of managing the deployment code and at the same time providing a layer of ana- lytical governance, allows businesses to focus on their expertise.”

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January 2020 | AU Edition

The Open Banking movement How are Open Banking regulations evolving across the world?

The Open Banking Movement is chang- ing the way that products and services are being consumed across the world. The regulations emerging in different countries differ due to varied govern-

mental initiatives, with come countries having clear regulations and others merely frameworks or industry guide- lines in place. The belowmap shows the different approaches to Open Banking European Union Open Banking was initiated in the EU in 2015 known as the Pay- ments Services Directive (PSD2) but requirements were vague so a single standard has been difficult to impose

on a global scale, showing how the movement is developing in the forms of new legislation and emerging industry standards.


United Kingdom

Australia was due to trial its Con- sumer Data Rights (CDR) act with the big four banks in February 2020 but the deadline was recent- ly revised to July 2020 . The act will initially focus on transaction data, but is likely to broaden out into other industries such as energy and telecommunications

The UK is considered to be leading the way in Open Banking, after the Open Banking Standard was imple- mented in January 2018. Lending- Metrics’ OpenBankVision (OBV) enables lenders to access this data for free in the UK

Japan In 2017, the Japanese Banking Act introduced a framework to encour- age at least 80 banks to open APIs by 2020 with a focus on improving operational efficiencies

New Zealand

United States

Open Banking is being led in New Zealand by two major banks and two fintech companies in an effort to reduce credit card transaction fees to 0%

Whilst there is no government-spon- sored Open Banking policy in the US, several federal agencies have issued guidelines in response to the industry-led approach which leans toward open API business models in an effort to fight back against insecure screen-scraping practices


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