Metrics Monthly | September 2019 | AU Edition

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Metrics M onthly

UK EDITION September 2019

In this issue TIME FOR CHANGE PPI claims companies are looking for a new target

In this issue Welcome Page 03

Three new appointments Page 04

In the news Page 05

Time for change Page 06

We’ve scored a hat-trick! Page 08

Product streams Page 10

FREE credit risk workshop Page 11

Case study Page 12

The SCOR dilemma Page 14

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September 2019 | AU Edition

Welcome

September marks the changing of the seasons, and we’re wondering if it’s time for claims companies to change too. In this issue, LendingMetrics founder David Wylie wonders what income streams the claims management com- panies will go after next, now that the deadline for PPI claims has passed in the UK, in our headline piece ‘Time for Change’. That’s not the only change that’s hap- pened recently - in this news this month was an interesting shift in the way con- sumers spend their money in UK retail. Read more about the debate this has sparked in our article here. This month we’re also welcoming three new staff members to the team, and reflecting on the growth we’ve seen at LendingMetrics this year.

Last issue we asked ‘will the winning streak continue?’ at the Credit and Col- lections Technology Awards, and this issue we’re proud to say it has! Find out howwe scored a hat-trick at the awards, as well as the additional commendation we received in our article here. Our latest #10ThingsAboutADP video looks at the different product streams available in the lending market, and how our award-winning Auto Decision Plat- form (ADP) integrates with them. With gambling a large target on the UK Government’s regulatory radar, we’re arguing that the existing SCOR restric- tions are allowing gambling companies to sidestep creditworthiness checks. Our article titled ‘The SCOR Dilemma’ discusses this problem, along with what the possible solutions may be. As always, if you enjoy reading this issue of Metrics Monthly, you can sub- scribe to it via our website here.

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Metrics Monthly | 03

Three new appointments

LendingMetrics welcomes Michele, Robert and David to the team In 2019 LendingMetrics has already seen huge growth and, as a result, we have increased our headcount of employees almost every month. are excited about what the future holds for our award-winning Auto Decision Platform.

We have also had two great Developers join the team: Robert Olah and David Wright. The UK LendingMetrics team previously welcomed Robert and David, ahead of their starting, at the summer event last month, which saw the team take to the bowling lanes followed by celebrating a successful first half of the year with exotic food and cocktails. Robert has joined the ADP team as a Senior Developer, which will allow us to put more resource in to our already successful R&D. ADP has many new features being developed for release in 2019 and 2020, and with two more recent award wins for innovation, we

David Wright has joined as a Junior Developer within our Operations team. David will initially be supporting all of our platforms, before moving across to strengthen our ADP team even further. We hope Michele, Robert and David settle in well and enjoy being part of our ever-growing team. Click on the profiles below to find out more about and connect with our new team members on Linkedin.

This month has been no exception and we are excited to announce the follow- ing new additions to the UK team. Michele Pothecary, has joined our Sales department as Sales Operations Manager. Michele joined LendingMet- rics, leaving her previous role after 10 years of service. Michele will be sup- porting the sales function, helping to coordinate the team alongside our Part- nership Manager.

Sales Operations Manager Michele Pothecary

Senior Developer Robert Olah

Junior Developer David Wright

Above: The LendingMetrics team at Hollywood Bowl and Las Iguanas in Portsmouth at last month’s event

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In the news Credit card spending overtakes cash

Cake and coffee The last Friday of September marked the annual Macmillan Coffee Fund- raiser event, hosted by Arena Business Centres, who manage our UK office at Lancaster Court.

According to the British Retail Con- sortium (BRC) Payments Survey, consumers are now spending more money on credit cards with UK retailers than they did with cash. The survey showed that, whilst debit cards were still the most popular way to pay with £216bn spent last year, credit cards have now overtak- en cash for the first time. Credit and charge cards account- ed to £82bn of retail sales last year, overtaking cash, which saw £78bn worth of spending. Whilst cash is being used more fre- quently, the amount spent using credit cards was higher than cash. This revelation leads to conversa- tions about the move to a complete- ly cashless society. According to Andrew Cregan, policy adviser for the

BRC, a cashless society would cause problems for millions of people. Cregan notes that, without cash, it would be harder to leave tips or give money to homeless people. In addi- tion, those who find it harder to use digital services or who use cash as a lifeline when in abusive relationships would be severely effected. The BRC also shows concerns for retailers due to the rising cost of accepting card payments, which could have a significant effect on small and medium businesses. The BRC survey goes alongside a recent claim by consumer group Which?, who said that free-to-use cash machines are disappearing quicker in deprived areas than in affluent ones, leading to more debate about the effects this will have on the economy.

The LendingMetrics team joined in the action for a slice of cake to support the worthy cause. We also got to help judge the ‘Bake Off’ competition entries, and decide which entry would be worth of a Paul Hollywood handshake. The standard of baking was higher than ever, and the team sampled an impressive selection of cakes, brown- ies and cupcakes, whilst also donating to Macmillan Cancer Support, who provide physical, financial and emo- tional support to people diagnosed with cancer and their families.

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Metrics Monthly | 05

Time for Change PPI claims companies are looking for a new target

Action needs to be taken now to avoid a new mountain of vexatious claims, says David Wylie, Director of LendingMetrics. Many claims management compa- nies have been casting around for new income streams now that the door has shut on PPI, a market which has been really good to them. Some £39 billion has been handed out to consumers, of which the claims companies have kept up to 30%. Market experts reckon that the full cost of PPI will come in at nearer £50bn - five times the cost of the London Olympics. That’s an income for claims companies of between £10bn and £15bn. Nice work if you can get it. Little wonder that they are casting around for new targets. They want to keep their extremely profitable model going and have huge operations to feed. It has to be said, undoubtedly, that over the years there were an awful lot of gen- uinely mis-sold PPI policies out there. If you were looking to take out a loan in the 1990s and early 2000s, there was a

high probability that a bank would say at some stage in the application process that success was heavily dependent on having PPI. But, equally, there is really no doubt that there have been an escalating propor- tion of claims that were unfounded. Claims management companies have played the system, knowing full well that banks would often not have all the documentation necessary to prove PPI was correctly sold. They also knew that each claim for- warded to the Financial Ombudsman Service would cost the lender a stand- ard £550 fee, plus the considerable manpower cost involved in processing, so lenders were willing to settle, just to get claims off their radar. Lenders often had veritable mountains of claims that had to be turned around in the timeframes set down by the regula- tor. Get behind, and they were looking at even steeper costs. The claims chasers knew this, and the fact that there was no downside for either the claimant or for them.

As Barclays finance director Tushar Morzaria admitted this summer, claims companies had been ‘swamping the bank with vexatious claims’. Well, those that are in any way involved in consumer lending or providing investment products, now need to sit down and take a deep breath. These self-same claims compa- nies that have spent the past 10 years perfecting the art of secur- ing PPI compensation, often on flimsy grounds, are in the process of turning their full attention on you. The 1,500 claims management companies - that sent out 2.7 billion unsolicited calls, texts and emails every year during PPI, the equivalent of 50 per adult per day - are now focusing their efforts towards chasing claims of mis- sold consumer credit.

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Claims companies don’t have far to look, given that the PPI forms they have asked consumers to complete also had sections requesting details of all loans taken out. The modus operandi of claims com- panies mean we can expect the same carpet bombing of daytime TV adverts that there was in PPI, but this time sug- gesting to consumers that they’d be mad not to make a claim against the provider of their consumer loan, credit card, investment, etc. For companies such as those whose lending book consists substantially of smaller loans of under £1,000 this sce- nario could be disastrous. I spoke to a medium-sized unse- cured lender last month who told me that claims were already costing his company £30,000 per month. He had an all too familiar story. Over the space of six months or so, he had been inundat- ed with claims for mis-sold loans, most of which were from claims companies. He was getting cases in batches of 200- or-so from one claims company that was acting in the same manner as pack- agers used to in the mortgage market. Among these cases were claims from individuals who had only been granted a loan the previous week. When contact- ed, they had no knowledge of making a mis-selling claim.

Calls to this particular claims company go nowhere, he says. You cannot speak to anyone who is able to access infor- mation on a specific case, suggesting that much of the claims process is automated and that leads are bought from data platforms. He is particularly indignant because of the cases against his company that have gone to the ombudsman, only 6% have been upheld. Although there is buoyant lending demand, he wonders whether some lenders might now be wondering whether it is time to shut-up shop, given the exposure they have. Several years of lending in the high-cost, short-term market is likely to mean many thou- sands of potential claims. He is certain - as I am - that if there is no regulatory or Government action on this, we are looking at the beginning of another multi-million pound drain on the financial services sector caused by a tsunami of claims that really do not have any merit. What is needed swiftly is a change to the ‘heads-you-win, tails-I-lose’ claims environment that the UK has still in place. The FCA should be seriously consid- ering some form of penalty for those who pursue unfounded claims. All it

would take would be the possibility of a downside. We have already seen how this can be beneficial in the area of fraudulent personal injury claims. A handful of well-publicised actions taken against individuals resulted in a 19% drop in claims last year, according to Ministry of Justice figures. Surely it is about time that something which acts as a fraud disincentive should be considered by the regulator. Genuine claimants would have nothing to fear, only those individuals, and com- panies, making a living out of gaming the system.

Above: LendingMetrics Founder and Director David Wylie

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Metrics Monthly | 07

LendingMetrics wins top award for the third year running at the Credit & Collections Technology Awards, hosted by Credit Connect We’ve scored a hat-trick!

LendingMetrics scooped the award for Best Credit Risk Solution at the event, held at the Credit Services Associa- tion’s annual gala dinner at the Crown Plaza Hotel in Newcastle. For winning the award for the third consecutive year, we were also awarded the Inno- vation Star Award, which highlights our expertise in the sector. The Credit & Collections Technolo- gy Awards were launched in 2017 and have been created to provide a show- case from which technology specialists can present and share industry credit and collections solutions. The Awards seek to find innovation and technol- ogy which best supports customer outcome. The aim of all entrants is to provide a solution which places best customer outcome at the heart of all technology and innovation. Winner and finalist status highlight the success of

companies and individuals who have led the way in enhancing credit and col- lections technology. It was the third year in a row that Lend- ingMetrics have walked away with the Best Credit Risk Solution accolade at the event. Colin White, Director of Credit Connect Media, who organised the awards, said: “The evening is the culmination of a body of work by an industry obsessed with technological excellence, innova- tion and progression. All finalists should be very proud of their contribution to this process. These awards showcase technically great products that help enhance best customer outcome expe- riences through lending or collections. Congratulations to all of this year’s winners and a special congratulations to our Innovational star winners.”

Above: LendingMetrics representatives Paul and Hamish at the awards

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September 2019 | AU Edition

As well as winning the award for Best Credit Risk Solution, we were shortlist- ed for four other awards, including a nomination for Credit and Technology Innovator Person of the Year for Lend- ingMetrics founder David Wylie. We were represented at the awards by Head of Operations Paul Brown and Business Development Manager Hamish MacCormick , who was proud to attend his first awards evening with the company since joining the team in July. The pair met some famous faces at the event, including Eastenders actor Shaun Williamson and former English rugby union player Simon Shaw MBE. Overall it was a great evening and we’d like to thank Credit Connect for hosting a brilliant event, as well as commending LendingMetrics with the awards.

About the Innovation Star Awards To commemorate the third year of the awards, Credit Connect created the Innovation Star Awards (within the main awards process). The Innovation Star Awards are allocated to companies who have demonstrated consistent and continuous innovation within specific awards categories. LendingMetrics are one of two companies who have this unique status. The win is represented on the trophy by a star.

Above: BDM Hamish with event MC Shawn Williamson

David Wylie, Director of LendingMetrics, commented: It is good to see that our groundbreaking technology is again recognised by a panel of expert judges. Our automated decisioning product ADP is turning underwriting upside down by delivering massive cost savings and real-time decision making. ” “

Will another award be on the cards in November? The shortlisting streak has continued this month with the announcement that LendingMetrics is a finalist for awards in four categories at the Credit Strategy Lending Awards, which will be held in November. The categories are as follows: • Best Credit Information Provider • Best Technology Partner • Gamechanger • Innovation Award

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Metrics Monthly | 09

Product Streams

What’s your market?

With countless product streams available in the lending sphere, we’re proud to say that our Auto Decision Platform (ADP) integrates with every type of lending and finance. Can you spot your market in our video?

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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September 2019 | AU Edition

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Metrics Monthly | 11

Case study Specialist Motor Finance chooses ADP by LendingMetrics

handling decision requests from multi- ple distribution sources at a high veloc- ity and the decision logic needed to be fully under the control of the Specialist Motor Finance credit risk team via a comprehensive user interface. The Challenge The LendingMetrics “LM” team have worked alongside the SMF manage- ment team for the past 6 months to establish the detailed requirements and to explore how LM could accommo- date SMF through its ADP platform and associated integrated partners. During this process LM was able to thorough- ly address the client’s requirement detailed above by showcasing; • Its contractually guaranteed execu- tion time in milliseconds

• The unrivalled comprehensive user interface, giving SMF full editing control over the entire decision engine logic and waterfall • Industry-wide integrations with all major credit reference agencies and anti-fraud services • The speed in which ADP executes and the SLAs in place • Full integration of the award-winning Open Banking solution OBV, which delivers granular and categorised applicant banking data electronically in real-time (This last point means that lenders can run a whole raft of new applicant checks by using bank statement data to verify actual income, outgoings, credit commitments and bank account performance.)

Specialist Motor Finance “SMF” (a sub- sidiary of IM Group) launched Inisium to lend through dealer groups, inde- pendent dealers and brokers and to offer an alternative car hire purchase product throughout the UK. Critical to the project’s success was the selection of a market leading auto credit decision platform that would deliver extremely quick execution times, combined with robust credit, affordabil- ity and compliance checks to ensure high quality credit decisions and robust regulatory standards. The solution should also be capable of

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September 2019 | AU Edition

The Solution SMF had looked at several other alter- natives to ADP but found nothing with such a comprehensive user interface which ticked all the boxes. Moreover, all of the other options, inexplicably, carried huge six-figure build fees which put them out of the reach of many chal- lenger lenders. ADP was available for a modest build fee and, thanks to its SAAS approach, an affordable monthly license fee. Additionally, LMwere able to demonstrate, via a raft of cases studies, client references and other awards, that despite their competitive price, they were indeed a reliable market-leading partner upon whom SMF could depend. One of the main focuses for SMF was

to increase the speed with which the decisions could be executed and after looking at the ADP response times with high volume clients they chose ADP. Consequently SMF had no hesitation in choosing ADP by LendingMetrics. The project teams on both sides are now busy implementing the project to deliver; • A comprehensive multi-product deci- sion engine • Multi-bureau credit data feeds to achieve a ‘best in breed’ decision derived from the best elements from each CRA • Robust affordability checks using CRA data and Open Banking feeds

Consumer credit case studies Our large amount of recent consumer credit case studies (in the UK and Aus- tralia) include Omni Credit (Owned by JC Flowers), Evolution Money, Loans- 2Go, Fair For You, and Aus Loans one of Australia’s largest motor and per- sonal loan originators.

For Aus Loans in particular we have delivered a novel solution which allows Aus Loans to mirror the lending crite- ria of the 40 or so banks and lenders on their panel, allowing them to auto- matically match a client to a specific lender (based on credit data) and then further select available deals based on the best rate available.

This is not simply pre-approval filter- ing, but a decision based fully upon the full lending criteria of those 40 or so lenders. The editing control of the engine logic is entirely within the control of the lender and they have no such dependency on LendingMetrics. We believe the solution to this model to be truly unique.

See more of our case studies

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Metrics Monthly | 13

The SCOR dilemma

David Wylie argues that the existing SCOR restrictions on creditworthiness checks can be sidestepped by gambling operators

Individual’s can change dramatically from one minute to the next, without a gambling provid- er being aware of it. Up until recently, it has been impossible to address this issue, given the SCOR restrictions. However, there is a way around this. An overlooked feature of the Open Banking revolution is that it can be used to give those who are not part of the SCOR framework access to real- time current account statement data. And retrospective mis-selling actions - such as PPI that has hobbled the banking sector - cannot be discounted for gambling operators that have failed to make adequate affordability and creditworthiness checks. creditworthiness Gambling is now a large and obvious target on the Government’s regulatory radar. High profile problem gambling cases have exposed a culture of lax, some might say lazy, consumer safeguard- ing checks that have led to individuals racking up massive debts. The drip feed of cases covered in the national Press has prompted Tom Watson, Labour’s deputy leader, to call problem gambling a ‘public health emergency’ and demand far tougher government oversight. The regulations that currently apply are no doubt going to get even tougher as time passes - even if Labour does not get in at the next election.

The big issue for those trying to ensure they are compliant is that they are cur- rently restricted in making thorough checks because of the Steering Com- mittee on Reciprocity (SCOR) data sharing framework. At present, full banking data access is not allowed to those who are not part of the SCOR closed-user groups who contribute, as well as tap into, credit- worthiness data.

Gambling companies are outside this arrangement and do not have access, so have always had to make do with historic credit checks such as AML and PEP. In an analogue era, this and paper documentation was workable, but in an age of online gambling, when tens of thousands of pounds of gambling debt can be accumulated in a matter of minutes, this arrangement has exposed a giant area of vulnerability.

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Open Banking effectively forces banks to share their line-by-line detailed cus- tomer statement data with third parties, known in the industry as Account Infor- mation Service Providers (AISP) who are appointed and regulated by the Financial Conduct Authority. And busi- nesses can access this 100% accurate data via AISPs such as LendingMetrics. So, with a borrower’s permission, and using an AISP, you can gain access to months of client transactions in milli- seconds. Read-only data comes direct- ly from the bank that holds a current account to the AISP and to you, so the chances of fraud are drastically cut. Someone applies to gamble, agrees to limited timeframe and read-only access to their accounts, and thousands of lines of transactions can be analysed by computer. In an instant, this can pull out salary details and all financial com- mitments, to be then tested by algo- rithm to determine whether you should be allowing this individual to gamble. It is all done automatically and there is no need to run additional checks, such as AML or PEP.

For the first time you can make an affordability assessment that is extremely accurate. Gambling that really should not be okayed because of credit, affordability or potential fraud issues, is far less likely to be allowed. The technology can pick up on things that would otherwise be overlooked: spending patterns that if continued would lead to budgeting problems, such as spending that indicates gambling with multiple companies. And it picks up simultaneous or near-simultaneous gambling. All this is done digitally and, as men- tioned, in milliseconds. No more labo- rious supplying of paper ‘proofs’, no manual assessment. It is all automated. I would like to say that all gambling companies are embracing this feature of Open Banking and that their clients now benefit from products offered by AISPs such as ADP and OpenBankVi- sion. But we are not quite there yet: old habits die hard. Although the costs are minimal, many are still wedded to out- dated credit checking procedures.

However, the force of regulatory legis- lation is not going to let up, nor, more importantly are the financial penalties for failure to safeguard the consumer. Gambling operators may soon find that the costs of not embracing such tech- nology are far greater than they bar- gained for.

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