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Richard Carter

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Richard Carter - Equiniti Credit Services

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Innovation in Financial Services

Innovation in Financial Services

A discussion of trends in innovation management within financial institutions, and the key processes, technology and cultural shifts driving innovation.

Why are we more interested in how many steps we take rather than our credit score?

24 October 2016  |  5586 views  |  3

 

We live in a world where an ever growing amount of us have Fitbits, Jawbones and other tracking devices that are increasingly measuring and comparing our physical performance. We know how many steps we take, how many calories we’ve consumed (and expended), what our sleep patterns have been and, of course, how much we weigh. This rise of the quantified self has been driven by technology getting cheaper, smaller and ultimately ubiquitous.

But why don’t we take so much care of our financial health?  In the US, people know their FICO score as a matter of course with over 80% of consumers knowing the basic facts. Indeed, nearly 40% of Americans claim to want to know a potential partner’s credit score before they even date them!

Compared to the US, the UK is lagging behind dramatically with less than 10% being aware of their score and its importance. Services such as Credit Expert and Noddle provided by the UK credit reference agencies and independents such as Clearscore are gaining traction, but there is still some way to go before this aspect of UK consumers’ financial literacy improves.

According to the recent OFCOM report 30% of people have accessed their online banking just once per month and credit cards accounts even less frequently.  This, despite online banking being the 4th most popular activity people undertake on their phones.

Although UK banks have text alerts that help customers understand when they are coming close to an overdraft limit or spending has increased beyond a threshold, this is very granular; there is little mass market adoption of better financial health monitoring tools.  The introduction of PSD2 (see our blog here) will inevitably bring more customer awareness, though this is unlikely to be in place before 2018; in the meantime, is there an easier way?

In the lending context, customers tend to take new unsecured loans to fund an activity, such as debt consolidation or a purchase, perhaps a car or some home improvement works.  This form of borrowing is generally a considered process and the customer will research a number of different rates, normally through a comparison site, before selecting the lowest they think they qualify for.  Loyalty to their existing lenders?  Zero.  Hardly surprising if the only interaction the lender had was to be the lowest rate the last time the customer wanted a loan.   Surely this loyalty needs to be earned?

How about a scenario where the lender knows that a customer’s financial circumstances have improved and targets them with a lower rate offer.  The customer may not be in the market for additional borrowing at that time, but the mere fact that the lender has acknowledged and reacted to the improvement will start to build the currently elusive brand loyalty.

One way the lender can achieve this is to regularly provide the customer with their credit score.  Apart from drawing the customer back to the lender’s site each month, this changes the dynamic between the customer and the lender.  How about extending it beyond customers to anyone who registers?  The same benefits will flow; new, non-customers will be drawn to the lender’s site each month and with the correct targeted offer, could be converted.  At the very least, the lender will gain a much larger marketing universe to target with appropriate products or even have the opportunity to trial new ones for a different demographic.

Clearly, technology underpins the whole of the process from holding and presenting the credit score, through to delivery of a seamless customer journey, allowing customers to take new or top-up existing loans.  Earlier this year at Finovate we presented how we envisaged this working here.

Financial education and literacy in the UK has some way to go and, whilst we’re not advocating that people select their partners or spouses based on their credit profile just yet, we think that one of the first steps on the financial literacy journey is the democratisation of the credit score.

 

 

TagsRetail bankingFinancial inclusion

Comments: (3)

Ketharaman Swaminathan
Ketharaman Swaminathan - GTM360 Marketing Solutions - Pune | 25 October, 2016, 09:07

There are a rising number of new-age lending fintechs who have been using new-age metrics computed from Big Data analysis of social graph, income v. expenses, social media posts, etc. They've been pooh-poohing credit score as an old-fashioned metric in today's world. Maybe their message is gaining traction. Which could be one answer to the question that forms the title of this article.

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A Finextra member
A Finextra member | 26 October, 2016, 09:22

But there's no such thing as a credit "score" in the UK at least - just how each bank/lender's model determines what they want to do based on all of the information held against an individual in a credit reference agency.

The fallacy of rthe "score" provided by Experian and others is really frustrating and leads to so many "why can't I have a loan - my score is 999" conversations which simply don't need ot happen.

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A Finextra member
A Finextra member | 27 October, 2016, 14:49

Barclaycard in the UK offers customers a free monthly credit score.  MoneySavingsExpert in the UK have a free service which shows an 'acceptance rate' per product in addition to score, which is much superior for my needs.

I find it amusing that in the banking switcher debate in the UK, someone always expresses worry about the affect on their credit score, like credit score is something that should be maintained in it's own right for an unspecified purpose.

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Managing Director of Equiniti Credit Services, a provider of innovative and disruptive automated loan management software and servicing to banks, retail brands and finance providers in the UK.

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