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New horizons: Credit risk data in 2021

Nick Frazer | December 2020

Changing data usage and significantly increased portfolio risk posed great challenges for risk and procurement professionals during 2020. Now, as businesses reopen and we move into 2021, we will start to see credit providers shifting gears from firefighting to addressing the aftermath of COVID-19.

2021 is expected to see heightened risks (particularly credit risks) and interplay between risk types for a long while. For lenders across the globe, S&P Global forecasts credit losses of about $2.1 trillion for 2020 and 2021 spurred by the pandemic, with $1.3 trillion this year--more than double the 2019 level.

Potential losses of this scale make the goal of significant cost savings a necessity. It’s key that risk and procurement managers build the dexterity now to both address the fast-moving environment and lay the groundwork for the future.  

Substantial cost savings are a necessity 

To emerge from the crisis intact, risk and procurement professionals must use the next few months as an opportunity to accelerate transformation agendas and develop new business models. Crucial to this change is a much-needed focus on how to achieve substantial, yet sustainable, cost reduction improvements.

One way to quickly achieve substantial savings is by proactively reviewing all existing supplier contracts and re-evaluating their terms and conditions in light of COVID-19.

An area we repeatedly see major contract variations is in how much credit providers pay for access to the same bureau data. With prices (per search) often varying by up to 1,500%.  This is due to a lack of objective, evidence-based insight into how each bureau measures up against each other, and the variations that different credit providers pay.

Are your contracts fit for purpose in 2021?

Moreover, current uncertainty is exposing the weakness of fixed data contracts and commitments to search volumes. Going forwards, risk and procurement managers will need to conduct regular reviews of data contracts on an ongoing basis.

But to adapt to these changes, you’ll need a high-level understanding of how your data measures up.  You may want to look at measures you previously felt were too extreme – such as search volumes, tightening terms, or removing contract limits.

What you can do now:

  • See the whole picture by comparing your data quality and pricing against numerous peer group types
  • See how your data pricing measures up against the rest of the market
  • Review data contracts mid-term
  • Renegotiate with your existing supplier
  • Consider alternative suppliers or moving to a dual bureau approach for added flexibility and create a champion challenger scenario

The expertise of an external partner can bridge the gap between data pricing, quality and accuracy and open up the door to even greater savings and transparency.

 

 

 

 

 

 

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Nick Green

Nick Green

Director

Purple Patch Broking Ltd

Member since

07 Dec 2020

Location

Stratford-Upon-Avon

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Financial Risk Management

This network brings together professionals involved in the oversight and management of their company's financial risks and exposures as well as solution vendors, in order to discuss risk issues including interest rate risk, foreign exchange risk and commodity price risk, among others.


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