Recent changes to consumer borrowing behaviour, risk adversity and economic uncertainty have caused a major shift in the credit risk industry. And quite frankly, a much needed change! Credit Bureau contracts have simply become outdated and calls for change mean that data contracts must change to allow the procurement and credit risk teams within fintech’s to adapt.

A recap on what’s been happening

To kick this off, the FCA’s (Financial Conduct Authority) Woolard Review looked into the unsecured credit market and effect of changes in regulation as well as the extent to which there may be a need for further regulation in the market. Recommendations from the review included a large-scale programme to reform the way in which the consumer credit market is regulated in order to improve outcomes for consumers.

Essentially, the review aimed to better protect consumers by ensuring they are able to access a range of fair credit products. For this to happen, credit providers need to be getting fair market rates when negotiating their credit data contracts to pass on discounts.

Interestingly, until recently, very few credit providers have been aware that Bureaux charge different rates for the same footprint of services. Even if they are aware, there is a major downside that many organisations are tied into a particular Bureaux due to several factors including the complexity and cost of change which prevents organisations from looking around for better deals.

The way forward: Thankfully, under the review, the FCA has called for greater transparency in the market around data pricing and is something that many organisations are looking to focus on to make sure they get the highest quality data at the best price.

Why is it so important to negotiate the best data prices?

When it comes to credit data negotiations, it’s important for organisations to negotiate the best contracts and prices so that these can be passed on to the consumer.

The FCA’s review understands that a healthy credit market should include a range of options, including sub-prime, near-prime and prime credit products. The range of options provided to consumers should not be restricted as a result of the Bureaux offering different pricing to different providers. But with the lack of transparency and poorer rates for data, it presents a number of risks within the industry:

●      Organisations are unable to pass discounts down to consumers - organisations who have exactly the same footprint of services as competitors but who are not offered the same discounts are at a huge disadvantage. Higher data prices limit the flexibility of risk and marketing teams when looking to onboard new customers which can have a huge impact on the business in terms of revenue and profit. 

●      Unable to advertise across more channels - organisations who have access to lower data prices can advertise across more channels to attract new customers which provides them with a huge competitive advantage. 

●      Unable to provide as many credit options as possible - when some organisations pay higher prices for data, it can have an impact on the end customer who is not served up a full panel of offers. As a result, the organisations paying more for data are unable to advertise as widely as their competitors and will not be able to reach certain customers. 

Why are some customers unable to improve pricing or move bureaux?

Historically, it has been difficult for procurement and credit risk teams to switch credit Bureaux and to negotiate improved contracts either at renewal or mid-contract. There are 6 common problems that credit providers flag when it comes to renegotiating contracts or moving bureau:

1.     A lack of transparency in the industry - the market is niche and complicated with no published pricing, making it difficult to benchmark or understand what competitors are paying for the same data. 

2.     Difficult to compare products - with so many different products available (including bespoke solutions) it can be almost impossible to compare like for like or argue commodity pricing. 

3.     Can only compete against previous year’s quotes - currently, organisations are unable to see what others are paying for the same package or footprint of data. This makes it difficult to benchmark on pricing and, if they paid 25-40% more than the market value in 2017, a 10% reduction in 2020 seems like a good deal. 

4.     Cost of change - changing Bureau can be costly and allows CRA’s to hold high pricing for organisations where it is not practical to change and this makes it difficult for the cuctomer to negotiate a better deal with their current provider. 

5.     Strong internal relationships with bureau - within some organisations, Risk Managers have strong internal relationships with the CRA’s. This can make it difficult for procurement teams to challenge or switch providers as there is a misconception that it will disturb the relationship. This reluctance to challenge can result in a lack of leverage on pricing. 

6.     Contract terms are often not fit for purpose - in many cases, bureau contracts are based on search volumes so forecasting is essential. However, in the current economic climate, it is difficult to forecast accurately and it is essential to ensure the contractual terms allow for flexibility. 

Sadly, these obstacles allow the bureaux to take advantage and inflate the costs of data for organisations who are unable to overcome them. And this can make it impossible for some to reduce costs. However, more and more organisations are becoming aware of these obstacles to getting the best prices for data and changes to the industry alongside pricing transparency should ensure fairer, more flexible terms.

Price inflation in action: Case examples

Here’s a few examples of inflation that we’ve seen across multiple sectors:

·       Banking customer : £5,100,000 inflation over 3 years (40%)

·       Retail customer : £3,000,000 inflation over 5 years (23%)

·       Motor finance customer : £450,000 inflation over 3 years (32%)

·       Banking customer : £2,800,000 inflation over 3 years (26%)

·       Finance BNPL : £400,000 inflation over 2 years (30%)

·       Banking customer : £2,000,000 inflation over 5 years (28%)

·       Global oil company : £6,000,000 inflation over 3 years (50%)

·       Utility : £50,000 inflation over 1 year (50%)

 4 ways to improve the credit bureau re-negotiations or an RFP process to get better pricing

For organisations looking to get better pricing when switching or re-negotiating data pricing, there are a number of steps to take to improve the process. It’s important to ensure that you have a framework in place to guide and manage the process from start to finish.

When it comes to negotiating on data pricing, leverage is key. And benchmarking is important to gain this leverage. Having a good understanding of what you are paying compared to what competitors are paying for similar (or exactly the same products) from the existing provider and an alternative supplier, can help credit risk and procurement teams to gather the leverage needed to negotiate on price. Without this information, it’s impossible to get a better deal or understanding of the market.

And that’s where data benchmarking comes in. These frameworks help you move from a tactical to a strategic approach to help compare pricing and get the best pricing.

There are four key elements within the framework:

1)    Engage

The first step in benchmarking and negotiating better pricing is to map out your existing data sources and what you’re paying. This will help you to understand what you’re currently paying and provides leverage for changes to contracts.

2)    Compare

Determine the gap between current pricing and the prices that other organisations are paying for the same data. This includes benchmarking data costs and software licence and maintenance fees for decision platforms.

3)    Recommend

Target pricing for each search and service based on the benchmarked findings you have for existing suppliers. Look for additional products or search types that will either enrich data or reduce costs. In this step, make sure you include a shortlist of trusted recommendations from alternative information providers if this is required.

4)    Negotiate

The final step is to maximise the decision making process post-presentations and in each iteration of the negotiation. By working with a data benchmarking specialist, they can provide further pricing evidence, as well as flagging preferential commercial terms that have been offered to others by that supplier (such as usage flexibility and stronger SLA’s) – something that without access to data benchmarking is impossible to know.