Growth secrets: how to master risk-based pricing

Better customer insights may get your competitors over the line before you

The advent of Comprehensive Credit Reporting (CCR) offers the industry the opportunity for a widespread paradigm shift in favour of risk-based pricing.

Innovative lenders have taken stock, seeing a way to enter new markets faster than ever before. 

This is because CCR means more data that gives both a clearer view of client risk and enables more automation. By being able to better identify the riskiest clients, Fintechs are luring in more customers by injecting the marketplace with specially designed products at different rates, tailored to different risk groups.

Online only risk-based pricing products are priced attractively for the customer and cost efficient for the tech-savvy lender. Not only do they reduce the processing time to improve the end customer experience but they also keep costs down by reducing face-to-face operational time.

Snap up customers before your competitors do

Market leaders can see how CCR is transforming risk. The better lenders can understand the risk of their customers, the more likely they are to apply the right risk premium to cover expected losses. 

The benefits work on both sides of the business, offering growth opportunities and reducing loss.

If a lender can beat a competitor to identify a low risk customer who is new to credit or a historically risky customer who is on the road to recovery, the lender will have the advantage of being able to offer a lower price and ultimately gain market share.

On the flip side, if a lender accurately assesses a customer as high risk and offers a higher price than a competitor, the lender will most likely lose the business. This is a positive outcome as it protects their business against losses from that customer defaulting.    

A sign of things to come

Risk based pricing ultimately empowers customers. Although less than 10 percent of Australians know their credit score, emerging knowledge means the savviest customers can work the system. 

Low risk customers can apply with a lender who participates in CCR and will reward them for their proven ability to repay open accounts on time.  High risk customers can approach a lender with solely negative data, only to hide credit commitments. 

The downstream effect is that customers can use credit risk knowledge to negotiate better rates.