Mandatory CCR is imminent - how can credit providers prepare?
In May, the Productivity Commission released its inquiry into data availability and use. The report included recommendations to see that Comprehensive Credit Reporting (CCR) be mandated in 2018 in an effort to encourage more competition in the banking sector.
How will CCR affect the market?
The idea is that more credit data sharing will help improve information deficiencies between lenders and borrowers, empowering both parties with more choice on the offerings that are right for them.
The flow on effects from this have the potential to transform the market. CCR helps to provide a more holistic and accurate view of a customer's creditworthiness, which can increase opportunities for lenders to offer credit.
Time is of the essence
Already, many credit providers have started on a course toward a credit environment inclusive of CCR data. However, there are also mmany others who have been unsure as to how to take their first steps. With mandatory CCR now fast approaching, time is of the essence to begin the transition to CCR. Compounding this is the risk of adverse selection, which impacts those who fail to implement CCR data into their decisioning systems when other credit providers already have.
With CCR, there are five new data sets available that lenders can contribute to and receive from credit bureaus.
Repayment history information (RHI) tracking the last 24 months of payment history (i.e. if payments were received on time and the number of days a payment is overdue) is proving the most powerful. It reveals a customer's capacity to repay debt like never before. Not only does this new information make credit decisioning more accurate, it also unlocks entirely new customer bases that were previously ineligible. Since the advent of Comprehensive Credit Reporting (CCR), more than 980,000 people who may have been financially excluded under negative credit reporting now have a credit file.
The first step to supplying CCR data is to start an internal discussion about the objectives for your organisation. Do you want to focus on increasing approvals, or decreasing losses?
You will also need to consider your risk appetite. This will help you evaluate the new models under CCR that will assess the risk vs. return tradeoff, which will then enable effective improvements to your credit policy framework and processes.
Where to find help
To begin your journey to CCR, check out the Equifax CCR Resource Centre for articles to help you plan your transition.