Experian: Only through financial awareness can we promote social inclusion

Steve Thomas, Managing Director of Strategy, Experian UK&I.

It’s a truism to say that the high quality decisions are made on lending when there is a comprehensive set of relevant financial data available.

Yet sadly, for millions of people in the UK a lack of information could be hampering their access to appropriate mainstream financial services, leading to a scenario where people could be paying more for goods and services and have less choice about those services. Clearly, that’s not in the interests of consumers, and it doesn’t help lenders necessarily advise and support their customers and prospects well either.

Recent Experian analysis, conducted ahead of Credit Awareness Week 2018, has found there are over four million ‘thin-file’ consumers in the UK. Of those four million, an estimated 1.2 million are in categories whose household income is forecast to contract over the next few years. That’s a sizeable, addressable market that could be falling through the cracks, missing out on appropriate access to finance.

These people in the ‘squeezed middle’, who are working and earning, but often struggle to make ends meet each month, would be among the most affected by an economic slowdown.

This group tend to come from five consumer profiles:

  1. Balancing Budgets: Families in their middle years balancing expenses with average incomes (356,100)
  2. Seasoned Economy: Pre-retirement households who are experienced at making ends meet (214,000)
  3. Single Endeavours: Young single people working to establish themselves with low levels of financial commitments (303,600)
  4. Young Essentials: Young people in their 20s, renting affordable accommodation (125,700)
  5. Stretched Finances: Middle aged adults with limited incomes (224,700)

Each group also tend to be distributed a little differently throughout the country. For example, the Single Endeavours group are much more likely to be based in London, where 32.6% of them live. In contrast 20.7% of the Young Essentials call the North West their home, along with the biggest cluster of the Stretched Finances, at 17.4%.

When people apply for credit, lenders call upon their credit report from one or more credit reference agencies to help decide whether to lend. While many people’s reports contain a wealth of relevant information on which to base a decision, there is a percentage of people who have so called thin files, and some who have no credit file at all.

The obvious thin file impact is low credit score and limited borrowing options, certainly at the most competitive interest rates. It can also hamper online identity verification, making it difficult for consumers to access a wider range of services, including those provided by the public sector, which should be a serious area of concern. Where the public can’t access services, from the stat or private service providers, there’s a lost value on all sides.

We believe that this group of thin file consumers’ financial situation could be significantly helped through the availability of new, relevant data sources, to build out those thin files, improve their financial access and, therefore, help deliver better outcomes for the public.

At Experian we have pushed for new, more appropriate data sources to be brought into the equation. For example, our work with The Big Issue Invest on the Rental Exchange, which will recognise rent payments on credit reports for the first time, means that, as things currently stand, 1.2 million social housing tenants are in line to benefit and we expect 83% to see a noticeable improvement to their scores as a result of this new data.

The launch of Open Bank APIs into the UK banking system is also a landmark event, offering up additional, relevant data sources that can drive better decisions, wider financial access, more tailored product and a better customer experiences.

It is incumbent on all of us – the business community, policy makers, regulators, consumer groups – to work together to help people understand what information exists about them, where it goes, what it means, and how they can use it to better their own situations.

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