Jonathan Westley, Chief Data Officer, at Experian UK&I
With the growth of e-commerce and streaming of everything from music to films, online subscription services have become increasingly popular. According to research published by Barclaycard, Britain has become a nation of super-subscribers – spending over £550 a year on new digital services and signing up to an average of seven services per household.
Although interesting to see, these numbers aren’t surprising. There’s no doubt that we are spending more and more of our time online. The Covid-19 pandemic has only served to accelerate the digital disruption we’ve seen across all sectors in recent years.
What’s less obvious is the impact that this behavioural change is having on the provision of financial services. There is a big opportunity to utilise the financial information created through the payment of subscriptions and other digital services to help lenders to understand affordability in a more robust and intuitive way. One which is more appropriate for the digital age.
By building out financial track records with these new sources of information, lenders are able to understand credit risk in a way that is fit for purpose in a rapidly changing marketplace. For the individual, this has the potential to help them access better deals on credit, even when there’s a lack of traditional information to strengthen their credit history.
Challenges to greater data sharing
While the above provides a compelling case for greater data sharing between consumers and financial services organisations, we know there are several entrenched challenges to this.
Firstly, people will only share information if they fully understand the terms of the exchange and place a high enough value on the product or service they receive in return. This value must also outweigh any risk they perceive in sharing. This delicate balance is known as the ‘consent equation’.
While sharing information on their subscription payments could present real value for consumers, enabling them to access more affordable credit, these benefits need to be communicated clearly. Organisations also need to face the risks that people may perceive in how their data is used, shared or stored, and address these through communications.
Process or user experience can be another significant barrier to data sharing. While robust security protocols are paramount, organisations do need to consider the journey people must complete to share their information. Make this too arduous, and people will drop out part way down the road.
Taking the first steps towards the future
While substantial, these challenges are not insurmountable – and the potential benefits to consumers and lenders make overcoming them well worth the effort.
We aim to lead progress in this area with the launch of Experian Boost. The free service uses Open Banking technology to allow consumers to factor information on regular payments, such as their council tax or Spotify subscriptions, into their credit scores. Any information submitted is only used to this end, and to improve rather than negatively impact users’ scores.
In the current context, this information could be vital. While the furlough scheme and its extension over the summer will continue to cushion the financial blow of the pandemic for many, lenders may still see an uplift in the number of people requiring some form of support.
Against this challenging backdrop, there’s even more of a need to make a sound assessment of vulnerability and affordability, which requires a full understanding of a customer’s current circumstances and financial exposure, and therefore the breadth of their indebtedness across all credit commitments.
New data sources created through digital subscription services, as well as those available through Open Banking data sharing, can be harnessed to help develop better credit options for consumers. Experian Boost is evidence of this. The next step of this journey is helping more people to add their own consumer contributed data directly to their credit files and improve their credit scores. By embracing the use of these new and relevant sources of information, made possible through the proliferation of digital services, lenders will be in the best possible position to adapt to the changing consumer landscape and accelerate down the road to recovery.
