This article was originally published on the Finextra Blog here, written by Jonathan Westley – Chief Data Officer @ Experian UK & EMEA.
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 subscription 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 will be 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.
For example, someone without a loan repayment history on their credit report might be making regular, accountable payments for an online subscription service. These payment histories could demonstrate to lenders that an applicant can afford to repay a loan they’ve applied for, even in the absence of enough traditional financial information to inform the same decision.
In the current context, this information could be vital. As many lenders prepare for a surge in people requiring some form of support following the expiration of agreed furlough schemes, freezing of interest and charges, and the end of emergency payment holidays.
Against this challenging backdrop, there’s even more of a need to make a sound assessment of vulnerability and affordability, which requires 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. 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.
In the US, we have introduced Experian Boost, which allows individuals to add positive financial data – such as savings and investments payments, subscriptions and utilities bills – to their credit file, boosting their credit scores in the process.
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 the road to recovery.