In the UK, 5.8 million people are invisible to the mainstream financial system because there is little or no information available on their financial track record. As a result, this group can find themselves excluded from mainstream finance.
This group, known as “the invisibles”, pays a “poverty premium”. Lenders find it difficult to calculate the risk in lending to these people so decline them, or only offeer more expensive rates. The group includes young people who have not accessed credit before, older people who haven’t needed credit for a long time and people who have recently moved to the UK.
New and appropriate data sources are the key to broadening access to financial services for this group. Experian has made some progress in recent years. Gas, water, electricity and telecom providers have joined the community of organisations that share customer account information with one or more of the credit reference agencies (CRAs), adding depth to many people’s credit reports. From one in eight records five years ago, they now account for one in four records.
Fourteen million consumers have at least one active account on Experian credit reports, and utilities data has been shown to reduce the “thin file” population by about 4 per cent. This is about 1 in 2 UK households, and full coverage would give us a further 4 per cent reduction.
But more can be done. For example, larger energy providers share their data, but many new challenger providers do not. Their integration would make a significant dent in the invisible population. Water companies tend to only share with one CRA. By working with one more CRA, or all three, they could help ensure their customers are recognised for making payments on time.
All organisations in the utilities sector can share customer data with CRAs. Doing so can help businesses to reach more of the market and minimise the risk of potential frustration for people who are turned down for credit because their file is thin. It can also help you retain customers who are aware they are strengthening their credit histories and set you apart from competitors.
New data sources can help businesses make more appropriate decisions about affordability to lend responsibly and keep up with changes in our society.
The sector has the potential to significantly reduce the invisible population, ensuring a fairer consumer experience and showing a more complete picture of their financial position. By doing this, we can help create better outcomes for millions more people.