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Photo: iStock
Photo: iStock

Credit bureaus need to move to the next level

Credit bureaus need to have differentiated offering, especially for retail customers

There has been a slowdown in lending during the current pandemic. While there is an uptick in credit demand, given the festive season, overall discretionary spending is still way lower than previous years; most of the estimates predict that normalcy will get restored by the first quarter of FY22. The last six to eight months have been tough for lenders and customers alike. Among the multiple stakeholders involved in the retail lending process are credit bureaus, also known as credit information companies. They store customer information such as demographics, credit behaviour and portfolio analytics.

Revenue generation for bureaus could be broadly classified into two main buckets: from portfolio management services and on account of fresh acquisitions by various lenders. With a large impact on fresh acquisitions in the current scenario, bureaus have had to step up their game and provide a variety of services to lenders to cover the revenue shortfall. These services include an early warning system using data available with them to detect possible fraud and lead generation programs, cross-tabulated with alternate information provided by a telco or other government agencies to generate fresh business. With non-performing assets (NPAs) on the rise, there is significant focus on products that can help distinguish and separate potential bad customers.

The last six-seven months have been very demanding on the banking system. There has been a never-seen-before moratorium, followed up by restructuring and now “interest on interest" waiver. While credit bureaus have been of immense help during the phase, they have struggled to keep pace with the dynamic requirements laid out by the ministry of finance. More tools are needed to help lenders cherry-pick the best customers, in these unprecedented times of uncertainty, once all these events conclude.

On the other hand, for the retail customer, whose credit transactions data is stored with credit bureaus, there is no real value-added service available. Credit bureaus continue to offer the basic vanilla “pay per pull" bureau report service to the retail customer. Credit bureaus can evolve and offer some differentiated offering to the retail consumer that should enable accrual of benefits to them. For starters, the evolution and development of a more comprehensive composite score, which factors in customer demographics and past performance data. This evolved score can enable an individual to command standardizing pricing, for loan application, reducing their dependence on the lender’s credit risk policy, which does bring in subjectivity. Even the dispute resolution, in case of an error in reporting by any of the lenders, is not standardized and requires persistent follow up by individuals with credit bureaus playing no part in enabling the resolution.

Having stated the limitations of the current offerings, one cannot take away the fact that credit bureaus have played a huge role in democratizing of credit products in the country. With nearly 430 million records, the bureaus are an incredibly rich source of information, which the lenders depend upon to make credit decisions. The bureaus have also developed in-house products, using artificial intelligence and machine learning algorithms, to generate NTC (new to credit) scores, which has enabled financial inclusion and expansion, from the credit perspective. This service enables a fresh graduate, doing his first job, to take credit products. In the bargain, it helps lenders acquire a future “high profit" customer. Lenders have also been able to develop deep programs, using big data analytics, on the hundreds of variables offered by the bureaus, to gain market share in lending.

In summary, credit bureaus so far have played a pivotal role in bringing the credit seeker and provider to a common platform. Given the times, they have a larger role to play, both on the lender’s as well as the retail customer’s sides. Only time will tell how well the bureaus evolve, in terms of differentiated offerings, which could also pave the way for more revenue generation for them.

Adheer Dhar is business head, personal loans, Clix Capital

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