Loans, EMIs, credit, and mortgage! The world has been increasingly dependent on the lending economy. All in all, the world mostly runs on money that is lent. It is no wonder why most of the countries have insanely high national debts, and banks have been bailed out time and again. But giving away credit is a risky task, as a lot of factors has to be analyzed regarding the creditworthiness of the borrower. The lending organization has to be especially careful to whom they lend money, which includes a complicated and lengthy background check and financial assessment. However, as the world runs on lending, any slowdown in such process may hurt the global economy or halt its progress. This is where credit referencing agencies play a vital role by providing lenders with information regarding individual’s past track record with credit. Credit referencing agencies help lenders in making decisions swiftly and effectively with respect to offering a loan to customers. These agencies share financial information of individuals or business organizations so that lenders can assess credit history, which helps gauge customers’ ability to fulfill future payment obligations.
The procurement market intelligence report by SpendEdge on credit referencing market estimates an impressive CAGR of 6.8% for the market. So what is the reason behind such a remarkable growth? Firstly, the information collected and provided by credit referencing agencies helps potential lenders in efficiently determining the creditworthiness of borrowers. Such information can help lenders in quickly assessing the potential payback capacity of the borrower, calculating risk profile, and determining interest rates. As a result, lenders can reduce borrowing costs, minimize chances of loan delinquencies, ensure smooth flow of credit, and maintain financial stability. Additionally, since credit referencing agencies have complete information about the customer, it can effectively help bankers to minimize instances of fraud. Even though delinquent customers try to use different accounts or create fake accounts to mask default transactions, such agencies can easily pick out such defaulters.
Does it mean the market is flawless?
Although the process of credit reference seems to present itself as a boon within the financial industry, some controversy and challenges are surrounding the players in this market. One of the most significant controversies is that of information authenticity of such service providers. It usually happens when customers that the information filed with credit referencing agencies are false, which leads to denial of credit by potential lenders. As of February 2017, the Consumer Financial Protection Bureau received approximately 185,700 complaints. If the number of complaints keeps growing, then it can have a negative impact on the growth of credit referencing services. Not only that, but instances of data breach and cyber attack also concerns the consumers of such services. The recent data breach incident at Equifax in 2017 resulted in the access of personal consumer data of 700,000 UK consumers, resulting in fake accounts being created and delinquencies being added.
What technologies can augment this market to the next level?
- Equifax Ignite is a DIY solution offered by Equifax, which helps buyers in creating models and scores based on relevant attributes. Using this tool, buyers can gain access to 1.5 petabytes of Big Data that has about 23 data feeds from eight core exchanges along with 60 months of history
- The powercurve tool combines data across credit agencies and client sources, which helps buyers gain a holistic view of prospective customers
- FICO employs AI and machine learning tactics to provide better data and insights about consumer credit information
Read more about the trends in the credit reference market along with supply market insights, procurement challenges, pricing models, and key agencies in SpendEdge’s upcoming report on the global credit referencing market.