More than half of lenders don’t have access to the necessary data
According to a survey conducted by global credit bureau Experian, many Australian lenders are facing challenges in assessing the creditworthiness of borrowers due to a lack of data and technology.
The survey, which involved 75 credit officials, found that 53% of respondents do not have access to the necessary data to make proactive and responsible lending decisions, according to a report by The Australian. Additionally, nearly two in five credit officials stated that their institutions were largely ineffective in identifying customers at risk of financial stress.
The survey findings come at a time when rising interest rates and the increasing cost of living are putting pressure on household budgets and leading to higher levels of financial hardship, The Australian reported. Risk officers from major banks, regional lenders, and non-bank lending institutions participated in the survey.
“A lot of the organisations that I speak to are looking at ways to incorporate credit bureau information and transaction information into their assessments through a more automated fashion and in a more efficient process,” Charlotte Rankin, Experian’s director of client advisory, told The Australian. “But being able to do that in a streamlined, proactive and responsible way is where the difficulty is coming in.”
Challenges faced by lenders
The lack of access to relevant information and the struggle to use data efficiently were identified as key challenges faced by lenders. Some lenders lack the necessary systems to handle large volumes of data, while others find it challenging to effectively assess the creditworthiness of customers using the available data. The sheer volume of data and the need to make quick decisions in a digital fashion pose significant difficulties.
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The survey revealed that over half of the lenders are unable to identify customer financial stress until they miss payments, The Australian reported. Only 16% of respondents considered their organisations to be highly effective in proactively identifying customers in financial stress Additionally, almost a quarter of lenders stated that they only become aware of a customer's financial stress when the customer notifies them.
Proactive identification and intervention
Rankin emphasised the importance of lenders being able to proactively identify changes in a customer's financial situation.
“Using the data and technology available, lenders can intervene sooner to help customers minimise financial stress and maximise financial wellbeing,” she told The Australian.
Regulators, such as the Australian Securities and Investments Commission, have been pressuring lenders to ensure they have appropriate systems in place to handle hardship requests. The Banking Code Compliance Committee, responsible for overseeing good behaviour from banks, has also warned about an increasing number of lenders failing to support customers facing financial hardship.
The path forward
Experian's survey indicated that more organisations are investing in technology to incorporate timely data into lending decisions more effectively However, the process of implementing these changes requires time for testing, ensuring data security, and articulating decisions to stakeholders, including consumers.
The survey also found that limited resources and expertise are holding back risk management systems in many institutions, The Australian reported. This suggests that further investment and development are needed to address these challenges.
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