2 in 3 Australian lenders say they are likely turning away creditworthy customers due to lack of data; new Risk Radar report finds

  • 61% of Australian credit risk leaders acknowledge poor lending decisions could put customers into financial hardship – highest of APAC nations surveyed.
  • Less than half of Australian credit providers are maximising the wealth of data available.
  • 70% of lenders identify modernising legacy systems as a top credit risk priority.

 

AUSTRALIA, 28 October 2021: Global information services company Experian has released its inaugural Risk Radar report, examining key priorities and concerns of Australia’s most senior risk leaders across the lending market. The industry-first report shows lenders are taking a cautious credit risk approach while they invest in more technology to better analyse data and assess applications accurately, which in the meantime could limit would-be creditworthy borrowers’ ability to access the level of credit wanted without placing themselves in financial stress.

COVID-19 impacts on loan deferrals, rising house prices as well as proposed changes to Responsible Lending regulations are the key macro trends influencing risk leaders’ conservative strategies. This comes as almost two thirds of the report’s Australian respondents acknowledged poor lending decisions could put their customers into financial hardship, while 78 per cent said improving regulatory compliance was a top priority.

Experian’s General Manager of Decision Analytics A/NZ, Mathew Demetriou, said: “Lenders are having to stay ahead of, and respond to, a changing regulatory landscape. For instance, the government announced earlier in the year the potential to wind-back some of the more onerous lending regulations, while more recently, the RBA signalled a tightening of mortgage lending criteria to cool the property market.

“Lenders may find themselves caught between a rock and a hard place. Lenders want to do all they can to help borrowers achieve their financial goals and avoid facing hardship or defaulting on loans. However, they must also balance this with the need to remain competitive,” said Mr Demetriou.

MoneyPlace’s Chief Risk Officer, Paul Abbey, said: “There are ongoing macroeconomic factors and implications of vast areas of the country having been through lockdowns. While 2020 was much more resilient and upbeat than most people expected, some of those tailwinds remain, but headwinds are gathering strength.” 

Harnessing technology to remain competitive

The report identified the challenge of balancing speed, accuracy and compliance, with lenders losing market share if they are too slow with approvals, particularly as nimble fintech entrants compete with rapid customer acquisition and onboarding experiences. Experian research conducted earlier this year highlighted that half of Australian consumers expect a home loan approval within 24 hours, and 75 per cent expect approval within 3 days. 

“The key challenge for traditional lenders is to remain competitive through fast approval and onboarding processes, while still meeting regulatory obligations,” Mr Demetriou said.

The Risk Radar report found lenders are acutely aware of the role technology must play in overcoming this challenge as 7 in 10 risk leaders identified modernising legacy systems as a top credit risk priority, while almost two thirds felt the same about leveraging new data sources.

However, awareness didn’t necessarily translate into investment, with less than half of Australian risk leaders thinking that their business was accessing all of the data sources available to them.

“There is a vast array of consumer data that is now available to modern lenders beyond traditional banking, credit bureau and employment information. This includes digital transaction, BNPL and subscription data, amongst others. Therefore, we are seeing growing demand for systems that can help lenders to analyse this information to make informed, actionable decisions.

“Decisioning technology that applies automation, data and analytics at the point of customer acquisition, can not only improve the speed of approval for a better customer experience, but also ensures responsible lending obligations are met. This helps to reduce the risk of defaults and likelihood of hardship down the track.

“Sophisticated credit risk models using new technology can ultimately help improve customer management, reduce credit losses and minimise fraud,” said Mr Demetriou.  

ENDS

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