Half of lenders can’t spot financial stress until it’s too late: Experian

Many lenders lack the data and technology necessary to assess borrowers’ creditworthiness, Experian says.

Many Australian lenders lack the data and technology necessary to assess the creditworthiness of borrowers, according to Experian.

Many Australian lenders lack the data and technology necessary to assess the creditworthiness of borrowers, global debt bureau Experian says, highlighting a gap that is putting people at risk of irresponsible loans and financial stress.

A survey of 75 credit officials conducted by the information company last October showed 53 per cent said they don’t have access to the data they need to assess the creditworthiness of customers and make proactive and responsible lending decisions.

Nearly two in five also said their institutions were largely ineffective in proactively identifying customers at risk of financial stress.

The findings come as the fastest interest rate increases in generations and the rising cost of living are squeezing household budgets and increasing hardship levels.

The survey of risk leaders included risk officers at major banks and regional lenders, as well as those from non-bank lending institutions, Experian director of client advisory Charlotte Rankin said.

“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,” she said.

“But being able to do that in a streamlined, proactive and responsible way is where the difficulty is coming in.”

Some of the lenders don’t have access to the relevant information because they lack the systems required to handle large volumes of data.

For others, access is not so much a problem, but using the data efficiently to assess the creditworthiness of customers in a responsible manner is what most struggle with.

“Some of these organisations will be limited by their systems in what they can get out of credit reports … and transaction data,” Ms Rankin said.

“It’s such a large volume of data that to bring it in and use it to make quick decisions in a digital fashion is quite difficult.”

Almost two in five of the financiers surveyed said their companies were either ineffective or slightly ineffective in proactively identifying customers in financial stress, while only 16 per cent said they were “highly effective”.

Over half of lenders are blind to customer financial stress until they missed payments, with 55 per cent of respondents saying the earliest their organisation could reliably identify that someone is in a position of financial stress was not until they missed a repayment.

Almost a quarter of the lenders said they didn’t know if a customer was in financial stress until that customer notified them, Experian said.

“It’s never been more important for lenders to be able to proactively identify when a customer’s financial situation has changed,” Ms Rankin said.

“Using the data and technology available, lenders can intervene sooner to help customers minimise financial stress and maximise financial wellbeing.”

The Australian Securities and Investments Commission has put pressure on lenders to ensure they have appropriate systems in place to handle hardship requests. Last year the regulator launched court action against Westpac for failing to respond to hardship notices from customers.

Last month, the industry body charged with overseeing good behaviour from the nation’s banks – the Banking Code Compliance Committee – warned an increasing number were failing to support customers facing financial hardship, and in some cases sending debt collectors after borrowers despite agreeing to recovery plans.

The Australian Financial Complaints Authority this week warned of an “unsustainable” surge in complaints past 100,000 cases, as hardship surged during the year while scams on customers also increased.

Ms Rankin said more organisations were investing in technology to be able to incorporate timely data into the lending decision more effectively, but more was needed.

“It takes time,” she said. “You can’t just turn the system on and have it working.”

The process involves testing, ensuring the data is secure and fit for purpose and making sure any decisions supported by the data can be articulated to stakeholders, including consumers.

The survey also found that two in three – or 64 per cent – of risk leaders said limited resources and expertise were holding back their risk management systems.