NAB to pioneer comprehensive credit reporting

NAB will be the first major bank to share positive and negative credit information with credit bureaus.

NAB will roll out comprehensive credit reporting by next February.

National Australia Bank will be the first major bank to share positive and negative credit information about its customers with credit bureaus, saying it will start to roll out comprehensive credit reporting by next February.

NAB’s move, which will increase the amount of information held by companies like Veda, including credit limits and loan repayment histories, will intensify pressure on rivals to accelerate their own CCR plans, ahead of Wednesday’s third grilling of the major-bank chief executives by the David Coleman-chaired parliamentary economics committee.

Policymakers believe that widespread adoption of CCR and the trend towards open banking will increase competition in a sector dominated by the nation’s big four lenders.

Ultimately, it could also lead to the introduction of risk-based pricing, and in the short term lower the risk of a mandated CCR solution.

The Turnbull government is already working on draft legislation for the end of the year after painfully slow progress on a voluntary regime.

NAB chief operating officer Antony Cahill told The Australian it was inevitable that the industry would eventually adopt CCR.

“This will lead to better outcomes in terms of the availability of credit,” Mr Cahill said.

“There’s not really a clear commercial upside for us in going first, but we hope our move will encourage others to follow.”

Despite legislation in March 2014 to enable CCR, and strong backing for sharing financial data by the financial system inquiry and two Productivity Commission reports, progress has been limited.

The Turnbull government, as recommended by the PC, is preparing draft legislation for the end of the year if voluntary participation in CCR fails to exceed 40 per cent of all active credit accounts.

As of now, the figure is less than 1 per cent, and the dial has barely shifted for years.

While 29.5 million accounts are shared in “private” mode, mainly for analytical purposes, the data is not mutually accessible to other institutions.

The real benefits of CCR start to kick in when there’s widespread, open access to both positive and negative data.

Access to reliable information about borrowers enables informed decision-making by banks about who they should lend to and at what price. The less data they have, the greater is the risk of making poor lending decisions to borrowers who are unable to meet their repayment obligations.

Conversely, customers could benefit if they are better credit risks than their negative credit reporting might suggest.

The fintech industry is a huge supporter, as well, with start-ups facing a significant barrier to entry due to information imbalances.

Mr Cahill said NAB would conduct a phased rollout of CCR to ensure a smooth transition and no unintended consequences.

The rollout would start with personal loans, credit cards and overdrafts and then progress to other products.

The NAB chief said CCR would help banks deliver responsible lending outcomes by providing a more complete picture of the customer.

In the US, CCR had also facilitated risk-based pricing of loans.

“It’s not going to happen here on day one, but as the industry builds its understanding and there’s more data shared, you will potentially see that happen,” Mr Cahill said.

Proponents of CCR, including the David Murray-chaired financial system inquiry, have also said it will help customers switch accounts between institutions.

Experience shows that the benefits multiply once the data pool deepens.

The pressure on holdout banks increases, as well.

Daniel Foggo, chief executive of the marketplace lender RateSetter Australia, said last month that game theory would only kick in after at least two of the four major banks signed up.

One of the banking industry’s big concerns about CCR in the wake of last month’s massive hack on Equifax, one of the three main credit reporting companies in the US, is the security of huge data storage facilities.

Mr Cahill said the focus on data security “needs to lift”.

“What we need is the highest possible standards,” he said.

NAB backs the industry’s position in the federal Treasury’s Open Banking Review conducted by King & Wood Mallesons partner Scott Farrell.

In its own submission to the review, the bank says any requirements for transferring data to third parties need to be supported by a system of accreditation or authorisation for third parties.

This would be undertaken by a new body to ensure that third parties, such as credit bureaus, have the appropriate security measures and capability to protect the data.

“Without such a system, NAB would be unaware of a third party’s data management standards and practices,” the submission says.

“Only third parties who can demonstrate robust security processes should be allowed to receive or access data.”