Importance of Real-Time Data

Shiona Crichton - Moneyline CEO

22nd May 2024

For many households, particularly those with low incomes, accessing credit products that meets their financial needs is difficult. I often hear that increasing your credit score will give you access to more credit, but it’s just not that simple. Loan decisions are based on your affordability and ability to pay back the loan, with each lender deciding how much risk they are willing to take. This risk decision usually takes into account the credit score, alongside other data.

Which Credit Score? 

Before we talk about real time data, let’s look at what a credit score is. One of the key misconceptions is that there is ‘a credit score’. Unfortunately, that is just not true, with lenders being able to choose from a multitude of credit scores from each of the CRAs (credit reference agencies). Also, not every lender shares data with every CRA, which means there is credit gaps in the information they are using to create the scores.

In addition, making all repayments on time doesn’t necessarily improve your credit score! Did you know that even if a Moneyline customer pays back every payment on time, it can still reduce their ‘main credit score’ as we have an APR over 100%? In fact, taking out any short-term credit can negatively impact your credit score, even if you don’t miss any payments. There are lots of different factors that go into credit scores. Unfortunately, for low-income households who are often renters, may move house more and take-out short-term credit, good payment alone makes it hard to improve your credit score by a meaningful amount. 

Open Banking Affordability Assessments 

Let’s look at Open Banking (in this case narrowed to accessing bank statements) which is real-time. It’s right up to date and it allows the affordability assessment to be automated which is a huge efficiency and time saver for many organisations.  

However, it is most effective for people who have 1 main bank account that they use to pay bills by Direct Debit. How many of us have all our bank accounts with 1 bank? It’s not so great for our customers who pay many of their bills by keycard, buy things using cash and have multiple bank accounts to move money around to manage their budget. In most cases we cannot complete a full automated income and outgoings review/assessment for our customers using Open Banking alone. 

There are also organisations who look like they may try to swerve the Open Banking algorithms by changing the descriptions they use so the correct categorisations can’t be applied – a new game for some online gambling companies? And of course, automated or not automated, bank statements only show you what is getting paid, not credit that isn’t getting paid. 

The Role of Real-Time Data 

So, if credit scores aren’t the answer and Open Banking doesn’t work for many low-income households, why do I want real-time data? Firstly, I should confirm I would like real-time, complete and accurate data – not just real time. This allows for quick decisions to be made, which is what consumers have come to expect for credit. Because our customers lives are often financially complex, we need to use lots of different data sources added together to assess affordability now and for the term of the loan. There is not one source that does it all and I don’t expect this to happen – we just need to work on making each source as good as it can be for the purpose of improving customer outcomes. Customer expectations of fast decisions won’t go away and if we can’t offer it, they may go elsewhere. One reason why illegal money lenders are attractive is that they are quick and have less barriers than many credit firms. 

Delayed data

There is an option to do real-time data share at the moment with the CRAs but few smaller organisations choose to do this due to cost and if everyone isn’t doing it, it’s not worth the extra cost. 

The delay in updating credit information, which can be up to 6 weeks due to the timing of monthly submissions, can result in outdated and inaccurate credit assessments. This delay can mean that recent improvements in a person’s financial behavior, such as timely payments or reduction in debt, are not immediately reflected in their credit score.  

More detrimentally, we can’t see what new credit has been taken out and rely on the customer telling us or it showing on bank statements (which BNPL or credit taken out for goods won’t). If someone sees an impending cash shortage due to a change in circumstances such as a job loss, a natural behavior is to get cash in now so you can keep paying the bills. This stacking of credit over a short term is another good reason why real-time data is needed, so we can ensure that as a lender, we don’t add to this problem. 

I mention above BNPL, a hot topic over the last few years and the conversation has been on regulating this product. In my view, while regulation may help put some onus on the providers of BNPL, it won’t help us with the gap of seeing BNPL information quickly. With the current time lag, by the time we can see it on the credit file it’s nearly paid off! 

Financial Inclusion

At Moneyline, our mission is to improve the financial resilience of low-income households by providing affordable and accessible credit options. We believe that real-time, complete and accurate data can play a pivotal role in achieving this mission. There are too many gaps at the moment, with data focused on the population that have a mortgage and pay by Direct Debit. 

In the UK, we need to create a structure where it is easy, low cost and mandatory for every credit provider, including BNPL providers, to share credit information immediately. It would also be great if other information such as rental payments could also be shared where, there has been some work but not enough. 

I also want a way which we can all share our data once and the CRAs access it from a central source. This way, you can get a complete view of a customers credit profile.

Lastly, in an ideal world I would love Open Banking to link between banks to allow us to see all a customer’s accounts and also for organisations such as PayPoint to work with open banking providers to close the information gap on customers who pay their bills this way. 

There is more and more data available for decision making, but it’s lacking quality to provide powerful information. 

I would love to hear what you think by either leaving a comment or contacting me directly by email at  shiona@moneyline-uk.com. 

 

Share this post

Stay up-to-date with our articles