CI: Do you see significant changes in consumers’
attitudes to credit?
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MG: “In ‘old’ continental Europe, there are still
a lot of issues to do with educating people about the benefits of
consumer lending. Meanwhile, the challenge in ‘new’ Europe is about
managing growth and risk.
“I’m concerned about the growth levels and bad debt potential in
some of these newer credit markets. Many players have a credit
scoring infrastructure in place, but there is huge pressure on
lenders to grow their business faster. Multinationals, on the other
hand, know that risk management is important. They have it
ingrained in their culture. There are managers in these
organisations who have lived through good and bad times. That’s why
our clients, such as GE Capital in China, are keen to have decision
analytics and credit scoring tools in place.
“On the other hand, a lot of managers in local banks in Central and
Eastern Europe and China have never seen a bad credit cycle –
unlike South Korea, for example, which experienced an explosion in
bad debt in the early days of its development of a consumer credit
market, and has now warmly embraced credit scoring. We spend a lot
of time with our clients to devise credit policies and to help them
manage bad debt proactively.”
CI: Major credit markets such as the US and UK are
facing high levels of consumer debt. Has this been exacerbated by
many UK mortgage lenders now lending based on affordability rather
than salary multiples?
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MG: “Our view of the bad debt problem in the UK is
that it is largely an affordability and indebtedness issue, more
than a delinquency issue. In the UK market Experian has now
launched affordability scores in addition to our traditional
delinquency scores to help lenders with both issues. Affordability
scoring is part of the solution, not the problem. The high level of
impairments that UK banks will report in their 2006 results is
going to be very high.
“Banks used to look at debt and previous delinquency in terms of
how much the customer wanted to borrow. Now they tend to look at
the level of debt compared to income in order to identify those
customers who are likely to be over-indebted.
“However, when a bad debt problem hits a lender, it’s too late to
invest in a solution. Lenders need short-term measures to recover
quickly. For existing customers, these could include limit
management to tighten credit lines, and for new business this could
include using affordability as one of the criteria, and being
smarter in how lenders go about deciding credit limits and who they
lend to.”
CI: Do you expect to see more banks using credit
bureau data for marketing purposes?
MG: “In some markets like the United Kingdom,
there are restrictions on how this data can be used. We need to
distinguish between lenders marketing to their own customer base
and marketing to new customers.
“Within organisations, we have seen a cultural change in how
lenders market across products. Traditionally, banks operated in
product silos, each with their own marketing budgets. These would
often be going after the same clients. Now they’re asking, ‘Based
on the marketing budget I have, should I sell a loan or a credit
card to this customer?’ This is still an emerging trend; however,
those doing it successfully are seeing up to 30 to 40 percent
increases in customer response rates.”
CI: What role do collections play in managing
levels of consumer debt?
MG: “Collections are a big issue, especially in
emerging markets, and it is needed from day one. A lot of
collection work in emerging markets is around educating consumers.
Once they’ve used a credit card or taken out a loan, many consumers
don’t know how to repay the balance. The fraud aspect here is also
important: you don’t handle in the same way a first payment default
and someone who has been a good customer for years and who has just
defaulted. Segmentation and profit-driven collections strategies
are the key drivers of a good collections process.”
CI: What do you see as the next major development
in credit scoring?
MG: “Managing lending portfolios for profit is
becoming increasingly important. It aims to bring both the
marketing and credit drivers together to decide how best to define
the amount to be loaned, price, loan duration, etc. With the
technology in place, lenders can reach a better decision on the
most appropriate products to spend their marketing budget on, and
what specific terms of the offer would maximise profits. So credit
scoring is not just about ranking customers any more, but about
optimising all credit decisions for profit.”
CI: There are some potentially huge markets for
both local and multinational consumer lenders, especially in the
BRIC countries (Brazil, Russia, India and China). How important are
these markets for Experian?
MG: “We see the BRIC countries as having enormous
potential as their consumer credit markets develop and grow, often
with our help to ensure that they develop profitably and in a
sustained manner. We’ve been in the Chinese market for 18 months
already, and a number of clients are already using live Experian
systems. We have also opened an office in Beijing.
“The whole Asia-Pacific region is important to us. We have helped
banks in South Korea come out of the bad debt crisis and we’ve also
seen a lot of recent successes in Japan. We’ve been able to help
clients with automated decision tools. We also have a big base of
customers in Russia and have been in Brazil for over ten years.
Experian has also helped a lot of clients to grow their lending
portfolios across Spanish-speaking Latin America, especially in
markets such as Chile and Argentina.”
