- New sources of data, including rental and benefits data, can help individual households access credit
- Analysis for the Financial Inclusion Commission suggests that public sector information could make an additional 4.8m consumers more attractive to mainstream and lower cost lenders.
- Evidence shows a jump from 39% to 84% in digital identity authentication when rent data is included in credit files. In over 70% of cases, tenants have an improved credit score when their rental data is shared
(London: 20 September 2017) – The Financial Inclusion Commission (“FIC”), a cross-party campaigning body of Members of Parliament, Peers, social policy leaders and industry experts supported by Mastercard, has warmly welcomed a new report published today into the benefits of data to increase financial inclusion.
The report, Credit where it’s due: Overcoming the barriers to mainstream credit with data, investigates how new sources of public sector data, including rental and benefits data, can be used to widen access to mainstream affordable credit.
The report finds that 17% more people lack financial resilience than are in relative poverty - this increases to 47% for those in work. The measure used local authority administrative data together with information from the Living Costs and Food survey alongside family size and location to compare income with the anticipated expenditure of the household.
The report finds that lower cost lenders could be willing to lower their income thresholds for loans if they had access to additional information on household income and earnings. Lowering the threshold from £15,000 to £12,000 per annum could make an additional 4.8m consumers more attractive to mainstream and lower cost lenders.
Data from Rental Exchange shows a substantial increase from 39% to 84% in digital authentication for social tenants when rent data is included in credit files. The report also found that some 76% of tenants have an improved credit score when their rental data is shared.
New data sources can help the process for accessing credit in three ways: identification and verification; creditworthiness; and affordability. By verifying identities and supporting creditworthiness through credit scores and in affordability assessments, new sources of data can simultaneously help individual households gain access to credit and help lenders make accurate financial decisions.
Yet more needs to be done to unlock these benefits. The report recommends that:
- Government legislates to open up data sharing between public bodies, credit reference agencies and lenders, building on the progress already made in Open Banking, and on the greater use of public data and ‘digital by default’;
- Regulators and industry educate mainstream lenders of the benefits of wider data sources in the credit process;
- Government better educates the public about the purpose and benefits of opening up data.
Commenting on the report, Sir Sherard Cowper Coles, Chair of the FIC, said:
“Our 2015 report, Financial Inclusion: Improving the Financial Health of the Nation, found that an estimated six million people are unable to access mainstream credit in the UK, leading them to borrow from unscrupulous lenders and worsening their financial exclusion.
“New sources of public sector data can be used to widen access to affordable credit, and the roll out of Universal Credit provides an opportune moment for this. We call on the government to take action in this area to make better use of data and information sharing. The benefits to low income consumers and wider society are too great to be ignored.”
The Financial Inclusion Commission is supported by Mastercard, but remains wholly independent. Promoting financial inclusion is a global corporate objective for Mastercard and supporting the work of the Financial Inclusion Commission is a key part of our efforts to promote financial inclusion in the UK. Mastercard believes that all people should have an opportunity to participate in the economy. Our payment innovations, such as prepaid and mobile solutions, as well as our philanthropic and consumer education programs, bring the benefit of finance to the unbanked and underbanked, helping them build a stronger future for themselves, their families and their communities.