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55% of lenders lack data to assess creditworthiness: Experian

Lenders have indicated they do not have access to data they need to make responsible lending decisions, Experian has found.

The 2023 Experian Risk Radar Report has revealed that 55 per cent of Australian lenders and business leaders said they lack the proper access to the data required to assess creditworthiness of customers in order to make proactive and responsible lending decisions in the current economic climate.

The report took responses from a survey of 75 risk leaders along with research commissioned from Forrester of 889 financial services and telco leaders.

The survey revealed that only 16 per cent of risk leaders indicated that they have sophisticated enough data in order to identify red flags in transaction data, while two in five lenders did not rate their ability to proactively identify customers in financial stress with 23 per cent stating they were “slightly effective” and 16 per cent said “ineffective”.

Additionally, 23 per cent of lenders said they did not know a customer was facing financial stress until they were notified by their customer and 55 per cent of risk leaders said the earliest that they could reliably identify that a customer was in financial stress was not until they missed a repayment.

Charlotte Rankin, director of client advisory, credit services, commented that it’s “never been more important” for lenders to have the ability to proactively identify when a change in a customer’s financial situation has occurred.

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

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“With two in three (64 per cent) risk leaders saying that limited resources and expertise are holding back their risk management systems from being the best they can be, it’s clear that more investment in technology is needed if businesses want to successfully navigate through today’s economic climate.”

According to the report, changes to regulations for buy now, pay later (BNPL); Comprehensive Credit Reporting (CCR); and Consumer Data Right (CDR); a focus on compliance; and the fluctuating property market were the key external influences that have put pressure on risk strategies.

As such, 77 per cent of Australian lenders are exploring AI and new data sources to navigate a heightened risk environment and better understand risk in their portfolio.

“AI and data are at the heart of understanding creditworthiness and providing a better customer experience in this financial climate,” Ms Rankin said.

“The race to implementation is well underway with adoption across most use cases set to double in the coming year as the vast majority of early adopters (77 per cent) have already seen a competitive advantage.”

[RELATED: Signs of credit rise improve despite higher rates]

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