Written evidence submitted by Equifax

[SME0058]

Overview

• Data on SMEs  has an important role to play in supporting increased and responsible lending to Britain's small and medium sized enterprises
• Credit Reference Agencies (CRAs) including Equifax are central to facilitating data provision
• Government action in the Budget will help to increase the availability and effectiveness of data on SMEs, thereby helping to enable increased levels of responsible lending
• Further action to increase SME data sharing would support greater access to finance by SMEs

About Equifax

1. Equifax is one of the leading credit reference agencies (CRAs) in both the UK and worldwide. In the UK, Equifax operates as one of 5 principal commercial credit reference agencies, as well as operating a consumer credit reference business. In practical terms, our work includes providing business information, credit checking, anti-money laundering, fraud prevention and other services to our customers who include major retail banks, utilities and telecommunications companies, public sector organisations and individual companies and consumers.

Current situation

2. Equifax recognises the Committee’s concern regarding the relatively low levels of lending to the UK’s small and medium sized enterprises and the impact this may have on the UK’s economic growth. We therefore welcome the Committee’s determination to undertake a thorough inquiry into the SME lending market.

3. While there are a range of factors affecting the provision of, and access to, finance amongst SMEs, in this short submission we want to highlight the important role that data and increased data sharing can play in helping more businesses to access finance responsibly. 

4. Business current account data is sparsely shared at present.  Its sharing is typically limited to details showing no more than the existence of an account and the date it was opened and there is currently no industry wide initiative which shares business current account credit turnover data with multiple CRAs.

5. CRA data is used by virtually all sectors and markets from a small company checking out new customers to banks who integrate data into their own processes and scorecards used for loan and other business finance applications. CRA customers typically use the online service available from CRAs to obtain a credit report on an existing customer or potential customer.  These are generated in real time along with credits scores, credit limits and/or recommendations.

6. Credit reports are used to verify credit applications and help in establishing whether to trade and set credit limits. They are also used to help prevent fraud.

7. Some businesses will monitor their customers with a CRA and be notified of changes on a daily basis. Such changes can be positive and result in credit scores and limits increasing. This helps businesses grow through accessing higher credit limits.           

Improving Data Sharing

8. To maximise the potential effectiveness of the data being shared and to optimise credit scoring and other creditworthiness and affordability assessment tools, turnover data showing all payments in and out of a business’s current account would be particularly useful to lenders.  However, great value could also be gained from sharing the total monthly credit and debit amounts.  

9. To this end, we support the Government’s intentions to improve lending levels through a more integrated system of data sharing. As confirmed in last week’s Budget, the Government will shortly announce further details of its proposal to require banks to share information on their SME customers with other lenders through CRAs. The Government has committed to legislate in the next session of Parliament to ensure this.

10. We believe this will create a significant difference to the SME lending market with lenders, both current and new entrants, able to make better informed decisions. We are committed to work with the Government to ensure the benefits of the new data are maximised as quickly as possible.

11. Alongside Government initiatives, Equifax is working with the wider industry to improve the quality of data in the SME lending sector. Essential to achieving this is the practice of voluntary sharing of credit data across all CRAs as is the case with information on consumer borrowings. For voluntary and reciprocal sharing to function correctly, it is essential that information on all credit granted should be shared to ensure responsible lending.

12. These conditions are based on the model that has worked well for many years to facilitate consumer credit data sharing, where there is an understanding that CRAs accept each other’s input file formats, thus limiting the development costs to one file format. We are not aware of any evidence that the reciprocity arrangements have ever been a barrier to credit providers entering the market.

Summary

13. In summary, we believe there is an important role for increased data sharing to support both increased lending and more responsible lending to UK SMEs. Outlined in Appendix 1 are some of the broader conditions we are believe are important if these two objectives are to be realised.

We welcome the opportunity to respond to this inquiry and are happy to correspond on any follow-up or related questions that may arise from our response.

Yours sincerely,

Neil Munroe

Director, External Affairs and Communications, Equifax Ltd

March 2014

Appendix 1 – Key conditions for data sharing in the SME lending market

• We believe the purposes should be clearly explained via use of agreed standard industry guidance including obtaining clauses or such equivalent (for non-personal data), as used today by consumer and commercial credit providers.  

• The purpose of the data processing should be limited to credit assessment at the point of inbound credit applications and for ongoing credit worthiness assessment during the life of the credit facility. 

• We support the SCOR Principles of Reciprocity as they relate to access to commercial credit data and believe that by applying these rules to both business current account data (including credit turnover information) and other business lending facilities will achieve the objective of wider access to credit data on SMEs.