Experian warmly welcomes the opportunity to submit written evidence to the House of Lords Select Committee on Financial Exclusion.
Experian is the leading global information services company, providing data and analytical tools to our clients around the world. We help businesses to manage credit risk, prevent fraud, target marketing offers and automate decision making. We also help people to check their credit report and credit score, and protect against identity theft.
We employ approximately 17,000 people in 37 countries and our corporate headquarters are in Dublin, Ireland, with operational headquarters in Nottingham, UK; California, US; and São Paulo, Brazil. Experian plc is listed on the London Stock Exchange (EXPN) and is a constituent of the FTSE 100 index. In 2015 and 2016 we were named by Forbes magazine as one of the ‘World’s Most Innovative Companies’.
Our credit report and scoring services enable us to identify and advise where and when financial exclusion becomes a significant risk. For example, Experian, in partnership with Big Issue Invest (the social investment arm of The Big Issue Group) have been working together since 2012 to develop The Rental Exchange, to tackle the financial, digital and social exclusion challenges faced by rental tenants in the UK compared to homeowners.
The Rental Exchange incorporates a tenant's payment history in their credit file in a secure and compliant way, with no cost to either the housing provider or tenant. By observing rental payment data in the same way we view mortgage payment data, we can unlock a range of benefits for tenants, housing providers and credit providers.
Response to call for evidence
1.1. Financial Exclusion is first and foremost defined by a lack of access to financial services, even those as basic as a current account. Every consumer is different so the causes of this problem are numerous and complex but there are a number of common factors which limit a person’s access to financial services.
1.2. Income is clearly an underlying contributor to financial exclusion whereby consumers are not able to afford the services they require. The issue of bank branch closures has also been a recurring theme, particularly with recent press attention. This may be compounded if users have restricted mobility which is a growing concern with an ageing population.
1.3. Using our own proprietary sources and modelling, Experian is able to develop a clear picture of the UK in terms of debt, poverty and financial exclusion. A key input for this modelling is Mosaic Public Sector, a version of Experian’s consumer classification but designed for use in the Public Sector. In the past, we have used this information to highlight specific regions in the UK which are most likely to contain households at risk of financial exclusion. We are more than willing to work with the Committee in this space to assess those parts of the UK most at risk from financial exclusion, develop remedies and help target interventions.
1.4. Additionally, our previously mentioned work with Big Issue Invest highlighted a number of interesting considerations about how financial exclusion can affect different groups; in this case the split between tenants and homeowners.
1.5. Research carried out in 2009/10 by Big Issue Invest supported by Friends Provident Foundation and the Joseph Rowntree Foundation revealed similar levels of credit applications between tenants and homeowners. However, in general, tenants are twice as likely to be declined as homeowners, and despite credit screening are twice as likely to default.
1.6. This makes lenders wary of the tenant market, yet interested in the potential of new data to improve their credit assessment process for tenants. Adding in social housing rent-payment data to an industry-standard, credit scoring model developed by Experian resulted in a significant improvement in the predictive power of this scorecard for the thin and empty file population. The analysis also found that rent-payment data sharing would significantly improve tenants’ ability to pass electronic identity authentication tests, which are routinely used to access financial and other services.
1.7. Recent analysis based on the Experian Rental Exchange database validates the original research thesis and demonstrates the following benefits to tenants:
2.1 Effective financial education is crucial in tackling financial exclusion. We need to be mindful of varying consumer needs – for example, young people face different challenges to old people – and tailor our approach accordingly.
2.2 Experian supports the work of charities in this space, such as Young Enterprise, who have developed a financial education framework for young people. This provides a starting point for teachers and others involved in financial education to identify key topics that are appropriate and relevant to young people of different ages.
2.3 We support the inclusion of financial education into citizenship classes in schools. In order to maximise the impact of these changes, we need to make sure that those delivering the education are well trained and have access to the latest resources. Research carried out by the Money Advice Service has shown by the age of seven children have developed their attitudes and values towards money, so intervention at a younger age also needs to be considered.
2.4 We have done a lot of work in this space, including through a partnership with the Personal Finance Education Group (pfeg), to ensure that children develop a better understanding of money at a young age through the creation of centres of excellences schools around the country. In 2012 Experian also launched a free, online financial education resource for teachers and pupils called Values, Money & Me which many schools are now using to help deliver money lessons in a fun and engaging way.
2.5 Outside of the education system, the private sector is playing an increasing role in helping adults to understand their personal finances. Much of this has come through technological innovations, giving consumers access to banking services on their mobile devices and online.
2.6 Experian has run a wide-ranging consumer education programme for the last twenty years to help people understand credit reporting and use that knowledge to better manage their borrowing, develop stronger credit histories and qualify for better deals. Developing a credit profile also helps people pass online identity checks as many of these now are powered by credit history information.
3.1. Encouraging people to take responsibility for their own financial affairs is important but access to services and information is a precursor to this. Early intervention in schools, as described above, is an effective way of ensuring that generations to come are aware of financial services and do not suffer from avoidable financial difficulties. This is being achieved through a successful partnership between government, charity and the private sector.
3.2. A greater, and arguably more pressing, need is to address those in the adult population already suffering from financial exclusion.
4.1 We broadly agree with regulatory steps to cap payday loans. Aside from the additional debt burden associated with these loans, our experience suggests that many lenders view payday loans as a sign that an individual’s finances are under pressure and are likely to make their lending decisions on this basis. This is a matter for the lenders themselves but we welcome any steps which have a positive impact on consumers’ credit report.
4.2 Ensuring that consumers have access to affordable credit can be achieved, at least in part, by ensuring they are fully aware of the factors which affect their credit score. As well as our work in education, Experian provides free advice and online resources to all of our customers to help them improve and manage their credit score. We would welcome further cooperation with Government in this specific area to raise awareness of the factors affecting credit scores and the steps people can take to increase their access to affordable credit.
4.3 In 2016 Experian launched a new free online price-comparison service CreditMatcher that gives everyone free ongoing access to their Experian Credit Score and then helps them use it to get better deals on cards, loans and mortgages. The service is designed to help people find credit products they are likely to be accepted for that can save them money.
5.1 Government has a role to play, but we believe that any meaningful change must be brought about through a partnership between policymakers, industry and charities – who, as we have already outlined, are already effectively working with the private sector in this space.
5.2 In terms of the impact of governmental reforms, we would welcome the opportunity to work with policymakers to assess the impact of any reforms or proposals. Addressing financial exclusion is a long-term issue and our data and modelling can be used to indicate shifts in poverty, debt or financial exclusion levels.
6.1 FinTech has two advantages: (1) financial management on the go (“mobile”); and (2) automation (“do it for me”). Both these factors lead to simplification of financial tasks. Not only can they be done at a time convenient for the consumer, they can also be automated, for example by displaying aggregated income and expenditure data, mobile alerts and notifications, automation of transfer of information, and greater security (e.g. fingerprinting).
6.2 Financial exclusion can be helped when looking at financial services from a distribution angle – where consumers are and then being there for them – in FinTech’s case, on mobile, and doing so in a way that is highly automated, but personalised and timely. The government can help with encouraging and regulating FS providers to open up data sources which then facilitate automation and information exchange. This will enable FinTech developers and other FS providers to come up with needs-based services that help consumers manage finances in a way that’s convenient and understandable to them.
15 September 2016