28 January 2014Good Hope Chamber

Cape Town

Who & what the Credit Providers Association is Why data matters so much How the world of credit data in SA currently

operates The concerns about the NCA Amendment Bill

proposals The intention of today’s presentation

“Data is to financial well-being as what water is to life”

Voluntary Association of industry players who share payment performance information about their debtors with the aim of making the best credit and risk decisions possible

Non profit Association Name change in progress

Association Participants*:◦ NCR registered credit providers◦ Non-NCR registered providers – e.g. utilities, subscription

services service providers◦ Service providers to full members for data analyses ◦ Credit reporting bureaus

Forum for credit information exchange, but…◦ Very limited information exchange compared to what is allowed

to be reported to credit bureaus within Section 70 of the NCA. In fact only the payment performance and also demographics for purposes of identifying consumers is shared through the CPA forum.

◦ Not without consumer consent.◦ Not without some existing knowledge of the consumer.◦ Only within the permissible purposes and allowances afforded

within the National Credit Act, e.g.: credit vetting, employment vetting at time of application for a job where trust and management of cash or

finances is required, fraud investigation, consumer reviewing his/her own credit profile debtors book evaluations etc.

Factor Features

Specified data layout:

Data reporting frequencies:

Mandatory and optional data fields Positive and negative data

=“gold/black list concept” Common “language” through product

codes and account performance status codes

Consumer & in the future business payment performance data

Monthly for full debtors books and soon within 48 hours for credit extended and accounts closed

Factors Features

Reciprocation principles:

Submissions via agreed transmission mechanisms:–

(i) “The Hub” - portal(ii) Dedicated data lines between members and bureaus for split second responses(iii) Web enabled graphic user interfaces for online enquiries

Authorised access Membership categories “Like for like” Censorship through exclusion where data

is not to standard

Easily controlled and secure transmission of data to 4 hosting bureaus

Return strings of data as negotiated by members with bureaus according to members’ needs and relative to bureaus products offered to their clients

Factors Features

Agreed data quality standards:

Standard operating procedures (SOPS):

Exception reporting – bureaus to members and the Association

Acceptable norms and deviations established and managed

Remedial actions with deadlines Triggers and alerts on problems for mitigating

risks in both data and business decisions

Commonality allows for easy adoption and compliance Rapid identification of deviations Highlights weaknesses and opportunities for data

quality enhancements Promotes legal compliance in terms of data

management and reporting practices

Factors Features

Constitution and Code of Conduct:

Clarity drives accountability:Defines roles and responsibilitiesDrives accountabilityAllows for effective allocation of Association resourcesInforms priorities for allEnhances management of Association members by CPA staff – small complementDefines financial contributions to the Association

Defines recourse options & sanctions for failure to comply

Increases protection for the consumer

Champions the data cause!

Insights into consumer behaviours for business risk assessments and risk mitigation strategies and tactics

“Thin” file consumers (young and early entrants) gain access to credit which they would otherwise not

Affords financial inclusion of more people into the formal economy where consumer protection exists

SMME’s are able to access and extend credit, this benefits themselves, their customers and contributes to employment

Market optimisation, risk mitigation, customer satisfaction & value

Credit vetting:◦ Application stage and on-going for facility changes

Propensity models:◦ Lapse, early settlement, facility changes, pay/no pay, payment, default rate

Tracing Fraud identification and prevention Marketing – supplementing marketing lists Relationship management Debt consolidation Triggers & alerts Employment vetting Development of risk assessment tools:

◦ Research and analysis Price/premium setting

Then …In the 80s with periodic meetings and a few words about customers payment performance scribbled in note books and spoken of in hushed tones!

Now … A flow of payment profile lines on 71.17 million accounts per month! NCA enforced data attrition - daily!

Currently amongst the world’s best credit reporting systems! (World Bank – “Ease of Doing Business” survey)

Business grows Consumers have options Government receives more taxes statistical insights exist to inform all…

……..Markets grow!

Category Mar. 2011 quarter

March 2012quarter

March 2013quarter

September 2013 quarter

Consumers 18,60m 19,49m 20,08m 20.29m

Accounts 63.05m 67,51m 70,73m 71.17m

Enquiries 176,65m 310,42m 394,47m 357.65m

Source: Credit Bureau Monitor ex NCR - Quarterlyreports

Is not where consumer financial education is at yet…..

Information Category March 2012

March 2013

September 2013

Profiles issued to consumers 120 094 145 720 164 437

Disputes lodged 10 357 16 868 21 466

Resolved in consumers’ favour

7 722 12 313 15 731

Info unchanged 1 646 3 670 4 064

Source: NCR Credit Bureau Monitor Quarterly reporting

The volume of global business information doubles every 1,2 years!

Poor data costs 20 -35% in operating revenue

Poor data quality costs US businesses $600 billion p.a.

And the US economy $3,1 billion annually!

More inclusive market with wider access to credit

Influences the cost of credit to suppliers and users/consumers

Contributes significantly to regulatory compliance

Affords the potential to track and monitor economic activity at multiple levels, e.g. macro market, micro level and geographical levels for infrastructural planning etc.

Enhanced ability to evaluate bank credit risk - prudential regulation Facilitates sustainability of credit market

Fosters economic growth

Can access “more-available” credit at more affordable rates

Ensures a faster response to credit applicants

Enables customers to shop for the best product/deal

Incentivises consumers to manage finances to maintain good payment histories to ensure continued access to credit, if consumers are properly educated on the value of their credit profiles

Reduces the likelihood of over-extending customers

Enables customers to effectively check and challenge credit information at bureaus

New consumer agents services assist consumers in understanding their sending patterns by analysing their credit profiles

Distinguishes good & bad risks, allows for relevant management tactics

Enables deployment of appropriate risk management measures

Increases approval volumes and speed of response to customers

Streamlines and accelerates customer take-on processes

Affords more accurate evaluation of the risk of each customer

Supports better assessment measures

Assists in reducing default rates, makes for more profit and taxes!

Allows assessment and monitoring of portfolio quality

Assists in identifying and reducing the incidences of fraud

NCA complianceReports to clients/CPA members Also to the CPA office on dataquality & related issuesConsumer access for dispute logging

NCA & S69 NRCA soonFICAPOPIConsumer Protection Act

Consumers

Public vehicles e.g. courtsCPA membersBureau clientsConsumers

Demographic descriptors Logging of enquiries made by parties

reviewing the profile Payment performance – monthly ageing Performance indicators– ‘adverse’

descriptors Public domain data – e.g. judgments Dispute loggings if these exist Debt counselling indicators

Association Members submit data in standardised format, with standardised descriptors to make for easy and consistent interpretation…

Bureaus receive the data & manage it according to their own data management protocols – hencethe value of the standardised CPA approach…

Consumers receive the benefits of the utilisation of this data e.g.rapid decision making, risk-based pricing, tailor made products, payment plans and options…

Of the 71.17 million accounts, 51.92 million = 73.0%! were classified in good standing, only 1,7% up year on year (NCR- CBM)

Adverse listings have stayed under 6% of total accounts since December 2010, highest ever 5.5% - September 2013 (NCR CBM)

Consider:1. Unemployment figures; rising cost of living; additional expenses;

younger population profile – majority under 35 years of age; more people into the economy

2. Risk – credit contraction & related impacts, compounding the above, but excluding people from the formal credit market!

Is not the data!! Is not the data,

……but rather what lies beyond it ….. For example…. Cost of doing business Competition within the markets Consumer earnings Low financial literacy What falls beyond the current NCA domain What data is not reported &/or available for risk management & Government insights

Understanding and augmenting the credit data to:

1.drive innovation, 2.inform policy and legislation and 3.enhances consumer choices!

What’s missing from the data environment now……

◦Categories of data: Spatial data deployment - geography for better planning Debt collection data Debt counselling data SMME business credit consumption and payment performance data

◦Broader reach and contribution by more service and product providers

◦Strong guardian- and custodianship of the credit data

◦Cognisance of the value and role of data - it is THE insight tool!

Strong concern that insufficient exploration and cognisance of the value, role and relevance of credit performance data and the impacts of its removal or limitation would have, i.e. beyond micro view credit assessment and extension.

Data is a strategic resource for SA to optimise

No economic impact assessment has been conducted (November 2013)!

Please take a closer look at what is planned!

Guard our gold!!

Reports from past NCR CEO, also Unisa Personal Finance Research Unit within the Bureau of Market research and Moody’s indicate that removal of data will contract credit and have dire impacts on the economy, financial ranking of the country and our consumers at large.

People will be excluded from the formal credit market and will have to use informal lenders to survive – higher risks and costs will abound.

A certain reality is that South Africans need credit to survive- the challenge is to balance consumptive and productive credit usage.

The best way for the Government to be informed in order to tailor relevant and effective legislation and policy is to have sufficient information. Those insights come from explicit, quality, current, data on credit consumption, credit application/use and payment performance.

Lets address the issues where they exist within the

credit sector and beyond; and not be blinded by the allure of removing the gold in our nation’s credit data.

Conduct a formal economic impact assessment before the final decision on the NCA Amendment Bill is made esp. in regard to data retention and limitation.

PLEASE lets not lose the gold we have!

dbeghin@cpa.org.za

Questions?

Thank you for listening.