Australians will be less likely to default on personal and housing debts if the current credit reporting system is replaced with a model that captures more comprehensive consumer credit histories, according to a major industry report released today at the International Consumer & Credit Card Summit. The ACIL Tasman Report, commissioned by MasterCard, reveals the current credit reporting system, by which an Australian lender can assess a person’s credit worthiness, is unnecessarily allowing some Australians to spiral into debt, while denying basic forms of credit to others who do not have a defined credit history.
The Report reveals that if a more comprehensive reporting system were to be introduced the Australian economy could capture an additional $5.3 billion in productivity gains over the next decade.
Dr Yuwa Hedrick-Wong, economic advisor, Asia/Pacific, MasterCard International, said: “In addition to providing a fairer system for consumers, a more comprehensive credit reporting model will lead to a substantial reduction in personal and housing debt defaults which will provide significant economic advantages to the Australian economy.”
“The current credit reporting system approves credit to some people who are simply unable to repay the loan, while on the other hand denies credit to those Australians who are credit worthy. A more comprehensive reporting system will allow Australia to slash the bad debt and delinquency rate and improve access to credit for good borrowers. It will also help consumers better understand their financial position by providing a more complete picture of their credit history.”
Australia’s current reporting system restricts the lender to access only the negative credit history of the potential borrower. The current system does not provide information vital to preventing unnecessary debt defaults, such as the borrower’s current open lines of credit. This means the lender can only base their assessment on limited information which sometimes may lead to over leveraging.
According to Jane Wilson, General Manager of Baycorp Advantage, which operates Australia’s largest consumer credit bureau, “Adopting a more comprehensive approach to credit reporting will enable more accurate credit decisions, while at the same time reducing the level of risk. The same standards of data integrity and privacy protection currently in place will be maintained to ensure lenders can only access this factual information when a consumer initiates a credit application.”
The Report concludes there are significant advantages to transitioning to a more comprehensive credit reporting system which would keep more relevant information about a borrower’s credit worthiness.
“Apart from the obvious social benefits, obtaining more accurate information on a borrower will mean greater competition in the consumer credit market and reduced interest rates to borrowers over time,” said Dr Hedrick-Wong.
Using very conservative assumptions the ACIL Tasman Report concludes a comprehensive system would generate a one-off increase in capital productivity of up to 0.1 per cent, which would translate into economic benefits to the Australian economy of up to $5.3 billion, in net present value terms, over the next ten years.
Australia stands at odds with the rest of the world by maintaining its current credit reporting regime. The sharing of comprehensive credit information now extends to more than 40 countries, including most countries in the OECD and the Asia-Pacific region. Earlier this year India became the most recent economy to transition to a more comprehensive credit reporting system, joining countries like the United States, United Kingdom, Singapore, Hong Kong and Canada.
A recent World Bank report further substantiates the ACIL-Tasman Report, predicting that if a comprehensive credit reporting system were to be instituted in Australia then the economy would witness a decrease in credit defaults by between 25 and 63 per cent. This could be achieved while still protecting consumers’ privacy, as has been demonstrated in many markets around the world, most notably in the UK.
According to the Australian Bureau of Statistics the annual consumer credit market in Australia is valued at around $202 billion and over the past decade the overall rate of growth in consumer credit has averaged more than 14 per cent per annum.
About Baycorp Advantage
Baycorp Advantage is the largest single source of data-based business information in Australia and New Zealand, and is expanding into Asia Pacific and other international markets. As a provider of data and technology, we are committed to assisting other organizations to maximise their returns by delivering market-leading risk and customer management solutions.
These include a complete range of credit and authentication data, decisioning solutions and software, and transaction services to enhance organizations’ customer management strategies and operational processes.
Baycorp Advantage collects and analyses data on the financial behaviors of more than 14 million individuals and 2.8 million commercial entities. We are the largest supplier of credit information in Australia and New Zealand, one of the largest and most successful debt recovery companies in Asia Pacific, and a leading provider of sophisticated tools and analysis to source and automate the selection of profitable customers.
About ACIL Tasman
ACIL Tasman Pty Ltd was formed by the merger of Tasman Economics and ACIL Consulting in November 2002. ACIL Tasman is now the largest specialist economics and policy consultancy in Australia. The amalgamation brought together two firms that have each built international reputations for quality research, policy advice and project implementation after more than two decades of involvement in economic policy development and reform. We have over 50 professional staff, with offices in Melbourne, Canberra, Brisbane, Perth, Sydney and Darwin.
About MasterCard International
MasterCard International is a leading global payments solutions company that provides a broad variety of innovative services in support of our global members’ credit, deposit access, electronic cash, business-to-business and related payment programs. MasterCard International manages a family of well-known, widely accepted payment card brands including MasterCard, Maestro and Cirrus and serves financial institutions, consumers and businesses in over 210 countries and territories. The MasterCard award-winning Priceless advertising campaign is now seen in 96 countries and in 47 languages, giving the MasterCard brand a truly global reach and scope. For more information go to [www.mastercardinternational.com].