How is Open Banking reforming credit reference agencies?

08 Oct 2018

While banks and challengers fight over the new opportunities in Open Banking, credit reference agencies are having their own tussle to better understand the consumer…


Since obtaining their FCA accreditations to supply Open Banking and PSD2 services, Experian and Equifax have been spending big on research and development.

Both companies recognised that Open Banking was likely to have a transformative effect on their business models, with consumers becoming increasingly demanding about the use of their data and the freedom that their financial footprint should afford them.

As the businesses have responded to the changing marketplace, they have been looking at opportunities for growth in new areas, and the potential for expanding their client set organically. In addition, both companies have sought to acquire related businesses which will strengthen their hand in the future battle for consumers that lies ahead.

At the end of 2017, Experian announced that it had acquired UK FinTech group Runpath in its half year results, only to follow that with the acquisition of consumer credit-checking brand Clearscore shortly after, in a deal worth £275m, according to The Times.

Not to be outdone, Equifax has also expanded its reach through acquisition. In July, the group acquired US group DataX, which the company said would enable it to expand its techniques in alternative credit, identity solutions and payment data analysis.

Ultimately, there is a race on between the two groups to gain the best possible understanding of consumers in anticipation of a wave of new products from financial challengers and an expanding number of outlets where consumers will expect access to their data.

“We picked up on the concept of ‘open data’ around three years ago,” explains Jon Roughley director of Enterprise Strategy at Experian UK & Ireland. “The whole construct of putting the consumer in charge of their data is fantastically powerful and really exciting.”

In an interview with Open Banking Expo, Mr Roughly said Experian has been investing in research, focus groups and online communities to better understand how consumers respond to their data being used by commercial organisations.

Part of this has been done through an online community of 300 individuals, with a small contingent swapped in and out every quarter to keep it fresh.

He says: “We use that community to test a variety of things – people’s attitudes to product concepts, their problems in their daily lives, their likely responses to possible future events, such as a data breach, or the arrival of a new bank.

“The way previous research was conducted guaranteed an outcome that suggested that people wouldn’t want to share their information. But, in reality, the picture is much more complex. Given the right circumstances, organisation and mechanisms, most people will share their data.”

As most people would expect, Experian and Equifax have been working hard to identify the circumstances where consumers would be happy to share their data. The industry cliché of “the value exchange” has become the buzz phrase for both companies, who are seeking to develop a commercial edge.

“There has been a lot of talk of ‘the value exchange,” Mr Roughley explains. “For people to want to share their data, you have to give them something in return. That is the trade-off between value and privacy and our insight told us that customers expect both.

“It also told us that within terms of that value exchange, it had to be both meaningful and immediate. There is no point in promising that you’ll get something tomorrow, because they won’t believe you. It has to save people money, time or make their lives more convenient.”

In May, Equifax announced that HSBC UK had chosen its InterConnect platform for the UK’s “first live open banking credit application solution,” which the company said would speed up affordability assessments for those making new credit applications.

However, while the company has conducted its own assessments on the consumer value exchange, it has decided to take a little longer to show its hand on any new product suite.

Jake Ranson, the group’s chief marketing officer for Europe, said the industry should expect some more noise in the fourth quarter of 2018.

“We have not made any big announcements yet other than heralding the work that we did with HSBC,” he told Open Banking Expo in an interview.

“We have made some tactical announcements, but we haven’t come out with a brand-new product suite, because we are still in that ‘rolling start’ phase to find those value exchanges. In Q4, we will probably break our silence a little.”

Ranson said that the industry was still trying to identify the priorities for customers and so product testing at this stage was still “a series of experiments”.

He added: “Nobody really has all the answers at this point. A lot of the work we are doing is around framing these experiments, doing the R&D, and trying to create ideas that are useful to consumers. “Consumer adoption dictates whether or not we get it right and we will continually adapt. There is a lot of proof of concept work that has been going on, and there is time ahead of us to adapt.