You may have read earlier this week about how Brazil, one of the fastest growing economies, is poised for great change in how it tracks consumer credit behavior. Brazil is not alone. After almost a decade of deliberation, Australia, too, is finally following the footsteps of positive credit bureau countries. In other words, they will for the first time track and analyze positive credit behavior, not just negative behavior.
We view this as a good move for Australia. Research has shown again and again that with the introduction of positive bureaus, economies benefit in terms of banking product innovation, fair competition, business growth and enhanced profit.
Australia joins the US, Europe and Latin America, who have been in this league for a long time. Our own FICO® Scores, which drive billions of credit and marketing decisions a year and are the most-used credit bureau scores in the world, consider both positive and negative information in consumers’ credit reports.
Since the Asian financial crisis in the late 1990s, the majority of Asian countries -- Japan, Taiwan, Hong Kong, Singapore, Malaysia, Korea, Thailand, India, China – have jumped on this bandwagon. So it was viewed as odd that Australia, with one of the most advanced economies and banking systems in Asia Pacific, continued to be in the negative bureau environment.
To be clear, there were unique factors in Australia that made the move challenging. First, there is a very strong consumer lobby, so public sensitivity to breach of privacy is high. Second, big players are concerned about losing market share since they believe positive reporting gives smaller players access to information about consumers that previously would not have been available.
The global financial crisis was a wake-up call for the banking industry, and poor regulatory oversight was blamed in many cases. Australia escaped relatively unscathed, but it has seen its fair share of regulatory evolution and public outcry. The Australian government is taking very strong steps to ensure that positive bureau data sharing is put in place as part of its “responsible lending” mandate, to go live by 2012.
It is heartening to observe that the Australian banking industry, overall, is embracing this new reality and working side by side with the Australian bureau providers to make this a success. In a recent FICO roundtable attended by senior-level representatives from Australia’s “Big Four” banks and moderated by fellow blogger Andrew Jennings, this message came through loud and clear.
The new system won’t be perfect, however. For example, banks will have a comprehensive view of a consumer’s banking products and loan obligations, but they still won’t know outstanding loan balances, which makes it challenging to assess a consumer’s ability to take on additional debt.
Nor will Australia be immune to the challenges that plagued other countries – inability to operationalize the knowledge gleaned into actual decisions, rocky B2B data retrieval, among others.
For Australia’s move to be fully successful, active participation by lenders, and data consistency and accuracy are critical. Case in point: Taiwan and Japan have yet to have a proper score that is available industry-wide from the bureaus, though they have had the positive bureau infrastructure for a long time. But based on what we have seen from Australian banks so far, we are optimistic about their quest to usher in positive bureau data worthy of a global player like Australia.