Private credit bureaus have proliferated globally in recent decades as most economies now share credit information. A new PERC study examines the impacts of shifting to full-file credit reporting on banking concentration and competition. The study finds no meaningful changes in bank concentration or market power following shifts to full-file reporting. Additionally, greater information sharing is associated with higher private lending levels. Overall, the findings suggest lender fears about full-file reporting reducing their market share are unfounded, as the credit market appears to expand without significantly impacting individual bank shares.
Sme finance-policy-presentation-g20-workshop-riyadh-mar11-2014
WCCR 2014_PERC 100714_Final_1(1)
1.
2. Impact of Private Credit Bureaus and Comprehensive Reporting
on Consumer Credit Market Structure
3. Impact of Private Credit Bureaus and Comprehensive Reporting
on Consumer Credit Market Structure
Michael Turner
President
PERC
Title
3
4. Who
is ?
•A non-partisan, non-profit
policy research and development institute
devoted to increasing financial inclusion using
information solutions.
4
About PERC
5. Most economies share data
• To share, or not to share credit information is no longer the question
– Nearly three-quarters surveyed in the World Bank’s Doing Business 2012, have
either one or more private credit bureaus or a public credit registry
– Natural response to evidence of importance of credit information sharing
– Credit sharing institutions seen as key part of a nation’s financial infrastructure
• There has been an increasing trend toward establishment of private credit
bureaus
– Most private bureaus have been established in the last two decades
– Evidence that Private Credit Bureaus increase private credit extension more
than public credit registries: Jappelli, Tullio Pagano (2002), PERC (2014)
5
7. 7
Increasingly hurdles come from lender fears:
• How might full-file reporting impact bank concentration?
• What are the impacts of private credit bureau competition?
• How might the ownership structure of private credit bureaus
impact credit reporting?
• What are the impacts of particular regulations or regulatory
environments on private credit bureaus and data sharing?
Private Credit Bureau Establishment
Source: GFDR 2013: Credit Reporting Database
8. 8
New PERC Study
The Impacts of Information Sharing
on Competition in Lending Markets
Released: October 2014
Examines impacts of shifts to full-file
credit reporting on banking
concentration
Re-examines credit reporting
impacts on lending
9. 9
New PERC Study Motivation
Motivation for Research
• Lenders are comfortable with sharing negative information
• Lenders have expressed concern that sharing positive data
Lenders concerns/fears from sharing positive data:
• Crème skimming by competitors
• Loss of monopoly over their customers’ data
• Increased competition resulting in reduced shares and profits
• Other lenders / foreign lenders can make better use of full-file data
10. 10
New PERC Study Motivation
Given that hurdle to credit reporting is
increasingly the fear of lenders, we
decided to look at their
preconceptions through the following:
11. The Impacts of Information Sharing on
Competition in Lending Markets
11
• Data
– Compiled data from several sources, such as Global Financial Development Database
(World Bank), World Development Indicators (World Bank), and Doing Business
– Used C3 (share of assets held by the largest three banks), C5 (share of assets held by
the largest five banks), and the Lerner Index (a measure of market power in the
banking market) created from Bankscope data to measure banking concentration
and market power.
– Indicator of transition to full-file reporting created using Doing Business, GFDD data
– Period covered: 1997-2011
• Methodology
– Average and Median Changes of Banking Concentration / Market Power
– Linear regressions
– Panel Regressions (with and without country fixed effects)
12. Key Results
12
Shifts to full-file credit reporting are not associated with
meaningful changes in bank concentration/market power
• No large or statistically significant changes in bank concentration or
market power were found during or following credit-sharing reform
for countries that shifted to full-file credit sharing.
• This is true controlling for per capita income, market entry barriers, in
a linear regression or in panel regression framework (with and
without country fixed effects)
13. Key Results
13
Shifts to full-file credit reporting are not associated with
meaningful changes in bank concentration/market power
• The shifts we saw 1 to 5 years out were slight, and the direction
wasn't at all discernible. Nor did we see any pattern if we take barriers
to foreign entry into account.
• Why didn't we see any real shifts? One reason may be that the market
for lending expands, reducing the need to 'poach'. In short, the game
isn't zero-sum
14. Key Results
14
-4.0%
-3.0%
-2.0%
-1.0%
0.0%
1.0%
2.0%
3.0%
Avg.
Change
in C3
Median
Change
in C3
Avg.
Change
in C3
Median
Change
in C3
Avg.
Change
in C3
Median
Change
in C3
Avg.
Change
in C3
Median
Change
in C3
Avg.
Change
in C3
Median
Change
in C3
1 year past
change
2 years past
change
3 years past
change
4 years past
change
5 years past
change
Average Change in Bank Concentration Following Full-file Change
15. Key Results
15
Change in Bank Concentration by degree of Entry Barriers
-6%
-4%
-2%
0%
2%
4%
6%
8%
10%
12%
Avg.
Change
in C3
Median
Change
in C3
Avg.
Change
in C3
Median
Change
in C3
Avg.
Change
in C3
Median
Change
in C3
Avg.
Change
in C3
Median
Change
in C3
Avg.
Change
in C3
Median
Change
in C3
1 year past
change
2 years past
change
3 years past
change
4 years past
change
5 years past
change
High Entry Barriers Low Barriers to Entry
16. Key Results
16
Consistent with past findings, greater information sharing is
associated with increased private sector lending
• Private credit bureau are associated with higher rates of private sector
lending as a share of GDP, by 24 to 40 percentage points.
• For economies that shift to full-file sharing, the boost to private sector
lending is 16 percentage points from Year 5 following the transition
onward.
Drivers of this may be improved and more efficient underwriting and
risk management made possible with richer data and the opening up of
new market segments.
17. Key Results
17
Interpretations / Implications
• Credit sharing rules/agreements may exclude prescreening or prospective
marketing. This helps reduce the possibility of poaching.
• Credit sharing is a two-way street. A bank can also use the full-file credit
information for its own customer acquisition purposes.
• Lenders may all adapt to the new environment helping keep their relative
shares of the market. The transition to full-file data sharing usually takes
years, consequently, there is time to acclimate during the transition and
the transition itself may not be as radical as feared by lenders.
• As consumer credit markets grow, lenders expand their base by lending
more to new clients more efficiently.
A growing pie with little reduction in shares
18. Key Results
18
Other Findings…
There has been a global trend to overall banking concentration. However,
such market concentration changes result from a long list of factors.
To the extent that private credit bureaus and comprehensive/full-file credit
reporting might be one component in changing bank concentrations, it
appears it would be small and overwhelmed by other factors.
19. 19
New PERC Study
Credit Bureaus in Emerging Markets:
Overview of Ownership & Regulatory Frameworks
Released: September 2014
Examines impacts of private credit
bureau ownership structures
Examines Credit Reporting
Regulatory Frameworks
21. 21
Stage Examples of Services
Stage 1 Database, Provision of Basic Data
Stage 2 Credit Reports, Alerts and Some Add-On services
Stage 3 Initial Score and Decision Tools, Initial Custom Analytics
Stage 4
Fraud & Identity Management, Marketing Services & Collections
Management, Commercial Credit Report
Stage 5
Consumer Reports, Consumer Scores Credit Monitoring
Consumer Education
Stage 6
Auto, Utility, Telco Solutions, Rental Screening, Employment Screening
Healthcare, Small Business Insurance, Government Solutions
Very mature scoring, Decision Tools, and Custom Analytics
Stage 7
Big Data Solutions, Peer to peer lending, Equity Financing
Equity valuation, Secondary Market, and Macro Factors Based Models
Stages of Credit Bureau Development
22. 22
Phase Description
Early / Initial Build
Phase
Bank/Data furnisher ownership can be used to
develop data sharing, as well as revenues
Middle / Scale Phase
Transitions away from core data of owners, benefit
of bank ownership decreases and becomes a drag
on development, begins to focus more on new data
sources and value added services
Mature / Optimal Phase
Independent credit bureau(s) are optimal, proper
incentives to serve all users, has data furnishers and
customers across many segments, most revenue
comes from value added services
Ideal Transition for Bureaus that Begin as
Furnisher Owned
23. 23
Private bureau ownership by independent third
parties (not data furnishers or data users) is seen as
the optimal ownership structure to enable long-term
bureau and credit information sharing development.
However, many different private bureau ownership
structures and not all perform as well over time.
24. 24
3rd-Party
(Independent)
Some Degree of Data Furnisher Ownership
General Type of
Data Furnisher
Ownership
No direct or little
practical
ownership
Minority Data
User-
Furnisher
Ownership
Association
(Majority)
Ownership
Majority
Diffuse Data
User-Furnisher
Ownership
Majority
Concentrated
Data User-
Furnisher
Ownership
Example(s)
Equifax (USA)
Veda (Australia)
Experian
(Australia)
Credit Bureau
Singapore
CIBIL
prior to 2014
(India)
Buro de Credito
(Mexico)
Advantages
Decisions focused
on earnings,
bureau business
and serving users
Ease of acquiring data from data furnishers that are owners
Disadvantages
May be challenging
enlisting data
furnishers
Bureau decisions may skew to serve interests of the data
furnisher owners, which are likely a subset of all potential
users. Data furnisher owners may be less willing to report to
other bureaus, reducing competition and segmenting data
26. 26
Domain of Activity
Regulated by…
Government
Agency
Industry
Code Both
Data Accuracy/Integrity 16 2 5
Data Security 14 3 6
Consumer Dispute
Process
17 1 5
Data User Credentialing 13 2 4
Permissible Use/Data
Access
16 1 6
Domain of Regulation by
Mode of Regulation
PERC Survey, N=23
27. 27
9%
5%
5%
5%
23%
18%
36%
0% 10% 20% 30% 40%
Weekly
Monthly
3-4 Times per year
1-2 Times per year
Yearly
Less than Yearly
Other
Frequency of government/
regulator examination
PERC Survey, N=23
28. 28
Responsiveness of oversight agencies
to appeals
PERC Survey, N=23
13%
57%
26%
4%
0%
10%
20%
30%
40%
50%
60%
Very
Responsive
Moderately
Responsive
Minimally
Responsive
Unresponsive
29. 29
4%
48%
30%
17%
0% 10% 20% 30% 40% 50% 60%
Very costly/cumbersome
Moderately
costly/cumbersome
Costly/cumbersome to a
minor extent
Not costly/cumbersome at all
PERC Survey, N=23
How costly/cumbersome is the
oversight and audit process
30. • The regulator could socialize changes in regulation as they pertain to
the impact on the operation of the company with the credit bureaus.
• The laws are not sufficiently clear nor are its rules. Clarification upon
request would be helpful.
• The regulations should be based on business standards and self-
regulation.
• Regular reviews and upgrades of code in the light of technological
developments.
• Better understanding of the Credit Reference Agencies practices.
30
How to improve the audit process
and/or make regulations more
effective
PERC Survey, N=23
Survey Says…
31. 31
Variance in regulatory approaches suggests:
Policymakers and regulators in emerging markets (while
surveying global practices) are developing models of
regulatory implementation and oversight based on their
specific concerns, needs, and capacities.
…which seems entirely appropriate
Finding
32. 32
Variance in regulatory approaches also suggests:
• What works well in one market may not be ideally
suited for another market;
• Regulatory frameworks are organic and evolutionary;
• Abundant opportunities to improve and customize
rules given particular market circumstances:
• APFF “Pathfinder” market; and,
• WBG.
Finding
33. 33
New PERC Study
The Consequences of Heterogeneity In
CRA Data
Expected Release: Q1 2015
Examines impacts of data
fragmentation across CRAs for
lenders and consumers
Forthcoming
34. 34
Forthcoming PERC Study
• Data Fragmentation
– Across financial sectors
• Japan
– Within financial sectors
• Russia, maybe Mexico
• Usually furnisher owned CRAs
– Across types of data (financial vs non-financial)
• NCTUE in US
• Growing trend of mobile operators across world
• Data Fiefdoms
– Ebay, Alibaba using their own transaction data, MNOs
– Regional differences in US (legacy) and voluntary reporting (big providers
considering exclusive arrangements)
– Can result result from lender market power, bad regulations, CRA data
monopoly, desire to leverage own data (era of “Big Data”)
