BIIA covered recently the announcement that CallCredit had acquired TenantID, a startup business focused on building a database of private tenants in the UK. Tenant ID launched earlier this year with the objective of building a database that will information regarding a tenant’s address history, rental payment record, details of arrears, condition of the property when the tenant left, any history of anti-social behaviour and whether the tenant kept to the terms of the agreement.
TennatID claim to have secured the support of many major letting agencies in the UK to contribute data and to use the database and that they already have 1000s of records on the database. If they are successful they will play an important part in industrialising tenant verification in the UK, a process to date which has been cumbersome and unreliable because of the lack of such a database.
In December 2010, BIG Issue Invest, a social enterprise investment company, published a paper on the potential benefits of using rental payment history from the social housing market to increase the ability to accurately assess the record of lending to tenants from this sector. In the UK tenants are twice as likely to be declined for credit, than those applicants who have a mortgage and those accepted are twice as likely to default using existing credit checking procedures. Working with Experian they were able to prove that using rental payment information improved the predictability of credit scores for applicants from this sector, particularly where there was little or no existing credit bureau data.
The study found that for a population of 4.3m adults in social housing in the UK, the inclusion of rental payment data would have enabled better credit decisions to be made on 30% (1.5m) of the population. In addition it showed that 40% of social housing tenants would fail electronic ID verification systems provided by credit bureaus without the inclusion of rental payment data.
The study found that creating a database to share payment behaviour in the social housing market would provide the following benefits; an increase in the number of people living in social housing who could have access to mainstream banking, an improvement in the levels of electronic ID verification and improvement in fraud detection and prevention rates. This appears to be a compelling proposition, addressing not only industry issues but also the issue of social inclusion that is a topic of constant debate in the UK, with the majority of the poorer people in society unable to gain access to mainstream banking and being driven into the arms of money lenders charging extortionate rates.
It is estimated that there are 7m adults in the UK living in rented accommodation, 4.3m in social housing and c3m in private housing. With banks requiring higher deposits and decreasing Loan to value ratios, people, particularly first time buyers, are finding it more difficult to buy a house. Long term predictions suggest that demand for rented accommodation will rise over the next 5-10 years particularly amongst young adults. This represents an opportunity for the development of such databases and the synergies with the credit bureaus are plain to see.
This is part of a wider trend throughout the global industry where credit bureaus are increasingly seeking additional information regarding people’s payment behaviours. In this respect Experian, Equifax and TransUnion are all on record regarding their efforts to acquire information from utility, telephone, and healthcare organisations. In addition they and others are making efforts to acquire information to improve the verification of individual’s incomes and assets.
One of the consequences of the credit crunch is that a wide range of industries woke up to the fact that they were in the business of lending money to consumers and that many of them had risk management practices and information that were not fit for purpose.
This realisation creates a significant Big Data opportunity for the Credit Bureaus, not only can they develop new services for these new vertical markets to help them with their risk assessment and customer management processes. They can also add the data to the existing information they hold and provide their core financial services customers with a much improved view of an individual’s previous payment history, indebtedness and ability to pay.
Of course the extent to which individual credit bureaus across the world can do this will depend on local legislation and market demand but many argue that this trend should be welcomed as a significant step in creating greater transparency in consumer risk and that the potential benefits outweigh the concerns regarding privacy etc.
Given that we appear to be heading back to a world where banks, at least in Europe and USA, will be expected to match their lending more closely to their deposit base and credit could become scarcer in the longer term, this development could play a vital part in ensuring that credit grantors of all kinds are in a better position to make the right decisions.
TenantID website: www.tenantID.co.uk
Big Issue Publication: http://www.bigissueinvest.com/press.aspx BII Rent Data Report Dec 2010
Courtesy Phil Cotter BIIA staff writer