Experian and its long-term partner CCB Inc. have established a new company called CBEX Solutions Inc. to focus on credit reporting services in banking, credit card and consumer financing industries. The JV will provide advanced credit bureau system operations, information solutions and consultancy services. The new venture appears to be timely due to structural changes in consumer lending, which will have major implications on credit information services.
Structural Changes in Lending in Japan: Until recently the cornerstones of Japanese consumer lending were non-banking firms (Sarakin or money lenders). Currently there are 10,000 Sarakin firms, however, the seven biggest control 70% of the consumer lending market, some of these are publicly listed and are aligned with banks. The Sarakin loan business used to fill an important niche in Japanese society because borrowing from banks requires collateral or guarantors and is considered shameful. Sarakin loans require no collateral, only identification. Amounts can be as low as US$100; transactions are akin to ATM machines and take only a couple of minutes. Sarakin loans however came at a steep price: 29.2% interest and with ugly collection and repayment methods. In 2006 a new law was introduced to curb heavy handed collection and repayment practices. Interest rates are capped at 20%; loans are not permitted to exceed one third of an annual salary. The new law caused a shake-up of the loan industry, with many firms going bankrupt and the shares of the publicly traded Sarakin taking a beating. As a consequence mainstream banks are now moving into consumer lending.
Implications: Experian’s new venture may be well positioned to benefit from the structural changes in the lending market. The new law in consumer lending will raise the level of respectability and should remove the aspect of shamefulness of borrowing from banks and eliminate the fear of heavy handed collection and repayment practices. Consumer lending by banks are therefore expected to take off, which will drive credit information consumption. The injection of new technology and state of the art information solutions and consultancy services will also lead to safer lending and lower interest rates, setting in motion a new cycle of growth for financial services and credit information. Going it alone appears to no longer be Experian’s business models as evidenced by its joint venture with Sinotrust (China) and a credit bureau venture with major banks in India. Source: Experian Press Release and Outsell Inc.