Aiming For International Practices And Standards Exploratory Report
Credit reporting systems are an important ingredient in the robust and healthy financial infrastructures of countries. In credit markets, credit reporting systems help to reduce the information asymmetries that exist between borrowers and lenders, that prevents a lender from ascertaining the credit risk associated with a borrower (private persons, companies).
Credit reporting intermediaries—private credit bureaus and public credit registers (PCRs)—collect information about lines and volume of credit, repayment history, or payment defaults. Such data—analyzed with advanced statistical models—allow the repayment probability of a borrower to be identified. The information is in turn redistributed to lenders, who use it to assess the creditworthiness of clients. Thus, credit rationing in financial markets, the situation in which good borrowers cannot access credit due to a lack of credit history or collateral, is reduced. Credit reporting systems also contribute to the prevention of overindebtedness.
Four Major Trends Affecting Credit Reporting
Over the past decade, more and more countries have established credit reporting systems, especially in Asia and Africa, and more and more lenders have come to appreciate credit reporting services, leading to an increasing number of reporting institutions. However, four major trends affect the operation of these systems. These trends constitute the rationale and setting of this report.
The first trend is internationalization. Borrowers are becoming increasingly mobile across borders; companies are relocating to or opening subsidiaries in other countries, employees are being sent abroad, and migrants are seeking a better life somewhere else. The lack of a complete credit history hampers these developments, because credit data is often not shared across borders. Cross-border financial flows (for example, extending credit lines) are also hampered, as banks have little means to assess whether credit reports from other countries are trustworthy. In addition, different regulatory regimes or authorities’ insistence on data localization may reduce international data flows
The second trend is digitalization. Credit reporting systems are an integral part of the data economy. Massive amounts of structured and unstructured data (big data) are now mined by machine-learning models. Emerging new data sources, such as mobile phones or social media profiles, include network patterns and are fast moving. An increasing number of fintech startups have put traditional credit bureaus under pressure. They envision a 360-degree view of the borrower and a monitoring of credit risk in real time. In addition, new technological inventions, such as localized, federated learning and edge computing, facilitate the extraction of insights from data, while the data sets themselves do not have to be shared or moved.
The third important trend is increasing regulation. Governments are increasingly under pressure to regulate data-related activities that touch the lives of millions of persons and companies. Statistics around the world show an increasing concern for privacy among individuals. In addition, governments are introducing policies of digital sovereignty. These imply, for example, reaching for more autonomy with respect to value-added chains in the data economy.
Finally, when the COVID-19 pandemic struck economies around the world, it had devastating effects for millions of persons who lost their jobs. They struggle to make ends meet and to pay their rents and repay mortgages and other loans. International institutions, such as the International Committee on Credit Reporting (ICCR) and national regulators (such as the US Consumer Financial Protection Bureau and European Banking Authority) have issued guidance for dealing with defaults in such a way that borrowers’ deteriorating credit report do not lead to additional economic hardship.
To download the report, please lick on this LINK: ICCR Cross Border Report final July 2021
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*External Contributions: BIIA is one of the external contributors. It is a member of the International Committee on Credit Reporting (ICCR) with Peter Sheerin, member of the BIIA Executive Committee, being part of the working party.
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