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Overcoming bureau lock-in and leveraging multiple data feeds

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An emerging pain point many financial institutions grapple with is ‘bureau lock-in’ – over-reliance on a single credit reporting agency (CRA). This data dependency narrows perspectives to one view, restricting the firms to the costs and data quality of that one provider. Of course, this greatly impacts the comprehensiveness of credit risk assessments.

All that said, the market has seen a major shift with credit providers noticing this constraint (largely down the current FCA investigations). Cue: the rise of multi-bureau strategies. 🔀

By diversifying data sources across several CRAs and providers, firms gain a 360-degree market view. This comprehensive intelligence:

  • enhances risk assessment accuracy
  • reduces onboarding costs (opening the doors to more favourable, competitive rates)
  • sharpens customer targeting and enables agility.

Ultimately, the future of credit risk favours a multi-bureau approach over one that’s single-bureau led because it removes you from the shackles of a narrowed perspective and provides the flexibility for greater decision-making.

Keen to learn more? This blog covers how financial institutions can navigate bureau lock-in challenges and optimise their data coverage using multiple data feeds. Let’s jump in. 👇

Hidden hazards of bureau lock-in

Bureau lock-in - an overreliance on one credit reporting agency (CRA) for data - stems from perceived complexity integrating new sources, contractual constraints, and sometimes internal politics. The issue is, this dependence on a sole provider ultimately limits perspectives and impacts innovation.

In fact, the implications of this spread wide across financial services: 

  • Missed opportunities – With a narrow view, firms often overlook lucrative consumer segments and growth avenues spotted by other data sources.
  • Suboptimal risk calls – Locked into one data set, assessments frequently fail to capture real-world behaviors outside that limited frame, distorting risk profiles.
  • Limited leverage - Long-term contracts with a single CRA minimise negotiating power, inflating data acquisition costs without alternatives.

And this is what prompts credit providers to consider their options. Let’s delve into multi-bureau a little more…

The benefits of multiple data feeds

Rather than relying on a single CRA, multi-bureau sources financial data from a variety of agencies and providers. It encompasses a broader spectrum of data, including alternative credit data, behavioral analytics, transactional data, and more.

The end result? Integrating multiple varied feeds into the decision-making process enriches data and provides a more holistic view of the market and each individual consumer. It means you can make more balanced and informed credit risk decisions. 

Sharper accuracy: Cross-referencing diverse inputs allows inconsistencies to surface and resolutions to form for sounder decisions.

360-degree customer view: Holistic data captures nuances around needs and behaviors that data silos miss, guiding personalisation.

Sophisticated risk assessment: An expanded web of risk indicators beyond payments data alone means more calibrated default forecasting.

Swifter market adaptation: Visibility into a breadth of signals equips institutions to swiftly respond to fluid consumer shifts.

Cost efficiencies: Multi-source leverage enables renegotiation of existing contracts and more favorable terms.

Only through continually compiling varied intelligence can credit providers gain complete, evolving market clarity and nimbly respond with personalised offers. This strategic shift not only positions these institutions more favorably in the market but also aligns them more closely with the evolving needs of their customer base.

7 strategies to overcome bureau lock-in

Luckily, for those trapped in the cycle of bureau lock-in, there are ways to get out and move towards data diversity. It requires careful planning but here are several practical steps:

1. Run data gap analysis

Start by reviewing your specific data requirements. From here, conduct intensive audits to understand the limitations of your current data sources and identify the gaps that alternative data providers can fill. 

💡Top tip: The fastest and easiest way to assess gaps in data is with a data benchmarking assessment. 

2. Evaluate alternative data providers

Data benchmarking helps with step two – it highlights your options by comparing hundreds of metrics and a whole range of data providers. The aim here is to find providers that plug the gaps you’ve identified.

💡Top tip: We’d recommend looking for providers that offer unique data sets – like alternative credit data, transactional data, and behavioral analytics – which can complement traditional credit reports.

3. Assess compatibility and integration capabilities

Verify new provider data formats and platforms can sync with existing systems – without disrupting current operations.

💡Top tip: Don’t be put off due to assumed complexity. New data and cloud-based platform providers simplify implementation with existing plug-ins and translation tools. 

4. Run a test pilot phase

Before fully committing, test-drive new data feeds on a smaller scale to see how it impacts decision-making processes and risk assessments – before cascading more widely across decisions.

💡Top tip: The bureaux will often provide subsidised retros for little or no cost to prove their data quality.

5. Opt for phased integration

Create a step-by-step plan to integrate new data feeds into your systems. This phased approach helps mitigate risks and allows for adjustments as needed.

💡Top tip: Running systems in parallel can be advantageous.

6. Negotiate flexible contract terms

When entering agreements with new data providers, negotiate for flexibility. Look for contracts that allow for scalability, changes in data needs, and reasonable exit clauses.

💡Top tip: Data benchmarking assessments arm you with the numbers you need to argue the case for better terms. But if you need a hand with negotiation, you can call on experts for this.

7. Implement ongoing evaluations

And once you’ve done this, don’t leave it there. Continuously measure new data’s impacts and fine-tune integrations accordingly.

💡Top tip: You can revisit data benchmarking for a fresh review of how your data provider's quality and price compare – and if there are new sources of information or innovations you’d benefit from.

With these strategies, credit providers can not only overcome bureau lock-in but also gain a more comprehensive view of credit risk for more accurate risk assessments. What’s more, it better places credit providers to be more agile and responsive to market changes by keeping their finger on the pulse and leveraging new data innovations. 

Embracing data diversity: The future of credit decision-making

Wrapping it all up, credit providers that avoid vendor lock-in – or even embrace multi-bureau strategies – gain a more comprehensive view of credit risk to protect themselves and consumers. On top of this, it can even be used to better position themselves better in the market to respond to customer needs, and boost profitability.

To do this, firms need to re-evaluate their current strategies and weigh up whether multi-bureau is optional – this is where we’d recommend data benchmarking as it’s the easiest, most comprehensive way to assess your position.

Ultimately, the benefits covered in this blog surmise to you being able to position yourselves as innovators and leaders. It’s a much better way to compete and may be the only way to do so in the near future.

 

 

 

 

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This content is provided by an external author without editing by Finextra. It expresses the views and opinions of the author.

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