Mandatory comprehensive credit reporting changes playing field for fintech

The government’s mandatory comprehensive credit reporting scheme has finally passed in parliament, levelling the playing field for Aussie fintechs and, according to FinTech Australia chair Simone Joyce, paving the way for better financial outcomes for consumers, too.

The long-awaited scheme was three years in the making, having first been introduced in 2017 by then-treasurer Scott Morrison.

It was intended to give lenders, including fintech lenders, a more comprehensive set of data, allowing them to better assess a borrower’s true credit position.

That will include both positive and negative information on things such as the number of bank accounts a person has, the monthly repayments they’re making and credit limits.

After a string of delays, it was entered into parliament in December 2019.

Speaking in parliament at the time, Treasurer Josh Frydenberg said the bill is intended to bring benefits to both lenders and borrowers, and drive competition in the lending market.

Consumers, he said, will have improved access to credit, and will be able to use the wealth of information to seek more competitive rates.

Providing a more accurate representation of their circumstances also means consumers with bad credit can make their case for creditworthiness.

Additional amendments were also made, stipulating that a credit provider cannot refuse to provide further credit, or reduce a customer’s credit limit, because of financial hardship.

And, financial hardship data will only be shared if a customer is applying for credit, or gives their consent.

Speaking to SmartCompany, Simone Joyce, chair of FinTech Australia and founder and chief of payments fintech Paypa Plane, says startups will be well placed to adapt to the new standards and take advantage of the benefits quickly.

But, ultimately, this is a good thing for consumers, and that’s what founders in this sector tend to focus on.

“All the fintechs that I’ve ever spoken to have the consumers’ best interest at the route of their purpose for existing,” Joyce says, “whether that’s helping the consumer have a more holistic view of the data, or finding products that actually suit them better”.

Shifting what was a voluntary code and making it mandatory, “changes the playing field”, she explains, making sure that consumers actually get those services, wherever they seek them.

Is everyone a winner?

However, critics have claimed the new scheme could be damaging to consumers, putting people off from seeking help if they’re facing financial hardship.

That could be especially pertinent in the wake of the COVID-19 crisis in Australia, which meant people were more likely to defer on their payments.

Joyce doesn’t think that’s the case. The credit code lays out clear obligations for any provider to ensure the product a customer purchases is suitable for their circumstances.

The “ultimate goal” is that any customer who needs financial support or access to credit products will come away with a product that’s suitable to their needs, and that won’t land them with more problems down the track.

Incidentally, in many cases, a fintech will likely be better placed to meet those needs than a large institutional bank.

Joyce reiterates that access to a holistic view of a person’s circumstances can only help businesses service them better, while avoiding bad debt cycles and other financially sticky situations.

“It’s all about making sure that everyone in that credit providing ecosystem has the same standards to adhere to,” she explains.

It means there’s less chance of consumers “falling into a trap” with a company that wasn’t providing a full reporting requirement, she adds. And that can only be good for everyone in the ecosystem.

“It’s trying to eliminate some of the harm that could come to people.”