Are Aussie banks trying to undermine a credit data regime?

Fintechs have accused Aussie banks of sabotaging efforts to build a credit data regime

Fintechs are the only lenders in Australia that are sharing their borrowers’ credit data.

According to the lenders group the Australian Retail Credit Association almost all loan repayment history data that is shared in Australia is done so by fintech companies.

Despite firm warnings from the Australian government, banks are holding on tight to their borrowers’ credit histories. And because banks control the vast majority of credit data in Australia, their refusal to share undermines any effort to build a credit reporting regime.

“The banks have fought hard against sharing customer data as they know doing so will result in greater market competition – leading to a loss of margins and a loss in profits,” Daniel Foggo, CEO of RateSetter Australia, told AltFi.

“Banks have tried to argue that credit history data is theirs, not the customers’, but this argument has been firmly rejected.

“The banks now know that it’s inevitable they will have to share positive customer data, as banks do in other developed countries, so they’re now resorting to delay tactics.”

Credit history is important for any money lender because knowing whether borrowers have repaid past loans helps lenders calculate risk and decide whether or not to make loans.

In Australia a credit reporting system (in which all lenders, including banks, take part) already exists. But it only encompasses negative borrower information such as defaults and bankruptcies.

Fintech companies, such as RateSetter, are fighting to change this. They want positive borrower information to get shared too, as they believe it will help them price their loans. They claim that reform efforts are being blocked by the banks.

But not everyone sees it this way.

“The banks have lobbied for a long time to get the Privacy Act changed so that there could be a comprehensive credit regime,” Michael Laing, the incoming CEO of ARCA, told AltFi.

“The banks have been promoting and seeking the right to [share data] for a very long time and invested a lot of money to make it happen.

Mr Laing says that the banks can and will share their customers' data. But they want clarity from the government first.

“There’s 29 million bank accounts over Australia and 30 percent of that data is ready to be shared.

“It’s being held back for two major reasons. One is complications in terms of privacy and particularly the definition of ‘hardship’”.

“The other reason is many of the credit providers… want clarity over what a mandatory credit reporting system would look like. A major bank sees this and says it costs millions. They don’t want to spend that to find that the goal posts have been changed.”

The Australian government has said that unless banks start sharing their customers data by December, it will force their hand.

Whether the government carries out its threat remains to be seen.