Opinion Alternative Lending Digital Banking

Lending’s gambling problem — and how to fix it

Problem gamblers are taking out credit and loans on a large scale in the UK, writes the CEO of AI-powered Open Banking firm Abound, Gerald Chappell


Pexels/Drew Rae

The lending sector has a gambling problem. One in seven (15 per cent) borrowers that pass traditional credit checks, according to our data, are people experiencing problem gambling.

Projections from our data mean that every month in the UK around £174m is potentially being loaned to people gambling in a risky way. 

Shockingly, that's a projected 29 per cent of the UK loan market, propped up by a financially venerable group who could be using these loans to fuel addiction and harm themselves and those around them. 

People experiencing these harms (who spent more than 30 per cent of their income on gambling, on average, over the last six months or more than 100 per cent in one of the previous six months) should not be offered loans. They need support, not debt. Yet they could get a loan from most lenders in the UK. 

I run a lending company and we thought long and hard before releasing this information about our sector. But when understood correctly, it shows that lenders are often making what they think is the best decision they can — but with the limited data available to them.

Traditional credit rating technology is dated, and it is failing to pick up key areas of risk in the online era.

What our data also shows is that lending can become better with better technology. We can identify more people than ever before experiencing financial harms like gambling.

Open Banking data means people's banking transaction data can now be securely shared (an innovation first made possible in the UK) and using Artificial intelligence was can scan this data to make more accurate decisions about affordability and people's ability to borrow. 

We were shocked, however, by some of what we found with this technology. People experiencing problem gambling use seven different gambling sites on average. Some used even more. 

These people were hiding their habits and, presumably, hiding from the gambling website's own checks and balances by using so many. In the era of online gambling, lenders need to work hard and innovate to stay ahead of these trends. 

Our data set is substantial and allows us to get a good idea about the scale of the UK's gambling problem. 

We found 5.7 per cent of the statistical population have a peak gambling-income ratio of over 100 per cent over the last 6 months and 11.6 per cent of those in the problem group spend more than 20 per cent of their income, on average, on gambling.

It's little wonder the government is taking action, calling for enhanced affordability checks in the recent gambling White Paper. The paper also questions if the industry can make better use of technology to do this and I am happy to speak to people in both policymaking and the gambling sector about what we've learned about affordability checks in the lending sector.

The lending sector, too, is under renewed scrutiny. The Financial Conduct Authority's (FCA) Consumer Duty came into force last month, making us responsible for ensuring customers receive “good outcomes” from the financial services we provide.

Striving for good outcomes and modernizing credit checks can benefit borrowers and lenders. Yes, 29 per cent of the current market could be people experiencing problem gambling, but the lending market will not shrink by 29 per cent if we start using more accurate affordability checks.

Just as traditional credit checks miss some financially vulnerable people who are unsuitable to lend to, they also fail to identify many people who are suitable for a loan.

Many of these people are ‘credit invisible’. They just don’t have enough credit data to make a judgment. But open banking can now supply all the data we need. In fact, it is much more extensive, making lenders safer and in many instances, more affordable too.

The truth is lending can do a lot of good--for individuals, businesses, and the wider economy. It helps drive investment and growth, and it can give us financial freedom and help us to achieve life goals like starting a company, holding a dream wedding, or moving house. 

But lending can also be, by definition, risky. We must be vigilant when threats such as online gambling evolve. And that’s why lending should evolve too.  

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