Yannis Stournaras: A new European landscape towards a unified
credit market and the role of the credit bureau
Speech by Mr Yannis Stournaras, Governor of the Bank of Greece, at the ACCIS (Association of
Consumer Credit Information Suppliers) Conference 2019 "Enabling Trust through the
Consumer Decision Journey", Athens, 14 June 2019.
* * *
It is a great pleasure to be here today and have the opportunity to share with you my
thoughts on the importance of the European financial services ecosystem and the steps
we need to take in order to strengthen consumer trust.
Firstly, I will briefly outline the importance of credit bureaus in building such a trust by increasing
the efficiency of both lending and borrowing as well as by minimizing information asymmetries
and moral hazard.
Secondly, I will outline the social responsibility dimension of consumer-focused credit activities in
the framework of a well-functioning EU consumer credit market, whereby creditors and
intermediaries should act accordingly.
Thirdly, I will touch upon the issues of smart and sound innovation in the credit bureau's industry,
whereby a credit bureau should act beyond the traditional boundaries and have the ability to
connect new customers to all existing financial services.
Fourthly, I will talk about the necessity of ensuring a level-playing field, for all credit bureau
participants by minimizing the monopolistic elements that exist in the credit bureau industry.
Finally, I will argue that a better regulated credit industry will facilitate an efficient and cost
effective credit risk assessment, as credit bureaus can evaluate credit risk accurately and
consistently through the use of appropriate tools.
A. The importance of credit bureaus in building trust in the financial system
Building trust is equivalent to the fulfillment of expectations by market participants. Credit bureaus
have a very important role to play in building trust in the financial system, as they are responsible
for managing and providing credit data to consumers, while at the same time simplifying the
complexity of credit data usage in consumer financial markets. The benefits of credit bureaus
into building trust in the financial system are the following:
1. They improve the performance of the financial sector and stimulate economic growth by
increasing the efficiency of lending and borrowing. Borrowers, having registered a positive
past credit history, may seek loans at better and more competitive terms and conditions.
Lenders, on the other hand, can utilize the collateral history - stored in centralized collateral
registries-to assess borrowers' creditworthiness.
2. They address the problem of moral hazard that is the behavioral unwillingness of a
consumer to repay. Credit bureaus support borrower discipline since a failure to repay a
creditor may result in penalties imposed by other creditors.
3. They address the problem of information asymmetries, as borrowers and lenders may
share the same information regarding risks and pricing. Increased transparency will result in
more informed credit decisions, which will ultimately increase the volume of credit.
4. They enable the functioning of a competitive financial system, as loan processing becomes
simpler, collateral information is being properly utilized and streamlined and, in the end,
lenders are able to offer new products at competitive interest rates due to the availability of
information on customers' credit risk profiles.
B. Social responsibility of consumer-focused credit activities
As the core business of credit reporting involves the flow of information through a network of
stakeholders, credit reporting activities touch upon sensitive issues, such as the privacy rights of
consumers as well as their protection and security.
We should not forget that, due to the many functions and usages of credit data, sharing of credit
data from credit bureaus raises issues of social responsibility of the credit industry or private
credit bureaus.
It necessitates appropriate prudential supervision, and the need for well-functioning institutions,
which are to be entrusted with the exercise of such a social function. If credit data are not used
within a proper framework, they can result in dysfunctional markets, market abuse, lack of trust
and, in some cases, abuse of fundamental rights. All these can reduce the volume of credit.
Therefore it is of utmost importance to set the policy goals correctly both in terms of the
institutional or legal form of the organizations managing the data, as well as with regard to the
design and use of databases under the provisions of the law.
C. Challenges from smart and sound innovation
In many ways, the Open Source Credit & Big Data Bureaus that have recently emerged, connect
new customers to existing financial services at a lower cost. Innovative lenders are reshaping
business models, underwriting criteria, and customer experience. Their innovations reflect an
understanding of demographic changes, borrower needs, and how to connect to borrowers
through new technological channels.
As a result, the transition from business-driven to data-driven decision-making should
revolutionize the way the credit bureaus operate. By relying more on Big Data, Neural Networks,
Artificial Intelligence and Machine Learning, agencies will have the opportunity to approve loans
for consumers in markets whereby access to the banking sector has been limited so far. In this
way, a credit history will be created from scratch at a much lower cost compared to the credit
history databases that exist today. At the same time, creditors may get access to such
databases on a fee basis, allowing them to receive a list of customers that have already been
accessed. In order to get the borrower's profile, no physical appearance may be needed nor any
documents that usually accompany a loan application. Credit scoring techniques may access
data even from the consumer's smartphone and the system will be able to identify potential credit
risks with a significant level of accuracy.
As certain confidentiality issues may arise, all appropriate technical and legal safeguards should
be employed in order to assure all stakeholders of the confidentiality of the provided information.
D. Competition and level-playing field
The establishment of a level playing field, regarding the competition of financial institutions may
demand that they are equipped with similar tools, and no relevant restrictions or barriers exist
within the EU Member States. In turn, this means that credit-risk data may require a high degree
of standardization.
However, this is far from being the case today, as we are currently facing a fragmented system
of national credit data sharing. Apart from operating at a national level, a number of challenges
arise for calculating and comparing data coverage figures on customers across countries, as
each credit bureau does not necessarily collect information on the same population across
countries. The European Credit Research Institute has conducted a survey commissioned by
ACCIS(1) which provides a list of credit bureaus operating in European countries and underlies
the aforementioned challenges.
As a result, competition in the information industry within the EU is almost absent. The market for
credit data remains national and hence, commercial credit bureaus do not face competition.
The EU should have been the relevant market for credit data by ensuring a level-playing field for
all credit bureau participants. Conditions may improve through the interlinkage of information
flows to the various credit bureau stakeholders. More specifically, as information flows between
suppliers andand users of information increase, the interlinkage between the national credit
bureaus should increase as well, by incorporating more information from customers. In such an
interconnected network, all stakeholders would find it more attractive to join. The more sources
are connected to the network, the more detailed credit knowledge becomes the more useful it
become for risk-management purposes.
E. Regulatory and supervisory initiatives - policy actions
Given the dispersion of sources, the need for the integration of credit markets raises questions
on how to measure over-indebtedness and assess household creditworthiness in similar ways.
This will improve micro and macro financial surveillance and enable a more comprehensive
assessment of financial stability risks. In effect, this calls for a harmonized system of measuring
credit data in the EU.
Nevertheless, regulatory and institutional experience vary amongst EU member states, as
National Credit Registries do not exist in certain member-states, while various interests in the
credit industry have dictated how the data centralization systems would be set up (i.e. credit
bureaus, credit reference agencies, public credit registers etc).
The good news is that the European Central Bank has made significant steps for the setting-up
of a centralized infrastructure for the collection and sharing of granular credit-risk data within the
banking sector on a EU-wide scale, called "Analytical Credit Dataset" ('AnaCredit'). Anacredit will
impose new reporting requirements for lenders and credit bureaus in the Euro Area, which will
enable the harmonization of credit data that credit bureaus have in their databases. In this vein,
all stakeholders (credit bureaus, lenders, borrowers, consumers) may be obliged to use the
same set of indicators and harmonized definitions which, eventually, will allow for a
panEuropean comparison of the levels of indebtedness levels.
Having said that, our problems will not disappear automatically with an integrated pan-European
Database. The relevant supervisory activities should be enhanced in order to ensure that credit
bureaus implement best practices in data collection processing and submission. Supervisors
should ensure that appropriate procedures are in place so that the rights of customers can be
protected, while the protection of security and confidentiality of data should remain high on the
agenda.
Best practices indicate that credit reporting systems should benefit from a legal and regulatory
framework that is transparent, predictable, proportionate and supportive of consumer rights. The
legal and regulatory framework should allow more than one credit bureau license in order to
avoid the creation of a monopoly. Credit bureaus should be allowed to operate under an
institutional framework that could regulate its specific activities, including the receipt and
processing of consumer information, its database updates, as well as the means for compiling
information and assessing consumers' creditworthiness. Since the level of information is
expected to be harmonized, private credit bureaus that have obtained a license could then
compete on the pricing and the quality of their services.
Finally, the most recent financial crisis unveiled a number of data gaps that hindered effective
supervision and regulation of the financial system. Credit bureaus, as suppliers of data, can
partly bridge the gap, as long as they employ innovative technology and change their business
models by exploiting information from alternative data sources, so as to adapt to the new credit
usage behavior of customers.
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(1)Source: page 1 - "The European Credit Information Landscape: An analysis of a survey of
credit bureaus in Europe" aei.pitt.edu/33375/