Unlocking a credit market that’s been hiding in plain sight

22nd June 2022

We are living through a complicated economic time. Here in the UK, with Brexit and the pandemic still fresh in our memories, we are acclimatising to a new reality of record inflation, rising interest rates, geopolitical unrest and an affordability crunch.

Regardless, these challenges aren’t impacting the number of people moving to the UK to work or study. On the contrary: the government’s own quarterly visa issuance figures show we are starting to return to pre-pandemic levels of long-term immigration.

Against this background of a rising newcomer population amid expanding economic challenges, fairly priced, responsibly sourced, regulated credit products are in high demand and the more lenders can include than exclude creditworthy applicants the better.
In fact, by anyone’s approximation, a community of creditworthy, credit hungry people that increases in size by 700,000 individuals every year is a market worthy of exploration by UK credit providers.

Yet, while our research tells us that this is what the growing population of foreign-born people living in the UK looks like, we know that only a fraction of the country’s credit market players access it.

This extraordinary supply:demand disconnect has persisted for many years. It’s now one that if not addressed and resolved will prove as detrimental to the lenders that don’t lend as to the credit applicants that struggle to achieve the finance they need.

Millions of people cross borders every year, establishing lives in new countries to work, study or be with family. At the moment when they physically cross the border, they leave behind them years – in some cases, decades – of credit history. Their financial identities are ‘stuck’ in the countries they’ve left.

Significant proportions of these individuals are creditworthy and would be credit active, yet in the new countries they call home, they are credit invisible and underserved. Without access to these people’s past credit histories, lenders have no choice but to automatically decline their applications for new finance. The only feasible alternative is to assume the applicants are much riskier than they often really are, and offer access only to the most expensive credit products.

This all collides, meaning newcomers to the UK are routinely excluded from the most basic financial services that many of us take for granted, whether lenders like it or not. Whatever these people’s backgrounds, qualifications, incomes or savings, fairly priced credit cards, phone contracts, car loans are out of reach to hundreds of thousands of newcomers every year in this country alone.

Notwithstanding the obvious financial inclusion challenge this provokes and prolongs in our financial services system, the exclusion of these individuals from financial products puts a mass market of suitable credit customers out of reach for lenders and other financial services providers who need continuous access to new market streams in order to grow.

Market analysis tells us that UK lenders that don’t have a strategy to serve new-to-country applicants are on track to lose market share in the years ahead. According to the ONS for instance, by 2035, 100% of the UK’s annual net population growth is expected to come from immigration.

Consider also that four in five foreign-born UK residents live here for at least five years; the same proportion are of prime working age, and their mean UK income is higher than that of a UK-born national For most lenders, there are few other underserved populations hiding so directly in plain sight.

It would be easy – and wrong – to lay fault for this exclusion at the door of lenders. Instead, we have to start to admit that at the heart of this problem lies a global credit reporting system that has been built within national silos. For decades there has been no standardised way for lenders to communicate with credit bureaus around the world, or share credit history between countries in formats and templates that one another can understand.

This is an issue that can and must be addressed with a more modern, more globalised approach to an archaic, creaking credit reporting system. We need to see this shift happen, on a wholesale, global level.

Modern consumer technology has connected and internationalised so much information with one-click ease. Whether it’s our shopping habits, travel, transport or leisure, everything is accessible with a tap on our smartphones. The Covid pandemic has accelerated this trend, creating a greater expectation of immediacy and easy access for everything we need and do.

Except, I believe, when it comes to access, digestion and transfer of our personal financial information. Despite the vast swathes of fintech innovation we’ve seen in recent years, customer access to their own financial data has not kept up with the progress in other aspects of our lives.

Nova Credit was created in the US to counter that. Standardising consumer-permissioned financial information collected from credit bureaus in countries worldwide, we make it possible for consumers and their would-be lenders to access credit history wherever it was made. In this way, we can build upon a new world order in financial services that empowers individuals as stewards of their data – including when relocating between countries – with less friction than ever. At Nova Credit, we believe in a borderless financial system – one in which you own your financial identity, no matter where you choose to live.

We as an industry need to act now to create greater synchronicity between financial services providers and credit organisations. More people than ever need access to fair credit products, wherever they come from and wherever they choose to live. Pandemic-created border closures are behind us and immigration is rebounding. Failing to serve these deserving people is not a recipe for success.

This is for general information only and this content does not constitute regulatory advice or information. Nova Credit UK is currently seeking authorisation with the Financial Conduct Authority in the UK.

Matt Davies, Head of UK Market Development, Nova Credit