A new report from Experian found over three quarters (77%) of Australian lenders are actively exploring AI and other new data sources to better manage risk in their lending portfolio.
The report from global information services company and Australian credit bureau Experian revealed more than half of Australian lenders and business leaders say they don’t have access to the data they need to assess creditworthiness of customers and make proactive and responsible lending decisions in the current economic climate.
The findings from an in-depth survey of 75 Australian risk leaders, combined with research commissioned from Forrester of 889 Financial Services and Telco leaders (including 66 from Australia) show only 16% of risk leaders in Australia said their organisation was highly effective at proactively identifying customers in financial stress.
Concerningly almost two in five (39%) don’t rate their ability to proactively identify customers in financial stress (23% slightly effective / 16% ineffective).
The survey also found:
- More than half (59%) of those already using AI have seen their productivity gains offset the initial cost
- 67% of our Australian respondents have a comprehensive AI risk management program in place and are actively addressing unintentional bias through fully transparent and explainable AI.
- Of those using AI, 56% have found the biggest analytics-related challenge is the ability to seamlessly connect different data assets in a data warehouse that can adequately support the technology.
- To address the technology gap, 80% of lenders are now prioritising investments in cloud technology for unified data integration to tackle the biggest risk priorities in Australia, including cybersecurity (56%) and data privacy (52%), impact of regulatory changes (43%) and macroeconomic risk (42%).
- More than half of banks and credit lenders (55%) don’t have access to the data they need to assess creditworthiness of customers and make responsible lending decisions, despite the sharp increase in hardship and missed repayments in the last year.
Over half (55%) of lenders said the earliest their organisation could reliably identify that a customer is in a position of financial stress was not until they missed repayment, while almost a quarter (23%) of lenders don’t know if a customer is in financial stress until that customer notifies them.
The majority of risk leaders in Australia said they need more resources and investment in expertise if they are to stay ahead of the economic headwinds, with only 16% reporting they use sophisticated enough data and technology systems to be able to identify red flags in the transaction data.
Most said their biggest data-related challenge (53%) was a lack of data to help assess the creditworthiness of consumers.
“It’s never been more important for lenders to be able to proactively identify when a customer’s financial situation has changed, Director of Client Advisory, Credit Services, Charlotte Rankin said.
“Using the data and technology available lenders can intervene sooner to help customers minimise financial stress and maximise financial wellbeing.”
“With two in three (64%) risk leaders saying that limited resources and expertise are holding back their risk management systems from being the best they can be, it’s clear that more investment in technology is needed if businesses want to successfully navigate through today’s economic climate.” she said.
To navigate the heightened credit risk environment, over three quarters (77%) of Australian lenders are actively exploring AI and other new data sources to better understand risk in their portfolio through a deeper understanding of their individual customers’ and applicants’ financial situations.
More than half (59%) of those already using AI have seen their productivity gains offset the initial cost, but achieving overall success requires large volumes of data and the right data infrastructure.
Of those using AI, 56% have found the biggest analytics-related challenge is the ability to seamlessly connect different data assets in a data warehouse that can adequately support the technology.
To address the technology gap, 80% of lenders are now prioritising investments in cloud technology for unified data integration as to tackle the biggest risk priorities in Australia, including cybersecurity (56%) and data privacy (52%), impact of regulatory changes (43%) and macroeconomic risk (42%).
“AI and data are at the heart of understanding credit worthiness and providing a better customer experience in this financial climate,”
“The race to implementation is well underway with adoption across most use cases set to double in the coming year as the vast majority of early adopters (77%) have already seen a competitive advantage,” Rankin said.
“While AI is driving innovation and enhancing analytical performance, it is critical to ensure this technology is used in a responsible and ethical way,”
“It is reassuring that 67% of our Australian respondents have a comprehensive AI risk management program in place and are actively addressing unintentional bias through fully transparent and explainable AI.” she said.
Methodology
Experian’s 2023 Business Insight Report is based on a survey of 889 business leaders in Financial Services and Telcos across ten countries, including Australia, Denmark, Germany, India, Italy, New Zealand, the Netherlands, South Africa, Spain, and Turkey.
The research was conducted by Forrester Consulting during July 2023 to understand how organisations are using AI to enhance analytics and risk assessment, while also investigating the challenges they encounter.
Experian Risk Radar research (2023 Experian Risk Radar Report 2023.pdf) conducted in October 2023 engaged 75 Australian risk leaders, decision makers and influencers across financial services and telecommunications.
The survey was distributed through Experian networks and through industry bodies Australian Retail Credit Association (ARCA) and Australian Finance Industry Association (AFIA) to their members.
