Banks will soon have greater choice in selecting their source of information as more credit bureaus seek a share of the growing number of financial product users in India, the world’s second-fastest growing major economy, after China.
While new bureaus would get an opportunity to tap the large economy, some analysts say the competition could force some of the bureaus to focus on niche, besides constantly improving products and operating on thinner margins. The first and currently the most dominant, Credit Information Bureau (India) Ltd, or Cibil, may soon be jostled by at least three others entering the Indian market, including Experian Plc., Equifax Inc. and High Mark Credit Information Services.
Cibil has record on about 110 of the 150 million odd credit-active individual users in urban India. The company, started in 2001 with State Bank of India (SBI) and HDFC as promoters, currently has 300 lending institutions as members and its database holds records of 160 million loan accounts.
“This number is growing every year as credit penetration increases and could double over the next few years,” said Arun Thukral, Managing Director and CEO of Cibil.
Experian started its service earlier this month and is unfazed by the dominant presence of Cibil, even as new credit bureaus concede Cibil has a clear first-mover advantage in terms of the size of its database.
“Competition always brings efficiencies and India presents many unique challenges that are not there in other countries,’’ said a senior executive at SBI. “Different credit bureaus have different strengths. For instance, one of the bureaus has a very good credit scoring model while another one has good matching tools.’’
A credit score predicts the possibility of a customer becoming a defaulter over the next 12 months while matching tools are used to retrieve a customer’s credit details from the database. Cibil’s first-mover advantage in terms of the size of its database could be nullified if the others are able to build their databases fast enough. After that, it is a question of who can add most value and provide the best service, said an official of one of the companies.
“Real gains will be made only if the credit bureaus can provide more enriched data,’’ said Shyamal Saxena, general manager, Retail Banking Products at Standard Chartered Bank.
“For instance, you have a consumer’s credit report but what if you could also get a track record of insurance premium payments, cell phone bill payments and utility bill payments. Such information will be useful because a customer falls behind on these payments before he defaults on a secured loan.’’
Experian is trying to also load records that have been rejected by Cibil due to inadequate information. According to Nolan, the bureau is reducing the number of mandatory fields required and will rely on its analytical software to identify a particular record.
“It will be easier for us to build our databases quickly since Cibil has been around for some time and people are familiar with how credit bureaus work,” said Phil Nolan, managing director of Experian credit bureau. “We do not use a unique identifier in a lot of the markets we operate in,” he added. However, Thukral says that easier said than done.
“India is different from other markets and our processes have evolved over time. We started out with a hit rate of 30 per cent and now we have gone up to 75 per cent. What works abroad might not necessarily work in India,’’ Thukral said. “Some variables such as passport number, PAN number, voter ID number and date of birth have to be present.’’
At a global level, Experian, Transunion and Equifax are the largest credit bureaus. All of them are already in, or in the process of entering, the country. While Experian and Equifax have come on their own, Transunion is backing Cibil and owns about 20 per cent in the credit bureau.
Industry insiders say private sector banks are the most frequent users of the credit bureaus and an easy segment to serve.
“It appears that many private sector banks are already successfully working with Cibil. So it will be easier for other credit bureaus to repeat and there will be fierce competition to serve private sector banks since it simpler,’’ said Siddharth Das, chief operating officer of High Mark Information Services, one of the two credit bureaus that is yet to launch operations.
