Credit Data Smart ushers in new era of credit scoring

It’s expected to promote healthy competition and improve credit knowledge of locals.

In April 2024, Hong Kong rolled out Credit Data Smart (CDS), a new operating model where past and present consumer credit data held by various credit reference agencies (CRAs) are pooled together and made available to new credit providers. 

Developed in collaboration with financial institutions and local authorities, the move is expected to help potential new credit providers better assess customers' creditworthiness and enhance the service quality of CRAs in the city.

“The presence of multiple CRAs will promote healthy competition in the credit reference industry. This competition will have a direct positive impact on service quality, driving agencies to improve their offerings and provide enhanced services to consumers in the market,” a representative from the Hong Kong Association of Banks (HKAB), one of the industry groups involved in the creation of CDS said via exclusive correspondence.

The Hong Kong Monetary Authority (HKMA) worked closely with other industry associations and local regulators in the creation of CDS.

“The HKMA has been working closely with the Industry Associations, including Hong Kong Association of Banks, the Hong Kong Association of Restricted Licence Banks and Deposit-taking Companies, and the Hong Kong S.A.R. Licensed Money Lenders Association Limited, to introduce more than one consumer credit reference agency (CRA) in Hong Kong through Credit Data Smart (CDS), with a view to enhancing the service quality of consumer CRAs and reducing the operational risk of having only one commercially run service provider in the market, particularly the risk of single point of failure,” a representative from the HKMA told Asian Banking & Finance in response to queries.

HKAB clarified that Credit Data Smart does not directly impact the outcomes of loan approvals.

“Instead, it offers credit providers a broader array of choices when selecting the sources of consumers' credit data. This flexibility allows credit providers to make informed decisions based on their preferred credit scoring models and data sources, catering to their specific requirements and preferences,” the association stated.

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An ecosystem of sharing
Three CRAs were chosen to participate in the pilot of Credit Data Smart: Nova Credit Limited, PingAn OneConnect Credit Reference Services Agency (HK), and TransUnion Credit Information Services.

Wingo Wong, managing director of TransUnion, said that they shared insights and data on data management and consolidation to help build Credit Data Smart. One of these are their proprietary data formats.

“These formats help all credit providers (CPs) easily download and upload data from the centralized platform. We also provided useful advice on the consolidation of different collateral data of CRAs and conducted the consolidation for all participants,” Wong said in an interview.

Wong and TransUnion believe that CDS will open a new era not just for the credit industry but for up to 5.5 million customers in Hong Kong.

“The advent of CDS opens the door for all participants to bring wider data access, new and enhanced products and more choices to businesses and consumers alike,” he said.

Greater consumer knowledge
CDS is not just expected to enhance the operations of credit companies, it’s also primed to improve credit data and financial knowledge of Hong Kongers.

One tenet of CDS is that CRAs will provide a free credit report to consumers once every 12 months.

This will give consumers a starting point to make regular credit monitoring a habit, says Wong.

“By staying vigilant through regular monitoring, consumers can make more informed financial decisions and take proactive steps to improve their creditworthiness,” he said.

Wong added that CDS and the yearly reports will also enhance personal data security and serves as a preventive measure against identity theft and fraudulent credit applications. For example, should consumers see information in their credit reports that are inaccurate, they can request to correct and change the inaccurate information.

HKAB also believes that the reports can help users achieve their financial goals.

“By checking their credit report regularly, consumers can spot problems and take measures to improve their credit scores, which will in turn help consumers meet their financial goals,” an HKAB representative said.

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The future
Beyond CDS, both TransUnion and the HKAB are working on different projects to improve credit referencing and lending processes in Hong Kong.

For their part, the HKAB said that banks under their purview have been leveraging the HKMA’s data infrastructure, Commercial Data Interchange (CDI), to streamline business loan application journeys and enhance SMEs’ access to bank finance. 

Banks in the city are also participating in HKMA’s pilot programme of the Interbank Account Data Sharing (IADS) initiative, aimed at further unlocking the potential of account data at banks. 

TransUnion, meanwhile, is reportedly exploring cooperation with other partners to form “a more comprehensive credit profile of consumers through the alternative data they provide that are consented by consumers.” 

Wong also sees other possible uses for credit data scoring beyond just loan applications.

“We’ve seen in other markets that our reports are being used not only in credit but also across various industries – for example helping property owners to confirm the financial creditworthiness of their tenants, or employers to ascertain the financial integrity of their candidates,” Wong said.

“CDS is an important milestone and we see a lot more opportunities in the market which could further benefit consumers and the wider financial sector, ultimately strengthening Hong Kong’s status as a strong international financial hub,” he concluded.