The Australian Retail Credit Association have shared rare insight into the composition of the credit market, in the process of seeking continued authorisation for the mechanics of consumer credit reporting.
The ACCC’s 2015 authorisation for ARCA and its members expires on 25 December 2020. ARCA seeks re-authorisation for a period of six years.
The industry association's application to the ACCC is unlikely to draw much fire, and its first submission to the competition watchdog is a goldmine of data.
ARCA estimates that there are 30.1 million "open and active credit accounts" in Australia, a number that includes "credit providers offering financial service products", while providers from other sectors such as telecommunications and utilities are excluded.
Of the 30 million credit accounts, nearly half are credit cards, with the next largest product type being home loans. The personal loans category includes a range of products including auto loans, overdrafts, and payday loans.
In one detail relevant to the momentum investing in Afterpay and their ilk, ARCA explain to the ACCC that "the fast-growing BNPL sector is as large as the overall personal loan sector, though in dollar terms BNPL is much smaller".
Banks and mutuals account for more than two-thirds of the 30 million credit accounts.
Australia’s four major banks hold 55 per cent of all credit accounts, as against their control of more than 80 per cent of banking assets.
Outside the major banks, finance companies account for 31 per cent of accounts, including specialist consumer finance providers, motor vehicle financiers, and BNPL providers.
ARCA said that “in terms of industry progress towards CCR, ARCA focuses primarily on the market excluding the BNPL sector, both because the product category is not subject to the same regulatory environment as other products, and because the product had only recently been launched when CCR was authorised in 2015.
“By the end of June 2020, 92 per cent of all accounts for the major product categories (credit cards, home loans, and auto and personal loans) will have CCR data being reported.
ARCA note that "this is a significant increase from March 2018 when only 9 per cent of accounts were being reported and June 2019 when 54 per cent of accounts were being reported.
"When the BNPL product category which is currently not participating in CCR is included, the overall participation in CCR at June 2020 drops to 79 per cent."
Lack of scale and concerns over adverse selection have so far deterred a long tail of ADIs and other credit providers from embracing CCR.
By the end of June 2020, 42 financiers "are expected to be supplying CCR data in public mode," ARCA said.
Credit cards make up 59 per cent of accounts currently being reported, home loans make up 27 per cent, while auto and personal loans make up 14 per cent.
"The reason credit cards make up a higher percentage of accounts being reported than they represent in the consumer credit reporting sector is that most FIs who offer a broad range of product types tended to implement CCR first for their unsecured credit portfolios, especially credit cards.”
ARCA then explain the compromises that infect its work and that of its members.
"Being the largest portfolio for many FIs, they could meet their obligations to transition to CCR with a minimum 50 per cent of accounts when they first participated, and follow that up within the required 12 month period with the range of other products they offered that were often fragmented across multiple systems.
It is estimated that 95 per cent of all credit card accounts and 88 per cent of home loans now have CCR reported, compared to 75 per cent of auto and personal loans.
“No BNPL accounts currently have CCR information being reported.”
The four major banks are responsible for nearly 70 per cent of accounts for which CCR is being reported, and "they have effectively completed their migration to CCR," ARCA said.
"Other industry sectors that have begun CCR implementation are more than 50 per cent progressed towards CCR,” so Australian banking is good for something.