- Email: [email protected]
The credit industry outside the United States
CHAPTER SIXTEEN
The credit industry outside the United States Abstract Unfortunately, I have little international economics background, and not even a lot of travel under my best. However, I feel that I can work on the internet to get a reasonable idea of international practices in ecommerce, credit usage, credit reporting, and credit scoring. As it turns out, countries do not share credit data or reputations: everyone starts out at zero. I turn first to the major Credit Reporting Agencies (CRAs) to see what countries they claim to work with, but on their lists are both minor countries and countries that do little business with them. I decide to cover the 20 largest economies and countries with over five million in population but among the 10 highest in per capita income.
My career for the last quarter century or so included credit analytics in the United States. In that capacity, I became familiar with credit reports, laws, and practices in this country. It was only gradually that I came to question choices made, began to think about alternate paths, and observed technology outrunning the original intents of the industry, public, and government. In that time of course, I was also a consumer and a user of credit products myself, getting my own mortgages, relying more and more on ecommerce of all sorts, on computers to track my savings, and on credit cards instead of currency (and avoiding the collection of ever-more-trivial pennies), transferring funds and brokering stocks on my iPad. The day came when I felt I was so wise, and had so much time on my hands, that I would write a book about credit. In addition, when I began that project, I just assumeddI genuinely assumed, unthinkingdthat the United States was the only market on earth where our practices would be of interest to anyone who might read this book. It had barely occurred to me to wonder what happened outside our borders. I suppose this insularity makes me an Ugly American, but not an irredeemable one I hope. As I began to discuss the idea of writing a book on credit with Elsevier, my editor (at that time) thought it should be internationalized. His point was to broaden the audience, and, after an initial resistance, I agreed he was right. It quickly came home to me that I was
Credit Data and Scoring: The First Triumph of Big Data and Big Algorithms ISBN: 978-0-12-818815-6 https://doi.org/10.1016/B978-0-12-818815-6.00016-9
© 2020 Elsevier Inc. All rights reserved.
127
j
128
Credit Data and Scoring: The First Triumph of Big Data and Big Algorithms
living in a narrow mental framework, and this was an opportunity to learn something about the world. Now of course there was the problem of finding out what happened in other countries, despite the fact that I had barely traveled, surely had lived in no other nation. Making virtue out of necessity, I turned to the internet, to learn what I could, surely starting this effort with the most United States centric point of view imaginable. I think that the topic and the country I became used to were not horrible for this bias. Credit scores surely got their start in the United States; we are the leader in consumption practice worldwide. As the reader will see, there are all sorts of flavors to how credit is collected, shared, treated, and foretolddthroughout the world, and even the modern first world. I started by assuming that America was a paradigm, and then retreated to the opposite notion that the American experience was unique, but both were exaggerated. I tried following the big three CRAs, which certainly are constant in the United States, and almost synonymous with the credit world here, guessing they might bring their practices with them. Each claim to be in large swathes of the world, presumably doing something in all these parts that is a continuation of what that they do here. Experian lists its “Global Sites” as: Argentina, Australia, Austria, Belgium, Brazil, Bulgaria, Canada, Chile, China, Colombia, Czech Republic, Denmark, France, Germany, Greece, Hong Kong, India, Indonesia, Ireland, Italy, Japan, Malaysia, Mexico, Netherlands, New Zealand, Norway, Peru, Poland, Russia, Singapore, South Africa, South Korea, Spain, Switzerland, Taiwan, Thailand, Turkey, UAE, United Kingdom, United States, Venezuela, and Vietnam.1 Equifax says they serve Argentina, Australia, Brazil, Cambodia, Canada, Chile, Costa Rica, Ecuador, El Salvador, Honduras, India, Malaysia, Mexico, New Zealand, Paraguay, Peru, Portugal, Russia, Saudi Arabia, Singapore, Spain, United Kingdom, Uruguay, and the United States.2 TransUnion claims to be in South Africa, Kenya, Rwanda, Zambia, Namibia, Botswana, Swaziland, North America, Canada, United States, Mexico, Brazil, Dominican Republic, Chile, Puerto Rico, Costa Rica, Nicaragua, El Salvador, Guatemala, Honduras, Colombia, India, Hong Kong, Philippines, Europe, and the United Kingdom.3 However, after a bit of digging, I came to believe that the activities of the companies are often minor (relative to the role they have in the United States) in many of these countries, and often the countries on the list are not large on the world economic stage. These are three companies, large
The credit industry outside the United States
129
companies, trying to extend wherever they can, trying to appear genuinely international, because that is certainly their business goal. However, they have competitors throughout the world, and they just cannot repeat their United States experience elsewhere. Indeed, that is normally impossible because the conditions and laws are so different. Generally, all three are qualified in data management, technology, modeling, legal issues, and talking the talk of credit stuff; but they adapt to the conditions, laws, and industrial organizations of countries in which they try to establish themselves. What struck me, in fact, after chasing down a few countries and internet articles, is that there is no consistent world at all in credit matters. Despite many common intents and overlapping markets, it is done nation by nation, with hard borders. Oddly, countries just do not share credit data, even ones that are strongly connected, such as countries of the European Union or countries served by the same CRA. For instance, Experian says they serve 14 countries, but no consumer can take advantage (or be disadvantaged) in one of those countries for debts paid or unpaid in another of the 14 countries. Besides non-overlapping data, many countries have something significantly different about their credit apparatus from every other country: laws, companies, who supplies scores (if there is any scoring), what is known, who contributes, etc. What this tells me about credit reporting, scoring, and security is that it is inextricably politicized at the national level, with some commonalities from historical ties and geography. In most countries, credit data is not owned by the consumers (e.g., the United States). In other countries, the data is aligned with things weirdly invasive (China with its cameras, India and its eye-scanners). In recognition of the national distinctions, it struck me that the way to approach this was to do it nation by nation, making sure that I first of all cover the (economically) major countries separately while bringing out the commonalities where I can. I admit that I do this somewhat blunderingly, trying to hit all the main countries in the world from a consumer market point of view. I have no opinions about what are the noblest countries, or most interesting, but I can look up the monetary and tradable value of their business activity on the Investopedia website.4 My plan is to say what I can about countries on one of two lists: First, I am looking for countries that have a significant consumer and credit economy. The 20 countries with the largest economies are the United States, China, Japan, Germany, United Kingdom (including England, Scotland, Wales, and Ireland), India, France, Brazil, Italy, Canada, South Korea, Russia, Australia, Spain, Mexico, Indonesia, Turkey, Netherlands, Saudi Arabia, and Switzerland. According
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Credit Data and Scoring: The First Triumph of Big Data and Big Algorithms
to Investopedia, these 20 countries account for over 80 percent of the global economy. But a country that we think of as modern and developed might fail to be on this list simply because it has a small population, so I also add 10 countries (with population at least five million), ordered by the measure of per capita, which will allow some smaller countries into our group: Singapore, Norway, United Arab Emirates, Kuwait, Austria, Hong Kong, Denmark, Netherlands, Sweden, and Belgium.5 Then I allow myself to rope in a few other countries, which strike me as noteworthy. My approach then, the best I can see to do, is to scan the internet, which is largely transnational, to report what I think is key about the use of credit data and scores in any country that is in any of these groups, listing the countries alphabetically. Where websites’ languages are not English, I use Google Translate to make it mostly understandable to me. Hopefully, I bring some expertise, to understanding how to translate what is on the website to some sense of reality of what is really going on in that locations. All websites throw in some spin. I think I can usually take some of that out. I am usually first trying to bring out the energy of the consumer market, the development of ecommerce, how people obtain things and pay for things. Are they spending their own money with checks and debit cards, or are they spending money, largely on credit cards, that they need to repay? Is credit a large part of every-day personal finance, with credit cards or, say, with mortgages? As with many first instances of financial innovation, debit cards were first created in the United States. Though there is more than one story of how they started, the website PocketSense states that The First National Bank of Seattle issued the first debit card to business executives with large savings accounts in 1978.6 These cards were ecommerce tools that behaved like a check. In the 1980s, the nationwide debiting system took hold, built on the credit card infrastructure and ATM networks already in place. Now, debit cards, labeled and administered by the major credit card companies, are available in almost all countries, and often the debit card can be used to withdraw cash from ATM machines. In many countries, particularly in Europe east of the United Kingdom, debit card dominates credit cardsdwhich means that people are spending their own money that they have already accumulated. Lending is less feverish in this case, less widespread. This is in contrast to economies like the United States and United Kingdom, where most purchasing comes with a loan, or which could be a loan (credit card), and trust is more crucial. Where trust is crucial, it may be that a homogeneous population in the home country gives rise to trust and mutual support, at least usually, by
The credit industry outside the United States
131
virtue of simple affinity. Where that is weaker, there are increasing degrees of recordation and evaluation of debt repayment, used to establish reputations that are not taken for granted. An important wrinkle in the recording of debt repayment is whether or not positive repayment is recorded, as well as failures. In many countries, only failures are available, and are gradually less of a blemish as time passes since the failure. This is very different from the United States and some other countries, where paying on time for a long time is a counteracting positive. Next, what is the degree of scoring or modeling done with this held data? It is one thing for creditors or other contract-offering entities to come up with their own notions of what is acceptable. The extent that extenders of credit rely on models is a measure of robotic response to consumerism, and sets the society up for robotic responses on all sorts of matters. The internet was originally driven by pornography because that was a way to make money on the medium. Scores in financial matters are worth money too, and extend analytic acceptance and use. Then, at some point, the idea of scoring becomes a sort of norm in decision-making in all areas. The last area to address is the legal framework for all the foregoing. In the United States, the Fair Credit Reporting Act (FCRA) and its regulators (including the state attorneys general) have defined the legal landscape of credit and credit scoring. It followed a certain path in the United States, largely because it mostly evolved prior to the internet and hacks galore. I will be trying to figure with the internet, not really very well I must admit, what is the legal setting in the various countries. In total, I hope I try getting the flavor of each country, and where they are on the path to Algocracy in credit matters.
Endnotes 1
2
3
4
5
6
The list of Experian Global Sites is obtained from the Experian website at www.experian.com/ corporate/about-experian.html reviewed by me on June 5, 2019. The Equifax list is obtained from its website at www.equifax.com/about-equifax/company-profile/, reviewed by me on June 5, 2019. The TransUnion list is obtained from its website at www.transunion.com/about-us/global-locations, reviewed by me on June 5, 2019. The list of top economies, that I used, is available at www.investopedia.com/insights/worlds-topeconomies/, reviewed by me on June 5, 2019. The list of countries with high per capita income, that I used, is available at www.en.Wikipedia.org/ wiki/List_of_countries_by_GDP_%28PPP%29_per_capita, reviewed by me on June 5, 2019. From A Detailed History of Debit Cards, written by Eric Tilden, for PocketSense at https://pocketsense. com/detailed-history-debit-cards-5462528.html, updated November 8. 2018. It was reviewed by me on August 14, 2019.
The credit industry outside the United States Abstract Unfortunately, I have little international economics background, and not even a lot of travel under my best. However, I feel that I can work on the internet to get a reasonable idea of international practices in ecommerce, credit usage, credit reporting, and credit scoring. As it turns out, countries do not share credit data or reputations: everyone starts out at zero. I turn first to the major Credit Reporting Agencies (CRAs) to see what countries they claim to work with, but on their lists are both minor countries and countries that do little business with them. I decide to cover the 20 largest economies and countries with over five million in population but among the 10 highest in per capita income.
My career for the last quarter century or so included credit analytics in the United States. In that capacity, I became familiar with credit reports, laws, and practices in this country. It was only gradually that I came to question choices made, began to think about alternate paths, and observed technology outrunning the original intents of the industry, public, and government. In that time of course, I was also a consumer and a user of credit products myself, getting my own mortgages, relying more and more on ecommerce of all sorts, on computers to track my savings, and on credit cards instead of currency (and avoiding the collection of ever-more-trivial pennies), transferring funds and brokering stocks on my iPad. The day came when I felt I was so wise, and had so much time on my hands, that I would write a book about credit. In addition, when I began that project, I just assumeddI genuinely assumed, unthinkingdthat the United States was the only market on earth where our practices would be of interest to anyone who might read this book. It had barely occurred to me to wonder what happened outside our borders. I suppose this insularity makes me an Ugly American, but not an irredeemable one I hope. As I began to discuss the idea of writing a book on credit with Elsevier, my editor (at that time) thought it should be internationalized. His point was to broaden the audience, and, after an initial resistance, I agreed he was right. It quickly came home to me that I was
Credit Data and Scoring: The First Triumph of Big Data and Big Algorithms ISBN: 978-0-12-818815-6 https://doi.org/10.1016/B978-0-12-818815-6.00016-9
© 2020 Elsevier Inc. All rights reserved.
127
j
128
Credit Data and Scoring: The First Triumph of Big Data and Big Algorithms
living in a narrow mental framework, and this was an opportunity to learn something about the world. Now of course there was the problem of finding out what happened in other countries, despite the fact that I had barely traveled, surely had lived in no other nation. Making virtue out of necessity, I turned to the internet, to learn what I could, surely starting this effort with the most United States centric point of view imaginable. I think that the topic and the country I became used to were not horrible for this bias. Credit scores surely got their start in the United States; we are the leader in consumption practice worldwide. As the reader will see, there are all sorts of flavors to how credit is collected, shared, treated, and foretolddthroughout the world, and even the modern first world. I started by assuming that America was a paradigm, and then retreated to the opposite notion that the American experience was unique, but both were exaggerated. I tried following the big three CRAs, which certainly are constant in the United States, and almost synonymous with the credit world here, guessing they might bring their practices with them. Each claim to be in large swathes of the world, presumably doing something in all these parts that is a continuation of what that they do here. Experian lists its “Global Sites” as: Argentina, Australia, Austria, Belgium, Brazil, Bulgaria, Canada, Chile, China, Colombia, Czech Republic, Denmark, France, Germany, Greece, Hong Kong, India, Indonesia, Ireland, Italy, Japan, Malaysia, Mexico, Netherlands, New Zealand, Norway, Peru, Poland, Russia, Singapore, South Africa, South Korea, Spain, Switzerland, Taiwan, Thailand, Turkey, UAE, United Kingdom, United States, Venezuela, and Vietnam.1 Equifax says they serve Argentina, Australia, Brazil, Cambodia, Canada, Chile, Costa Rica, Ecuador, El Salvador, Honduras, India, Malaysia, Mexico, New Zealand, Paraguay, Peru, Portugal, Russia, Saudi Arabia, Singapore, Spain, United Kingdom, Uruguay, and the United States.2 TransUnion claims to be in South Africa, Kenya, Rwanda, Zambia, Namibia, Botswana, Swaziland, North America, Canada, United States, Mexico, Brazil, Dominican Republic, Chile, Puerto Rico, Costa Rica, Nicaragua, El Salvador, Guatemala, Honduras, Colombia, India, Hong Kong, Philippines, Europe, and the United Kingdom.3 However, after a bit of digging, I came to believe that the activities of the companies are often minor (relative to the role they have in the United States) in many of these countries, and often the countries on the list are not large on the world economic stage. These are three companies, large
The credit industry outside the United States
129
companies, trying to extend wherever they can, trying to appear genuinely international, because that is certainly their business goal. However, they have competitors throughout the world, and they just cannot repeat their United States experience elsewhere. Indeed, that is normally impossible because the conditions and laws are so different. Generally, all three are qualified in data management, technology, modeling, legal issues, and talking the talk of credit stuff; but they adapt to the conditions, laws, and industrial organizations of countries in which they try to establish themselves. What struck me, in fact, after chasing down a few countries and internet articles, is that there is no consistent world at all in credit matters. Despite many common intents and overlapping markets, it is done nation by nation, with hard borders. Oddly, countries just do not share credit data, even ones that are strongly connected, such as countries of the European Union or countries served by the same CRA. For instance, Experian says they serve 14 countries, but no consumer can take advantage (or be disadvantaged) in one of those countries for debts paid or unpaid in another of the 14 countries. Besides non-overlapping data, many countries have something significantly different about their credit apparatus from every other country: laws, companies, who supplies scores (if there is any scoring), what is known, who contributes, etc. What this tells me about credit reporting, scoring, and security is that it is inextricably politicized at the national level, with some commonalities from historical ties and geography. In most countries, credit data is not owned by the consumers (e.g., the United States). In other countries, the data is aligned with things weirdly invasive (China with its cameras, India and its eye-scanners). In recognition of the national distinctions, it struck me that the way to approach this was to do it nation by nation, making sure that I first of all cover the (economically) major countries separately while bringing out the commonalities where I can. I admit that I do this somewhat blunderingly, trying to hit all the main countries in the world from a consumer market point of view. I have no opinions about what are the noblest countries, or most interesting, but I can look up the monetary and tradable value of their business activity on the Investopedia website.4 My plan is to say what I can about countries on one of two lists: First, I am looking for countries that have a significant consumer and credit economy. The 20 countries with the largest economies are the United States, China, Japan, Germany, United Kingdom (including England, Scotland, Wales, and Ireland), India, France, Brazil, Italy, Canada, South Korea, Russia, Australia, Spain, Mexico, Indonesia, Turkey, Netherlands, Saudi Arabia, and Switzerland. According
130
Credit Data and Scoring: The First Triumph of Big Data and Big Algorithms
to Investopedia, these 20 countries account for over 80 percent of the global economy. But a country that we think of as modern and developed might fail to be on this list simply because it has a small population, so I also add 10 countries (with population at least five million), ordered by the measure of per capita, which will allow some smaller countries into our group: Singapore, Norway, United Arab Emirates, Kuwait, Austria, Hong Kong, Denmark, Netherlands, Sweden, and Belgium.5 Then I allow myself to rope in a few other countries, which strike me as noteworthy. My approach then, the best I can see to do, is to scan the internet, which is largely transnational, to report what I think is key about the use of credit data and scores in any country that is in any of these groups, listing the countries alphabetically. Where websites’ languages are not English, I use Google Translate to make it mostly understandable to me. Hopefully, I bring some expertise, to understanding how to translate what is on the website to some sense of reality of what is really going on in that locations. All websites throw in some spin. I think I can usually take some of that out. I am usually first trying to bring out the energy of the consumer market, the development of ecommerce, how people obtain things and pay for things. Are they spending their own money with checks and debit cards, or are they spending money, largely on credit cards, that they need to repay? Is credit a large part of every-day personal finance, with credit cards or, say, with mortgages? As with many first instances of financial innovation, debit cards were first created in the United States. Though there is more than one story of how they started, the website PocketSense states that The First National Bank of Seattle issued the first debit card to business executives with large savings accounts in 1978.6 These cards were ecommerce tools that behaved like a check. In the 1980s, the nationwide debiting system took hold, built on the credit card infrastructure and ATM networks already in place. Now, debit cards, labeled and administered by the major credit card companies, are available in almost all countries, and often the debit card can be used to withdraw cash from ATM machines. In many countries, particularly in Europe east of the United Kingdom, debit card dominates credit cardsdwhich means that people are spending their own money that they have already accumulated. Lending is less feverish in this case, less widespread. This is in contrast to economies like the United States and United Kingdom, where most purchasing comes with a loan, or which could be a loan (credit card), and trust is more crucial. Where trust is crucial, it may be that a homogeneous population in the home country gives rise to trust and mutual support, at least usually, by
The credit industry outside the United States
131
virtue of simple affinity. Where that is weaker, there are increasing degrees of recordation and evaluation of debt repayment, used to establish reputations that are not taken for granted. An important wrinkle in the recording of debt repayment is whether or not positive repayment is recorded, as well as failures. In many countries, only failures are available, and are gradually less of a blemish as time passes since the failure. This is very different from the United States and some other countries, where paying on time for a long time is a counteracting positive. Next, what is the degree of scoring or modeling done with this held data? It is one thing for creditors or other contract-offering entities to come up with their own notions of what is acceptable. The extent that extenders of credit rely on models is a measure of robotic response to consumerism, and sets the society up for robotic responses on all sorts of matters. The internet was originally driven by pornography because that was a way to make money on the medium. Scores in financial matters are worth money too, and extend analytic acceptance and use. Then, at some point, the idea of scoring becomes a sort of norm in decision-making in all areas. The last area to address is the legal framework for all the foregoing. In the United States, the Fair Credit Reporting Act (FCRA) and its regulators (including the state attorneys general) have defined the legal landscape of credit and credit scoring. It followed a certain path in the United States, largely because it mostly evolved prior to the internet and hacks galore. I will be trying to figure with the internet, not really very well I must admit, what is the legal setting in the various countries. In total, I hope I try getting the flavor of each country, and where they are on the path to Algocracy in credit matters.
Endnotes 1
2
3
4
5
6
The list of Experian Global Sites is obtained from the Experian website at www.experian.com/ corporate/about-experian.html reviewed by me on June 5, 2019. The Equifax list is obtained from its website at www.equifax.com/about-equifax/company-profile/, reviewed by me on June 5, 2019. The TransUnion list is obtained from its website at www.transunion.com/about-us/global-locations, reviewed by me on June 5, 2019. The list of top economies, that I used, is available at www.investopedia.com/insights/worlds-topeconomies/, reviewed by me on June 5, 2019. The list of countries with high per capita income, that I used, is available at www.en.Wikipedia.org/ wiki/List_of_countries_by_GDP_%28PPP%29_per_capita, reviewed by me on June 5, 2019. From A Detailed History of Debit Cards, written by Eric Tilden, for PocketSense at https://pocketsense. com/detailed-history-debit-cards-5462528.html, updated November 8. 2018. It was reviewed by me on August 14, 2019.