What's Ahead In Business Credit Technology?
Tom Diana. Business Credit. New York: Oct 2006. Vol. 108, Iss. 9; pg. 32, 2 pgs
Technology has played marvelous innovations in the financial industry for the last 20 years. Today, business professionals have a wide range of financial tools for credit scoring, collections and obtaining credit information from potential customers. New and improved internet and software have revolutionized the financial industry. A major change that we are experience in the 21st century is the process of automation in the credit firms. This is primarily due to the advancement in technology. Powerful software has been developed to facilitate various functions in the financial industry. One of the most unique features of this improvement is the ability to integrate technology into credit scoring. Credit scoring represents the creditworthiness of a person calculated based on the information maintained by the major credit bureaus such as Equifax, Experian, TransUnion and Innovis. These independent credit bureaus electronically maintain a history of consumer’s payment record, control of debt, credit inquiries made by other lending institutions, outstanding amount of debt the person is obligated pay and the time-span of each account the consumer has. As a result, lending institutions now have the capability to electronically report and access a person’s credit history retained by these credit bureaus within few minutes and decide whether they can extend a line of credit to that person within very short time.
One of the most unique features of development of new and improved credit management software is their ability for firms to use them to gain a proprietary advantage over their rivals. Financial industry is seeking a cost advantage by managing their IT resources more effectively. This extends from developing new software or improving their current software, outsourcing or even using remotely-hosting their software. This article explains the benefits of remotely-hosted software in the credit industry, rather than software installed on a company's own servers. According to this article, Michael Banasiak, President of Predictive Metrics, believes in cost advantages of outsourcing the hosting and maintenance of software to companies that specialize in that service. He says "It becomes more efficient. We outsource tasks in which we are not experts; it provides an economic edge."
As IT enables these changes, it creates a competitive credit market and the competitiveness ultimately benefits the consumer by lowering prices. Today, consumers have the capability to get unlimited access to his or her credit repot and monitor them real-time just by paying fraction of the money they would have to pay few years ago. Technology has created a gateway for other firms to look into new forms of business with the credit industry. Business like real-time credit monitoring, scoring and identity theft protection didn’t exist few years. It is because of technology that they are becoming more and more profitable today.
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2 comments:
It always amazes me how quickly someone can be approved for credit. I use to work as a sales associate and it would take exactly 5 minutes to input some general information about a person. And it would take exactly one minute for the approver to pass judgement on an individuals creditworthiness. Maybe part of the economic crisis is a direct result of credit to readily available to anyone. i believe the credit approval process needs to be slightly more stringent.
My article touched upon the issue of outsourcing certain banking procedures, as well. Outsourcing is a highly debated issue right now. I've always been a proponent for outsourcing. Although I feel sympathetic to individuals that are losing their jobs, basic economic theories suggest this is for the best. The future country will benefit from outsourcing through lower prices. Consumers are able to take advantage of more services at lower costs if more banking processes are outsourced. However, automation, the growing dependency on IT, and outsourcing are making the industry less personal.
Waruna -- You bring up a lot of good points about the influence that technology has on the credit scoring process. One question that stands out to me is the impact that these newer, technology-reliant methods has on the overall trend of credit scores. By creating technology to automatically update and appropriately distribute credit information, do we get a more accurate method for scoring? I wonder if previous methods missed information or had greater error rates. The other result is that, as you mentioned, businesses take full advantage of their ability to track consumer credit scores. I wonder what the true impact of this technology has been on the credit industry. For example, we just witnessed this "crisis" where consumers were apparently not matched well with the terms of the financial instruments that they received. Does this play into the scoring process and ease with which they can access data? Did financial lenders have a full picture of their customers credit and issue them credit that they were bound to default on anyways?
Interesting topic!
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