Thanks to Creditinfo, Estonia becomes the competence center of open banking

The Head of the company says a positive credit register is needed for boosting the Estonian credit market. Stefano Stoppani, Dubai-based Chairman of the Board of Creditinfo providing business information, solvency assessment and market analysis, intended to visit its offices in Estonia and the other Baltic countries in the beginning of March, but COVID-19 hampered with these plans. Europe is cautious in regulating both data protection and open banking. The aim of the PSD2 directive is to give third parties – licensed companies – access to a person’s bank account information. This is not done just because, but for providing better service, and obviously the account holder must authorize this. The third-party, for example, the creditor, can then see the income of the person and what the money is spent on. Information is needed to determine if the person is able to pay back the loan (s)he wants.

No positive register

Operating in 30+ countries, Creditinfo decided to establish the competence center for this service in Estonia. The know-how will be produced here and then exported to other countries. “We chose Estonia because it is easy to do business and start new companies here, and the PSD2 ecosystem for companies is already in place,” Stoppani explains.

He believes that among the countries Creditinfo operates in, Estonia is one of the most developed countries in innovation. Also, the Estonian market is displaying trends that might appear elsewhere in the coming years. There is an active ecosystem of financial technology businesses here and the economy is growing. There are lessons to be learned and new ideas to be drawn from the local market. Stoppani is surprised that despite this background Estonia is one of the few countries that does not have a positive credit register. We have a payment defaults register which means that creditors share only negative data: information about problems with loan payments. A positive register would enable a person to allow his/her data to be included and the creditor would get a clear overview of his/her loan obligations. “This affects responsible lending,” Stoppani assures. In Estonia, the obstructions come from the legislation. “This is the question that Estonia should focus on in order to improve the credit market,” he says.

Data leakage should not be feared

Is it only about the legislation or are people afraid their data might be misused? Having worked at World Bank, Stoppani admits that even there it took some time before countries started to amend their laws. Then, 15–20 years ago, caution was understandable, because the whole field of registers was new. “This should no longer be the case in 2020. All the information is available online, in social media. We share important data every day,” Stoppani acknowledges.

While 20 years ago 80% were negative registers and 20% positive, the tables have now turned, Stoppani assures. The regulation expands the scope of the available data. But the crucial condition is that this can only happen upon agreement; a person must be free to decide about his/her data. On the other hand, there must be a circle of licensed users, meaning the users of the data must meet certain conditions to ensure data security.

Stoppani assures there is no need to fear data leaks with international companies such as Creditinfo. “If I will have any problems with using data anywhere, for example in Estonia, it is certain that my reputation is ruined all over the world and nobody will trust me,” Stoppani says. That is why Creditinfo pays great attention to the security of data storage and processing, investing much money into this.

Stoppani keeps a positive mind and believes Estonia is also moving towards a national positive register. He has even visited the Ministry of Finance to share his World Bank experience.

New register is being developed

The Ministry of Finance confirms that the issue is being tackled. In 2018 the ministry ordered a survey about the data exchange models of the financial obligations of residents. Its aim was to determine whether making the information about individual loan and other financial obligations available to all banks and other creditors helps to avoid excessive lending and the problems it causes. The survey also identified various models for ensuring adequate control when viewing such information and analyzed ways for exchanging information concerning individuals’ financial obligations.

As a result, the ministry starts preparing a plan for developing the draft of the credit information law that was supposed to be disclosed in spring. Now other pressing matters have intervened due to the corona crisis and according to the ministry’s spokesman Siiri Suutre this topic will take some more time. “Based on the feedback received through consultation, we can then decide which specific legislation amendments are taken forward,” Suutre explains.

Tarmo Ulla, Head of Private Customer Division at Swedbank, affirms that representatives of the Banking Association, including Swedbank, are involved in preparing the draft bill of the state-regulated register. Ulla says we need such kind of a register. “Without governmental regulations concerning the operation of the register, the protection of data it includes and supervision of the activity of the parties – creditors and the registrar – is not adequately insured,” Ulla notes.

Limit on loan payments

Priit Rum, Communication Manager at LHV, says that ideally, the positive credit register would enable to move towards offering interest rates that depend more on their solvency and fulfilling their existing loan obligations. Swedbank predicts that sharing positive credit information among market participants alone might not be enough for a more efficient meeting of the requirements of responsible lending. Ulla thinks it would be reasonable to set a limit on consumer credit loan payments, just as the Bank of Estonia has set on housing loans. “Introduction of the loan payment limit would make it easier for the creditor to follow the principle of responsible lending and also for the supervisory authority to check that the requirements are met.”

There has been a prior attempt in Estonia to establish a positive credit register that would better protect a person from excess borrowing and taking unsustainable financial obligations, and the creditor from loan loss. This was not regulated on the state level, it was a private scheme.
The first positive credit register in Central and Eastern Europe was established in Estonia in 1993. But in 2000 it was decided to close it and establish the payment defaults register. On the initiative of Krediidiinfo, the register was reestablished in August of 2016. Data exchange was managed by Krediidiinfo, the register was founded by several small creditors and some banks: LHV, Bigbank, TF Bank and Inbank. Yet the register failed to start functioning.

Original of the article had been published in Estonian business news portal Delfi/Ärileht on May 12th, 2020 based on the interview made in March 2020.

You can read the original article here.

Author: Kaja Koovit