Romanian Credit Bureau

TransUnion/CRIF Approach to Successful Implementation and Value-added Services

Bucharest, February 10th, 2004

Petr KuceraSenior Regional Manager

Table of contents

TransUnion, CRIF & IPACRI Introduction

Credit Bureau Experience

Credit Bureau Solution overview; Proposed involvement

The future: Added-value credit bureau services

• RomanianCredit Bureau

TransUnion Introduction

• TransUnion

The USA’s leading consumer credit reporting agency.

Operate credit bureaux in more than 10 and have offices in over 20 markets.

One of the largest databases of consumer information in the world.

More that 4 million credit reports sold daily (1 million online, 3 million in

off-line/batch mode).

Receive 12,500 input files per month from 9,000 data contributors.

3.4 billion rows of data updated monthly on 200 million consumers.

33 thousand public records updated each day.

Strict policy enforcement to protect credit information confidentiality.

CRIF & TransUnion worldwide

•Thailand

•Australia

•Hong Kong•Korea

•Czech Rep.

•South Africa

•Kenya

•India

•Italy

•Colombia

•Chile

•Mexico

•Canada

•Costa Rica

•USA

•Dominican Rep.

•Venezuela

•Guatemala

•New Zealand

•Puerto Rico

•El Salvador•Honduras

•Nicaragua

•Singapore•Malaysia

•Swaziland•Namibia

•Botswana

•Zambia

•China Representative Office

Slovakia

CRIF Introduction

• CRIF

A European, private- and bank-owned company with headquarters in Bologna (IT).

Over 500 employees in 6 countries; extensive growth in terms of revenues and

employees.

Leading European provider of information, decision systems, technology

and consultancy to evaluate credit risk and develop marketing strategies.

Started in 1988 as the Italian Credit Bureau for the retail and small-medium

business credit market (over 90% of market share).

More than 24.000 Users’ branches connected daily on-line. More than 60

million managed and updated lines of information in CRIF databases.

Over 400 scoring and decision solutions systems in 10 countries.

Services provided to Banks, Financial Houses, Insurance Companies and Utilities.

Local Partnership

• IPACRI Romania

Established in 1994 as a joint venture with ELSAG (Italy).

ELSAG involved in the TRANSFOND project for Clearing and Settlement project.

Key competences in financial/banking market, postal systems, public

administration, wireless/PDA applications, document management.

IPACRI Banking and Finance experience covers namely retail banking, treasury

systems, credit and market risk management, e-and m-banking.

International exposure: Italy, Germany, Denmark, Saudi Arabia, USA.

Focus on integrated Credit Risk Management Solutions with special regard

to Basel II requirements.

Credit Bureau Experience

Credit Bureau Scoring

US, Canada, South Africa, Bundes Schufa – Germany; Serasa – Brasil; Buro de

Credito – Mexico; ICB – Ireland; KSV – Austria (Feasibility study); BIK Poland; Czech

Credit Bureau (2Q 04)

Credit Bureau Feasibility StudiesAssociation Panamena de Credito – Panama; Tireasias - Greece

Other Credit Bureau related activitiesKEY FACTOR: Cross-border Data Exchange; ACCIS

Credit Bureau Operations

Current TransUnion and CRIF credit bureau operations in more than 15 markets

USA, Canada, Mexico, Italy, Australia, South Africa, Hong Kong, Thailand, China….

Eastern European Experience

Slovak Credit BureauCurrent establishment process; 3 largest banks as shareholders (TU-CRIF are

operators); EURISC System in outsourcing (Bologna); currently passed legislation

(consent not necessary for historical data inclusion)

Croatian Credit Bureau

Banking Association selected TransUnion/CRIF as operators in July 2003; Newco

establishment in progress (Feb 04); all Croatian retail banks to participate.

Other CEE marketsCredit bureau project activities: Romania, Russia, Hungary, Bulgaria, Serbia.

BIK Poland: Credit Bureau scoring

Czech Credit BureauLaunched in June 2002 (2 years of preparations); 5 founding members (90% of the

market); TransUnion, CRIF and a local partner selected by BA.

High hit-rate of 70%; c. 4,500 inquiries daily; expansion of the bureau to leasing

companies and construction savings banks (telecommunications).

Types of Credit Registries

We can distinguish credit registries by the following criteria:

private/commercial public/central

obligatory voluntary/with consent

negative positive

banking general/cross-industry

consumers SME, corporations

national local/regional

16 European developed economies operate a private credit bureau

(6 CEE markets in various stages of development).

Statistics show that positive commercial CB improve credit activity/GDP from 45,1 to 75,7% in

33 observed markets (as opposed to negative bureaux).

Recently, absence of positive data sharing caused substantial financial market collapses in

Thailand, South Korea,…

Private Credit Bureau CEE situation

Credit Bureau Benefits

• For Credit Grantors:

Assess overall indebtedness level of clientsAvoid “Credit Shopping”Reduce transaction time and costs Apply rates according to risk levelIncrease operation volumes at the same risk level

• For Borrowers (consumers and small business):

Get credit more easilyObtain lower rates according to own risk levelBe protected against future over-indebtedness

CROSS-INDUSTRY POSITIVE CREDIT BUREAU STRONGLY COMPLEMENTS THE RECENT NBR CREDIT GROWTH REGULATIONS !

Credit Bureau Benefits

Time for loan processing: 31% - more than 100% reduction33% - between 25% and 100%

Costs of lending: over 60% - an decrease of at least 25%

Default probability: 70% - decrease by 25% or more

Source: World Bank study „CREDIT REPORTING SYSTEMS AROUND THE GLOBE, June 2000“

Credit Bureau Data Flow

• Data Flow Overview

Client requesting a loan

Request sent to CB

Credit Bureau

Credit report retrieved

Client & Contract info appended

or updated in master CB db

Bank sends an online/batch

data update (to close open contracts)

Data update acceptedOr anomalies report generated

(other reports)

Control Committeemonitoring usage

Bank Production data

CB DB

BANK

TransUnion-CRIF proposed involvement

• Project management involvement

• Operations and organisational consultancy

• Assistance to the technical architecture and data-centre

operations setup

• Credit Bureau system implementation

• Ongoing system maintenance

• Constant upgrades via other markets´ installations

• Development of ancillary value-added services

TransUnion/CRIF credit bureau system

• International Credit Reporting System (iCRS):

New generation credit reporting system for international clients

Benefits of current and near future implementations on several markets (both new and current system replacements)

Modular architecture (allows incremental releases of functionalities in line

with market demand)

Built on open, standard technology architecture

Reusable, configurable product platform

N-tier, scalable architecture for small to large markets

Flexible system meets unique in-country requirements

Full compliance with valid legislation

TransUnion/CRIF credit bureau system

iCRS – TransUnion´s International Credit Reference System

CRIF´s European and CEE market knowledge and team support; IPACRI local technological and operational support.

Modular System FunctionalitiesDivided into several stages (based on functional analysis):

1st stage provides basic functionalities (data update in online and batch mode; data matching and normalisation features; credit report retrieval - online and batch; reporting; accounting; user administration).2nd…n-stage implemented in line with the market demand (focus on added value services: ASP application processing, decision engine, detailed statistical reports, anti-fraud support, credit bureau scoring, CPU-CPU connectivity, account monitoring, etc.).

1st phase:

Application processing + generic scoring + decision engine integration integrated existing solutions using Credit Flow and Strategy One products.

Data security and confidentiality issues

Technological security:

Secure private lines (VPN technology, data and transmission encryption, CA)Detailed access logs; automatic monitoring of excessive use

Personal & organizational security:

Closed-end user group; reciprocity rule (only data contributors have access to data)Strict contractual regulations (MFA, membership agreement: strict rules and regulations, sanctioning system towards members)Physical access rules; personnel requirements on CB staff

Control committee:

Composed of CB staff and users´ representativesMonitors activity logs; makes inspections at usersAuthority to impose immediate rectification, temporary disconnection, and sanctions.

Operational & organisational consultancy

Long-term success of a credit bureau is more dependent on the following

operational issues than on the software solution itself.For this reason, majority of efficient bureaux work in partnership with established credit referencing agencies.

• Shareholding/corporate structure/decisioning issues; business model

• Legal support: Personal Data Protection, Consumer protection laws,

Anti-Monopoly, cross-industry data sharing, consumer consent, etc.

• Pricing structure (model) for Users

• Contractual agreements between members

• Organisation of Control Committee

• Help-desk/client centre organisation (operations manual, etc.)

• Support for consumers (issuance of reports for general public, compliance)

• Legal disputes handling (individuals; authorities)

• Public Relations & Media issues

Credit Bureau Data Usage

ACCOUNT ACQUISITION

APPLICATION PROCESSING

ACCOUNT MANAGEMENT

EARLY STAGE COLLECTIONS

Solicitation

Cross-sell

Portfolio acquisition

Approve / Decline

Setting initial credit limits

Risk-based pricing of loans

Limit increase / decrease

Authorizations

Reissue

Prioritization

Resource allocation

Outsourcing

Value-added Credit Bureau Services

Basic and future functionalities of the Credit Bureau System:

CREDIT DATA SUBMISSION (ONLINE AND BATCH)

CREDIT REPORT RETRIEVAL (ONLINE AND BATCH)

APPLICATION PROCESSING SUPPORT

(INTEGRATION OF GENERIC/CUSTOM SCORING MODELS AND CREDIT STRATEGIES)

INTEGRATION WITH STRATEGY DESIGN & MANAGEMENT SW PACKAGES AND OTHER

PRODUCTS OF TRANSUNION AND CRIF

CUSTOMISED STATISTICAL AND USAGE REPORTS

AUTOMATED MONITORING FEATURES (ALERTS)

MONITORING OF TOTAL CREDIT EXPOSURE

ANTI-FRAUD SYSTEM

CREDIT BUREAU SCORE IMPLEMENTATION

SUPPORT FOR INTERNAL RATING SYSTEMS (BASEL II)

………

Romanian Credit Bureau – Summary

Credit Bureau is NOT an IT projectKnow-how transfer; Proprietary TransUnion/CRIF knowledge of banking systems in many markets; Complex data normalization/validation checks,…

Handling Personal Data Protection & Anti-monopoly Laws…Specific ability to overcome obstacles in „non-IT“ areas.

Proven CB solution providers for CEE marketsTransUnion/CRIF are the only players with experience in CEE markets (current CB work in progress in 6 CEE markets); dedicated CEE team of professionals.

Synergies with Additional ServicesApplication processing, Credit scoring; Anti-fraud database systems, etc.…

Cross-border Data ExchangeCRIF is the initiator of Key Factor (information sharing among European credit bureaux).

Strong local market supportIPACRI Romania is an established local company providing services on the Romanian financial market.