The beginner's guide to data benchmarking

Access to high quality data is a must within the credit industry. Not only does it ensure scorecard improvement for credit firms, it also enables fair and transparent credit decisions for consumers too. However, there is currently a lack of objective, evidence-based insight into the data provided by each Bureau, how they measure up against each other and the variations in costs paid by lenders for the same data.

Many lenders are unaware that different rates are being paid by different customers to the credit Bureaux for the same data and spend footprint - and that this can be challenged. Data benchmarking is a valuable exercise as it allows credit risk and procurement teams to compare the pricing provided by your credit Bureau to other lenders, as well as the competitive price from alternative providers. This transparency gives you leverage to negotiate better pricing or flexibility to opt for an alternative credit data provider.

What exactly is data benchmarking and how does it work?

Put simply, benchmarking is the process of evaluating something in comparison with a standard measure (a benchmark). It’s made up of three elements: the metric, the benchmark value and the comparison group.

This provides a way for credit risk and procurement teams to find the best terms for their organisation, measured against industry peers.

Why is data benchmarking important?

Fundamentally, it saves hundreds of thousands of pounds.

On average, benchmarking delivers an additional 25-50% of savings compared to an RFP approach or a simple renewal negotiation. Benchmarking will compare the pricing being offered by the same provider to customers with a similar footprint, as well as a competitive view. This process is much quicker and less resource intensive – plus, the transparent and data-based comparisons allow for better results.

Moreover, if you couple the price comparison results of data benchmarking with data quality assessment, you can input the best data available into credit risk programmes, helping to plug gaps in credit data information.

Combined, you can reduce costs, improve business efficiencies – and fundamentally, make more informed credit risk assessments.

Key considerations to make when data benchmarking

When performing a data benchmarking exercise, there are a few key considerations to take into account.

1)    Get an independent and holistic view of the entire credit market

Learning more about the data available from Bureaux, more importantly the pricing offered to other lenders, will allow you to compare pricing and understand where you sit in terms of the industry as a whole.

This also allows for evidence-based negotiations for contracts and enables credit risk and procurement teams to make a better judgement on whether to switch or stay with the same provider.

2)    Analyse contracts and variations

Analysing existing contracts and looking at variations across the industry will help to understand the differences between what you’re currently paying, what others in the industry are paying and how you can negotiate a new contract to get the right data and pricing for your needs.

3)    Find the most easily achieved savings and provide a view on further potential savings

Benchmarking will highlight where savings can be made when purchasing data from Bureaux and this will help to inform future negotiations too. Having an overview and an understanding of where your organisation sits as a whole in the industry is key to negotiating the best contract at the best price.

4)    Renegotiate terms

If you are not happy with the rates from your current credit data supplier, you do not necessarily need to switch suppliers to gain cost savings. It’s possible to renegotiate terms and prices mid-contract and when it comes to renewal. Most organisations decide to remain with the same credit Bureau and will often renegotiate prices to gain substantial cost savings.

5)    Appoint the right Benchmarking consultancy

When choosing a benchmarking consultancy, it’s important to choose a niche organisation. They will be able to provide breadth and depth of price points from a number of spenders - without this, the Bureaux will not honour the discounts being offered elsewhere.

Make sure they have data expertise so that procurement and credit risk teams benefit from access to the best data sources available for the markets they operate in and ensure the data received is compliant.

4 data benchmarking myths debunked

There are many myths around data benchmarking which prevent organisations from being able to secure the best deal.

• Large spend does not always equate to lowest pricing

Contrary to belief, although large volumes and minimum commitments have been the currency for better rates, Bureaux take advantage of the lack of transparency and so one credit provider could be paying as much as double the unit rate compared to an industry peer being charged half the unit rate with a much lower spend and volume.

• Bureaux pricing is much lower for some vertical markets, and this cannot be challenged

Many credit risk and procurement teams believe they cannot challenge the fact that different vertical markets pay very different rates for the same data. However, the justification for charging higher rates for quotation searches for Finance and BNPL providers compared to Insurance companies is starting to weaken now there is a high demand for quotation searches from the financial sector.
 

• Contracts cannot be negotiated mid-term without any leverage

Data benchmarking and having an overview of what others in the industry are paying, as well as the discounts being offered by Bureaux can help to provide leverage when it comes to negotiating contracts.
Often, the pricing is inflated with poor commercial contractual terms and it’s possible to ask for flexible usage plans between contract years and clauses to cover usage below the minimum contracted value.
With evidence of inflated pricing, you can renegotiate mid-term.

• Benchmarking is a difficult exercise

Many organisations do not realise how easy it is to perform a data benchmarking exercise. Where an RFP can be time consuming and not offer any significant savings, data benchmarking is completely different. Very little resource is required but the value of the exercise to both the organisation and the industry as a whole is huge.

What is the impact of data benchmarking?

Data benchmarking can provide a 25-50% reduction in costs for an organisation, increased volume allowances, improved commercial terms and stronger client vendor relationships. All of these elements help procurement teams to add value for the credit risk team and the organisation as a whole.

Whether for credit risk or procurement teams, developing a full understanding of performance, price and accuracy is crucial and benchmarking is an integral part of this process. Comprehensive analysis allows teams to see how they measure up and use the information to achieve fair pricing and access to the correct data.

Working with an external partner can save valuable time and resources for the team and enable more informed decision making.