The state of data pricing: At a glance [behind the curtains]

Data pricing is a challenge faced by every credit provider. In a competitive market, Bureaux price variations mean that some credit providers pay up to 1,500% more (per search) than competitors for the same data from the same provider. This is due to a lack of transparency in the industry which makes it difficult for credit providers to achieve a fair price, compare products and find the best quality data. 

Until recently, very few credit providers have been aware that Bureaux charge different rates for the same data. A lack of supplier insight and in many cases a high cost of change, means organisations are tied into a specific bureau which leads to higher costs and little opportunity to shop around for better deals. 

But why are there such high price variations, how do you know if you are paying a fair price, and most importantly, how can you ensure you get the best price for your next credit data contract? Let’s find out…

Why are there huge differences in data pricing?

A lack of transparency around data pricing and quality in the industry means it’s difficult to compare products and pricing with that of competitors and it can be costly to switch providers which means CRA’s (Credit Rating Agencies) are able to hold onto high pricing.

Given the impact this has on consumers, the FCA (Financial Conduct Authority) is beginning to look into concerns around complex data contracts which prevents transparency around data quality and pricing. This review into the costs and competitiveness of data within the industry is a positive step. By making sure that offerings are not restrictive to one credit provider over another, this will ensure that consumers are being offered the best available products at a competitive price.

📕Further reading: Is your Bureau charging you higher costs than your competitors? Learn more about how to address differences in pricing when negotiating contracts.

 What is the impact of differences in data pricing?

The obvious impact is that credit providers pay over the odds for credit data. The ramifications on the consumer are where the biggest issues lie.

Can’t pass discounts down to consumers - Bureaux customers who have the same footprint of services are at a huge disadvantage when the Bureaux do not offer the same discounts as their competitors. Paying a higher price for data reduces the flexibility of risk and marketing teams to onboard new customers which impacts the business as a whole in terms of revenue and profit.

Can’t advertise in more channels - The customers who have access to lower quotation and search pricing are able to advertise in more channels, providing a commercial strategic advantage over competitors, as opposed to the discounted pricing being offered to all on a value of spend basis allowing a fair competitive landscape in terms of marketing.

Can’t provide as many credit options as possible - This can also have an impact on the end customers who may not be served up a full panel of offers due to some organisations paying higher prices for data and being unable to reach them with advertising.

What should organisations be aware of when negotiating data pricing?

When negotiating on data pricing, credit risk and procurement teams should be aware of a number of factors that can prevent them from securing the best quality data at a good price.

1.   Lack of transparency in the industry

The credit industry is a niche and complicated market with no published pricing which makes it difficult to benchmark on pricing and understand what competitors are paying for the same data.

2.   Extremely difficult to compare products

There are so many different products available (including bespoke solutions) which can make it almost impossible to compare like for like or argue commodity pricing. 

3.   Only able to compete against previous year’s quotes

Procurement and credit risk teams only have their own previous quotes to benchmark or compare against. They have no oversight or knowledge of what others are paying right now for the same package or footprint of data. So, if an organisation is unknowingly paying 25-40% more than the market value, a 10% reduction on the renewal seems like a good deal.

4.   Cost of change

It can be costly for organisations to switch credit bureau which allows the CRA’s to hold high pricing. This puts the customer in a position where there is little leverage to negotiate better pricing unless they are armed with pricing data to argue the point.

5.   Strong internal stakeholder relationships with the bureau

When risk managers have strong relationships with the CRA’s and do not want to disturb the relationship, it can be difficult for procurement to influence pricing or create leverage by looking at alternative supply.

6.   Contract terms are often not fit for purpose

In most cases, bureau contracts are based on the volume of searches required so forecasting is essential. However, given the volatile economic climate, it is difficult to forecast accurately and therefore it is essential to ensure the contractual terms allow for flexibility.

Checklist: How to gain transparency for data pricing

An industry wide lack of transparency around data bureau prices means it can be difficult to know how much you should be paying per search and means organisations risk paying more than competitors for the same data. 

It’s essential to have a transparent dialogue with credit data suppliers to access the right data at the best price. Whether you’re coming up to credit data contract renewal or are looking to negotiate mid-contract as a result of a change in circumstances, we’ve got a few tips to help you.

⬜Look at how you measure up

The first step into transparency is to find and view a benchmark of industry norms and see how your organisation measures up. This will help you to get the most out of your data and provides complete visibility of the market and the best prices available.

⬜Understand fair and transparent pricing

It’s important to understand the difference between what you’re paying and what your competitors are paying. Have a look at how your pricing and data quality compares to the  industry sector and the competition. 

⬜Access information to aid negotiations

Use the information you have gathered from analysis and comparisons to implement changes, aid contract negotiations and data sourcing.