As Canadian lenders work to expand into untapped markets, it has become increasingly clear that an important tool is missing from their decision-making processes: a mechanism to underwrite New-to-Canada (N2C) arrivals. With immigration now accounting for two-thirds of population growth , we take a look at the opportunities N2C consumers present, and why lenders need to tap into the global credit data community.
Newcomers to Canada represent a significant—and growing—segment
Every year, thousands of people arrive in Canada to start a new life and settle in as citizens. On Census Day in 2016, around one fifth (21.9%) of the Canadian population reported they were or had ever been a landed immigrant or permanent resident in Canada.
And this segment is only growing: immigrants are projected to represent between 24.5% and 30.0% of Canada’s population in 2036, compared with 20.7% in 2011, the highest proportions since 1871. This increased representation translates to between 10.7 - 13.1 million Canadians.
Each of these people represents an opportunity for lenders to acquire new customers and keep them throughout the consumer lifecycle. And with the composition of the new to Canada segment increasingly tilting towards skilled workers and entrepreneurs, each new acquisition can hold great value for lenders.
Why lenders need to be first-in-wallet
The newcomer to Canada consumer segment isn’t only appealing in quantity, but also in quality. A recent TransUnion study found that, in general, newcomers to Canada have several appealing traits that lenders can benefit from:
- They are stable. New to Canada consumers have fairly steady credit behaviour over time; almost 70% maintain or improve their risk scores as they build their credit.
- They present a lower risk: They generally demonstrate lower bankcard delinquency rates compared to some other segments.
- They present early-acquisition opportunities. Newcomers to Canada consumers tend to be younger than established Canadians, which is an opportunity for financial institutions to acquire these consumers early in their lifecycles, and then cater financial products and services as they mature.
- They already have good credit ratings. Generally, new to Canada consumers exhibit good credit performance with almost half having earned a starting credit rating of prime or better.
While this is still a homogenous market (new arrivals will eventually become Canadian citizens) it does still represent a significantly underserved consumer group that lenders can access if they are able to unlock the right type of credit data. Lenders need to make targeted decisions, quickly and accurately, if they want to acquire and keep customers when competing for this growing market segment.
However, in a segment where credit data hasn’t traditionally been available, obtaining reliable credit histories for sound lending decisions is often easier said than done.
The challenges incomplete credit histories hold
Until now, lenders have had to rely on lengthy procedures to obtain these consumers’ credit histories—if possible. A newcomer to Canada is essentially credit-invisible if they have no accurate way to prove their credit standing in their origin country. And even if they do, lenders have no way of knowing how the applicant’s home-country credit score aligns with the Canadian equivalent. If a lender has no reliable information regarding a consumer’s credit history during the application stage, they have no choice but to follow their most stringent risk management principles and policies, and treat the applicant as a thin-file customer. It doesn’t matter whether the applicant has a good credit standing in their home country or not: lenders simply can’t risk basing their decisions on incomplete information.
For consumers, this often results in less favourable interest rates or higher collateral requirements. Here is an example: John is immigrating to Canada to work for a prominent law firm. He has an excellent credit history in his home country and when he arrives in Canada he applies for a credit card. The bank, however, is not able to obtain John’s credit history so they ask him to provide $2,000 collateral, about $1,900 of which he can use on the card. As he continues to responsibly use the credit card, the bank slowly but surely increases his limit and eventually he gets his deposit back. While he didn’t necessarily pay higher interest rates, he did have to endure an entire collateral process simply to obtain a credit card.
Now imagine this process for a newcomer who wants to buy a house or a car: not only do they face less favourable rates but they also risk not being approved for their mortgage or an auto-loan because their credit history in Canada simply doesn’t exist.
Connecting to a global credit data community
Lenders need less fragmented and more dependable financial data to determine if they want to provide these applicants with products and limits that more accurately reflect their credit histories. TransUnion Global Credit Connect Powered by Nova provides newcomers to Canada with a platform to import their historical credit information and have their international credit reports delivered to lenders, in a streamlined, standardized format. The foreign credit score is mapped to a Canadian equivalent score so that it can be consistently applied. All of this is, of course, only done with the consent of the consumer.
This is an unparalleled opportunity to welcome an underserved consumer segment and to improve decisions at the time of first account opening and throughout the consumer lifecycle. For lenders, this means increased operational efficiencies that save time and money, while consumers benefit from gaining access to credit that reflects their current status. Accurately and safely granting credit to newcomers doesn’t only help leverage an economically significant segment of the Canadian market: it empowers lenders to contribute to a financially inclusive ecosystem that stretches far beyond Canadian borders. We call this Information for Good.