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Credit broker’s reverse side

Why it is not reasonable to authorize agents to sell credit products? Where do the worst credits come from? What’s the way of further agency network development? Denis Rakovsky, Sales Director at KreditMarket, is going to answer these questions.

As it happens almost all the time, all occurrences have at least two outcomes. For any crediting company, the agents’ (credit brokers’) actions have two different sides. The positive side is that agents help to increase sales. For example, this year’s growth of sale is mainly due to development of agency networks. They are growing, getting stronger and becoming a part of the financial infrastructure. The negative side is that on average loans granted through agents are of worse quality.

Therefore, any crediting company getting in touch with agents faces the challenge of passing along a thin line between the opportunities provided by agents and risks created by them.

Agents are so different

Of course, the agency structures don’t make a homogeneous mass. They can be conventionally divided into three groups. The first one is represented by more or less advanced agents, civilized agency structures and networks. The second one is represented by small brokers, even single individuals. The third group is formed by online agents, i. e. companies trying to use Internet technologies mainly, in fact, they sell loan applications.

The first group can ensure the highest volume of incoming credit applications; those are professional players, the companies with already established networks which are ready to invest in staff training and technology development. Owing to these companies, agents became more noticeable, and many crediting organizations, which were afraid to rely on their services, started cooperating with such agents.

The second group of credit agents is represented by episodic brokers. They contact crediting organizations from time to time, invite deceivers easily, prepare fictional statements, loan up customers, etc. One can expect such a negative experience more often from small agents than from big ones.

The thirds group of brokers is represented by online agents. Basically, it’s the cheapest way to attract borrowers. It’s based on the principle of faster data processing, and the future belongs to it. The time will show how fast they will be able to overcome risks inherent to online services. For example, it implies the risk of wrong borrower’s identification. As everything goes online, credit brokers will move there too.

Where do the worst credits come from?

What has a sharp rise of the agents’ role in the credit market resulted to? In fact, nothing has been good, unfortunately, because the market cannot adapt to the emerging situation. That's how it happened: the agents "could smell blood" and broke into run. In the running process it turned out that you could change partners (crediting institutions) like a woman changes clothes. After all, earned commissions did not fall, they grew, and the banks were tolerable because they wanted more and more volumes.

In chase of commission fees, many agent structures behaved so that their activity resulted in decreased quality of incoming borrower’s flow. Why did the quality decrease? There are two reasons.

Reason one: borrower’s “whitewashing”. Unfortunately, agents work with imperfectly solvent population. Such a potential customer has not the best paying capacity. When attending a crediting company, this customer tells practically the truth, he/she does not distort the credit receipt grounds and does not disguise his/her financial problems if they are present. However, after talking to an agent and receiving corresponding instructions, even an insolvent credit applicant turns into a very promising and worthy borrower: he/she tells the credit inspector whatever the last one wants to hear and gets the loan even he/she is not actually able to pay back.

Therefore, an insolvent customer duly trained by the agent has more chances to get through the filters of scoring systems. As a result, the quality of loans granted through agents, in most cases, turns out to be significantly lower than the average quality typical for a certain lending institution.

Reason two: double/triple lending (relending). It often happens that agents not only send borrowers’ applications to different places, but also push them to taking several loans at the same time. As a result, instead of the amount reasonable for his/her income, the borrower takes three times more than he/she can afford. Certainly, the borrower can attend several banks and take several loans. However, in view of the customer flow getting through the agents, this percentage appears to be much higher, and “technically” it’s arranged faster (practically for several hours).

What’s the way of further agency market development?

Certainly, it’s all not so negative with regard to the growth of credits issued through agents. Many agency structures have already realized their role. Big agency networks start moving to a more civilized form of cooperation with lending institutions and understand they need to value their partners. Many agents even start cooperating with credit reference bureaus and send credit history requests. They have a kind of CRM-systems and start filtering knowingly insolvent customers.

To a great extent the recovery, which has already started, can be explained by more sound and reasonable systems of agent motivation by lending institutions. Certainly, there is a close connection between the agent commission and the customer flow quality. A wide practice also covers paying agent commission in instalments, as it becomes clear that the attracted customer turns out to be a faithful borrower. This fact was understood by the most advanced financial institutions, as well as they realized that "pulling the chestnuts out of the fire" is leading nowhere.

Let’s speak openly: the lion's share of agent income is received not so much from a lender, as from a borrower. It is common knowledge that today the agent fee for cash credits may reach up to 10% from the issued loan. And it strongly distorts the agent’s sound motivation. For certain, this is the key to reduction of risks created by credits granted through agents.