By George Beitis, Financial Analyst at Infocredit Group
The concept of credit dates back at least 5,000 years, when ancient civilizations used credit to acquire land or finance war efforts.
In the 1500s, commonly known as the Age of Discovery, merchants began trade missions and needed capital. Banks and other wealthy establishments were not interested in funding such high-risk expeditions as the act of usury was banned by the Church. To incentivize lenders, the reigning king of England, Henry VIII, established a legal rate of 10%.
In the mid-1760s, the British Empire accumulated enormous wealth through its colonial possessions and trade. This created an aura of overoptimism and a period of rapid credit expansion by many British banks. At the time, lenders would decide to approve a loan based on a person's reputation and status.
The hype ended abruptly on June 8, 1772, when Alexander Fordyce—one of the partners of a British banking house - fled to France to escape his debt repayments. The news quickly spread and triggered a banking panic in England, as creditors began to form long lines in front of British banks to demand instant cash withdrawals. The ensuing crisis rapidly spread to Scotland, the Netherlands, other parts of Europe and the British American colonies. Historians have claimed that the economic repercussions of this crisis were one of the major contributing factors to the Boston Tea Party protests and the American Revolution.
As more and more corporations and individuals could not repay their financial obligations, a group of English tailors swapped information about clients that failed to settle their debts. This is considered the first available account of credit reporting. Recognizing the importance of credit reporting, which minimized exposures from lending practices, the Mercantile Agency established an alphanumeric system to track the creditworthiness of companies.
In 1989 and 2006, the FICO score and Vantage Score were created, which measure credit scores based on objective factors and data. Most mortgage lenders use FICO scores when determining whether or not to approve a loan, although both credit scores serve the same purpose.
Following the implementation of a European Regulation called PSD2 (Payment Service Directive), third-party providers can now access a subject's financial information through Open Banking and evaluate their financial standing.
Infocredit Group's pan-European platform, eCheck360, leverages, aggregates and interprets transactional data and spending patterns with the use of Open Banking. Businesses and financial institutions can now evaluate their clients' creditworthiness scores and other financial metrics, such as level of affordability, source of income and gambling tendencies, in real-time.
As businesses embrace digital transformation practices and solutions that aim to improve operational efficiency and reduce exposures, Open Banking is becoming a significant source of innovation, poised to reshape the banking industry as well as the overall economic environment.
The evolution of credit
By George Beitis, Financial Analyst at Infocredit Group
The concept of credit dates back at least 5,000 years, when ancient civilizations used credit to acquire land or finance war efforts.
In the 1500s, commonly known as the Age of Discovery, merchants began trade missions and needed capital. Banks and other wealthy establishments were not interested in funding such high-risk expeditions as the act of usury was banned by the Church. To incentivize lenders, the reigning king of England, Henry VIII, established a legal rate of 10%.
In the mid-1760s, the British Empire accumulated enormous wealth through its colonial possessions and trade. This created an aura of overoptimism and a period of rapid credit expansion by many British banks. At the time, lenders would decide to approve a loan based on a person's reputation and status.
The hype ended abruptly on June 8, 1772, when Alexander Fordyce—one of the partners of a British banking house - fled to France to escape his debt repayments. The news quickly spread and triggered a banking panic in England, as creditors began to form long lines in front of British banks to demand instant cash withdrawals. The ensuing crisis rapidly spread to Scotland, the Netherlands, other parts of Europe and the British American colonies. Historians have claimed that the economic repercussions of this crisis were one of the major contributing factors to the Boston Tea Party protests and the American Revolution.
As more and more corporations and individuals could not repay their financial obligations, a group of English tailors swapped information about clients that failed to settle their debts. This is considered the first available account of credit reporting. Recognizing the importance of credit reporting, which minimized exposures from lending practices, the Mercantile Agency established an alphanumeric system to track the creditworthiness of companies.
In 1989 and 2006, the FICO score and Vantage Score were created, which measure credit scores based on objective factors and data. Most mortgage lenders use FICO scores when determining whether or not to approve a loan, although both credit scores serve the same purpose.
Following the implementation of a European Regulation called PSD2 (Payment Service Directive), third-party providers can now access a subject's financial information through Open Banking and evaluate their financial standing.
Infocredit Group's pan-European platform, eCheck360, leverages, aggregates and interprets transactional data and spending patterns with the use of Open Banking. Businesses and financial institutions can now evaluate their clients' creditworthiness scores and other financial metrics, such as level of affordability, source of income and gambling tendencies, in real-time.
As businesses embrace digital transformation practices and solutions that aim to improve operational efficiency and reduce exposures, Open Banking is becoming a significant source of innovation, poised to reshape the banking industry as well as the overall economic environment.