What would a credit rating agency built for the 21st century look like?

Disclaimer: This is simply an exercise.

In 2008, the bursting of the U.S. housing bubble was a factor in the largest global financial recession since The Great Depression in the 1930’s. This financial meltdown cost millions of jobs, a smaller economy, and tremendous heartache. While there were many fraudulent players involved, some of the most heavily scrutinized firms were the three large credit rating agencies in the United States — Standard and Poor’s, Moody’s, and Fitch.

Now, what exactly is a credit rating agency?

A credit rating agency is a firm that assesses an entity’s ability to pay back debt they owe. They’ve been around for a while (ever since companies issued bonds to build the railroads) and they provide value to investors because they serve as an ‘independent’ source of financial information on debt issuers. On paper, they sound great. But…as history has proven, there are a few problems with the credit ratings.

First of all, there are only three firms (Standard and Poor’s, Moody’s, and Fitch),which own 95% of global market share. That hardly sounds like a competitive market. This system of oligopoly leads to complacency with risk assessment. For example, there have been countless times where these firms have miscalculated the credit risk imposed by companies (despite access to financials), such as during the Enron scandal and the 2008 housing bubble.

Their ratings are also pro cyclical, which means they tend to exacerbate bad situations. During the recent Euro crisis, the agencies downgraded Greece’s ability to pay back debt, which made their debt situation even worse.

Another huge issue with the rating agencies is that they are financed by the firms that they rate, not investors who use the information. Thus, their incentives are misaligned with providing accurate, honest information. Competitors have tried to emerge, but there is tremendous barrier to entry in this market due to the trust these agencies have built with investors and financial regulations.

Now, I’m trying to teach myself more about product design, especially when it comes to digital interfaces, and I thought that it would be a great exercise to envision what bringing a credit rating agency into the 21st century would look like. I love new startups like Oscar, Cadre, Stem, and Flexport, which are trying to disrupt traditional industries with thoughtful design. At design’s core, it’s purpose is to solve problems.

So, how did I get started?

Before I started this, I really didn’t have much knowledge about this industry. I spent some time understanding the problems, learning about the major players and power dynamics, and how the client software works. Ideally, I would have been able to do some user interviews and research, but for the purpose of this project, I didn’t. After some research, I came away with some leading principles for the design concept.

• In terms of visuals, a new agency should be simple and straightforward. In the golden age of web design, billion dollar businesses shouldn’t have clunky UIs.
• Company data should be presented as tailored to one’s own personal portfolio. How will this company work with me? This would counter pro cyclicality.
• As it pertains to language, a credit rating agency should be direct and honest. There have been a lot of people burned in this industry, and how would a new player change that?
• There should real-time analysis of company credit ratings, and not just static ratings posted every once in a while. Investors should be able to track these ratings.

If you want to skip the rest of the process, you can view the project on Behance here.

Getting Going

After I had established these principles, I started building out a visual system (colors and typography) for potential interfaces (a web and mobile app).

I played around with different ‘marketing’ visuals, and even picked a fake name — Forward.

Jumping Into the Product

As I thought what the experience around a web and mobile app, I thought about different goals a user would have and how they would want to accomplish them. A user would need a central dashboard to manage their portfolio and watch list, search for new ratings, and get news updates on different companies. I also played around with how a user would perceive the ratings themselves. Instead of a “AAA” system, how about a 0–100 scale that provides more granular data? Just a thought.

Above is a sample product dashboard. Once you look at the Behance project, you’ll see I got a little into mobile design and tried out prototyping with Flinto there. Overall, I really enjoyed this project as it helped me learn about a truly broken industry and how design could help fix some of the fractures.

Here are couple notes on the project:

• I would love some feedback on my product design process and the project itself. I’m just getting started and would love to keep sharpening my skills.
• All the data you see is entirely fictional and made-up. For the purpose of this project, I didn’t get too involved in the actual financial data.

Hope you enjoyed!