When reviewing offers for prospective clients, lenders often deal with a significant amount of missing information in assessing the outcomes of lending decisions, such as:
- Why did a consumer accept an offer with a competitor?
- What were the differentiating factors between other offers and my offer, i.e. what were their credit score trends?
- What happened to consumers that we declined? Do they perform as expected or better than anticipated?
- What were their credit risk models?
While lenders can easily understand the implications of the loans they have offered and booked with consumers, they often have little information about two important groups of consumers:
- 1. Lost leads: consumers to whom they made an offer but did not book
- 2. Proxy performance: consumers to whom financing was not offered, but where the consumer found financing elsewhere.
Performing a lost lead analysis on the applications approved and declined, can provide considerable insight into the outcomes and credit performance of consumers that were not added to the lender’s portfolio.
Lost lead analysis can also help answer key questions for each of these groups:
- How many of these consumers accepted credit elsewhere?
- What were their credit attributes?
- What are the credit characteristics of the consumers we’re not booking?
- Were these loans booked by one of my peers or another type of lender?
- What were the terms and conditions of these offers?
- What was the performance of the loans booked elsewhere?
- Who did they choose for loan origination?
- Within each of these groups, further analysis can be conducted to provide lenders with actionable feedback on the implications of their lending policies, possibly identifying opportunities for changes to better fulfill lending objectives. Some key questions can be answered with this information:
Are competitors offering longer repayment terms?
- Are peers offering lower interest rates to the same consumers?
- Are peers accepting lower scoring consumers to increase market share?
- The results of a lost lead analysis can either confirm that the competitive marketplace is behaving in a manner that matches a lender’s perspective. It can also shine a light into aspects of the market where policy changes may lead to superior results. In both circumstances, the information provided is invaluable in making the best decision in today’s highly-sensitive lending environment.