All posts by Gary Stockton

Experian hosted a commercial fraud trends webinar titled 'Uncovering Undiscovered Fraud Within The Portfolio'. During our session, key Experian experts Dominic DeGuiseppe, Javier Rodriguez-Paiva, and Li Mao, discussed the critical issue of commercial fraud within the financial industry and how it's often misclassified, leading to significant impacts on businesses. The speakers emphasized how businesses often underestimate their commercial fraud issues. Misclassification happens when business operational losses are erroneously categorized as credit losses. Businesses come to realize this when they delve deeper into the instances of credit misuse by fraudsters. Javier Rodriguez-Paiva argued that commercial fraud rates remain concerningly high, especially in small business lending and credit facilities, which are attractive magnets for criminals and credit abusers. This ongoing situation is worsened by lenders often lacking the specific capabilities to detect and manage fraud. In response to these challenges, Experian offers solutions aimed at rapid and early detection of different types of fraudulent activity. As Li Mao explained, the goal is to design solutions that allow businesses to identify risk quickly at the time of account opening, using advanced analytics and substantial data sources. Experian's solutions aim to ensure businesses can understand the different commercial fraud classifications and treat each case uniquely. By identifying the fraud type, be it first-party, third-party or synthetic ID fraud, appropriate responses can be triggered for each application. During the webinar, Li Mao introduced Experian's Multi-Point Verification solution, which verifies application information against trusted sources, allowing businesses to be confident of the identity of the business they are dealing with. This solution incorporates credit, fraud, and identity verification within a single tool. Javier Rodriguez-Paiva concluded by emphasizing the need for a more comprehensive risk management framework. Lenders could benefit from combining traditional credit scores with fraud-screening tools to provide a 360-degree view of a potential customer's risks. Such a multi-dimensional analysis can significantly improve fraud detection and prevention. The webinar highlighted Experian's commitment to supporting businesses in managing and mitigating prevalent commercial fraud challenges. While identity theft and credit abuse fraud are expected to increase, Experian's new strategies, enhanced verification tools, and advanced analytics solutions offer a promising shield against fraudulent activities. Click below to watch this webinar on-demand.

Experian is very excited to unleash game-changing commercial fraud detection capabilities with Multipoint Verification, a key component in our commercial fraud suite. Innovations in digital consumer experiences mean your commercial customers have new expectations. They want personalized, digital, secure faceless experiences, and fast decisions. But faster digital experiences without proper checks can often open the door to commercial fraud.  Manual application reviews can slow things down, and cut into your bottom line. Experian can help you control costs and protect you from the high price of commercial fraud, and labor-intensive manual review processes. Multipoint Verification facilitates fraud detection at the point of application, so your lower-risk good customers can continue to enjoy a frictionless experience while you mitigate fraudulent applications. Introducing Experian Multipoint Verification Multipoint Verification helps you verify a business's legitimacy. In addition, it enables you to discern fraudulent applications from bad credit through comprehensive data sets. Single-sourced verification products can be limited in their capability and often prone to false positives. Multipoint Verification arms you with practical intelligence, so you can confirm the linkage between the applicant and claimed business, state filings, email issuance, or identify potential corporate linkage to other entities at the point of application. Experian is transforming the commercial fraud screening landscape, let’s start a conversation. Learn more about Experian Multipoint Verification

Experian and Moody's Analytics have just released the Q3  2021 Main Street Report. The report brings deep insight into the overall financial well-being of the small-business landscape and offers commentary on business credit trends and what they mean for lenders and small businesses. Labor shortages, wage pressure, and supply chain issues challenge small businesses   Small business credit performance was mixed in the third quarter as businesses dealt with the COVID-19 Delta variant.  Early-stage delinquency rates rose modestly while late state delinquency and bankruptcy rates fell decisively. With daily COVID cases falling, demand for goods and services should rise in coming quarters.  Downside risks are concentrated on the supply side with businesses struggling to hire workers and dealing with supply chain stress. Early-stage delinquency rates rose in the third quarter with servicers reporting that 1.27% of small business credit balances were 31-90 days past due. While higher than the second quarter’s 1.19% rate, performance was only slightly worse than a year ago and significantly better than the pandemic high of 1.66%. Perhaps more notable was the sharp drop in late-stage delinquency, with 1.92% of balances reported as being more than 91 days past due. Supply chain issues are impacting both the availability and price of key inputs.  Nowhere is this more apparent than in the semiconductor industry, where bottlenecks have shut down the manufacture of entire carlines. If you would like to get the full analysis of the data behind the latest Main Street Report, watch our Quarterly Business Credit Review webinar. Just scan the code or go to the short link and remember to download your copy of the latest report. Download Latest Report

For decades, lenders and others have relied on core credit data focused on financial borrowing and repayment behavior. Many factors go into the decision-making process, including the length of credit history, the number of open accounts, and on-time bill payments. What happens when a consumer or small business owner relies on cash for financial transactions or has never held a mortgage or a business loan? A significant portion of the U.S. adult population faces this problem. According to a 2020 report by the Federal Reserve, as many as 21 percent of U.S. consumers survive without a credit card. As a result, the traditional credit-scoring model doesn't tell the full story of their financial health, and they could be labeled “credit invisible" or “unscored" due to limited access to credit. It's both a personal and business problem. For consumers, that might mean not being able to secure a mortgage, insurance, or even be considered for a job. Start-ups and small businesses, meanwhile, may not be able to access credit to fuel their future growth and success. The recent explosion of new business filings brings the challenge of credit access to a head. Because small and emerging businesses can lack sufficient credit histories to qualify for credit on their own, they may rely on the owner's personal credit profile for lending decisions. Yet, some small businesses continue to struggle to get financing. It's especially pronounced in communities of color. For example, Black-owned businesses get turned down for bank financing at twice the rate that white-owned businesses do, according to the Federal Reserve. Technological innovations such as Experian's Experian Boost are shaking up the conventional scoring system by bringing in alternative credit factors to fill out the credit picture. For lenders, the emergence of alternative data, otherwise known as non-traditional data, helps them make informed business credit decisions among a wider number of customers and prospects. What is non-traditional data? Traditionally, lending and other credit decisions have been based on factors such as credit history and on-time payments. That can allow people and businesses that do not have a lot of cash but can demonstrate good repayment behavior to borrow. However, it's quite another story when the situation is flipped. Some consumers and businesses don't utilize financial products, though they might have healthy cash flow. As a result, they lack the necessary data to generate a credit score, making them appear to be unattractive credit risks. Non-traditional data is an important way to give consumers access to better rates and open up borrowing to more consumers and businesses. This data can include things like rent and cell phone payments, giving lenders a broader range of information to consider. According to FinRegLab, 96 percent of U.S. households have a bank account or a prepaid card and 91 percent of U.S. adults have at least one utility account in their names. Overall, including other credit data, in addition to core credit data, would bring more people into the credit system. Including non-traditional forms of data can create financial inclusion for consumers and businesses. Where does non-traditional data come from? Non-traditional data is generated by aggregators that scour utility accounts, public records and property information to understand the financial activities of consumers. It considers a wider range of financial behaviors than what just appears on a credit report. These can include: Rent payments Utility payments Employment verification Bank account information, including recurring payroll deposits, average account balances and withdrawal activity. Property records Non-traditional credit data goes one step further and supplements this data with information on consumers' use of alternative lending arrangements such as payday loans, small-dollar credit lenders, auto financiers, rent-to-own, retail financing, and others. Commercial lenders can also take advantage of technological innovations to gather non-traditional data for lending decisions, which can drive more approvals and greater profits. For businesses, non-traditional credit data can include: Social media: How many user check-ins and reviews is a business getting on social media? That can say a lot about its business. Experian Social Media Insight™ provides a social media view to help lenders better score business borrowers with thin credit profiles. Online financial activity: An uptick in PayPal or Venmo transactions can suggest healthy cash flow. Bank details: Borrowers can permit lenders to view their business banking account, which shows how much cash on hand they have. Accounting software: With direct access to QuickBooks or FreshBooks, lenders can make determinations about a potential customer's financial health in real-time. Shipping information: For businesses moving products, analyzing shipping data allows lenders to make assumptions on cash flow. How is non-traditional data currently used? Financial institutions have become receptive to other credit data sources to provide additional insights. That can improve the accuracy of credit scoring and allow lenders to find more creditworthy consumers. According to Experian's 2020 State of Alternative Credit Data report, 96 percent of lenders believe that during times of economic stress, non-traditional credit data allows them to more closely evaluate consumers' creditworthiness and reduce their credit risk exposure. By deeming more consumers creditworthy, financial institutions can increase financial inclusion, while uncovering new lending opportunities for themselves. Modern tools make that possible. For example, Experian's Clarity Services provides insights on more than 62 million U.S. consumers, helping lenders better assess and manage risk. Lenders can see consumers' utilization of alternative finance and payment behaviors for a more holistic view of their creditworthiness. How can non-traditional data be used to calculate credit risk? Non-traditional credit data can help lenders gain deeper insights into their borrowers to better assess risk. For starters, it allows them to spot creditworthiness trends in real-time, rather than a snapshot in time that traditional credit data typically provides. A deteriorating financial position among prime customers and signs of improvement among marginal customers can be spotted faster with a combination of traditional and non-traditional data. Also, some consumers may appear to be “risky" through the lens of core credit data but may prove less so when non-traditional data points are included. For example, according to FinRegLab research, cash flow data can be predictive of credit risk, not just credit utilization and history. Owner-permissioned data lets consumers decide what lenders can see when making their credit determinations. For instance, lenders who use only traditional data might see an account that has been turned over to collections. With owner-permissioned data, on the other hand, a lender can also see a record of paying rent and cell phone bills on time. As a result, lenders can evaluate both types of behaviors in their credit decision, providing them with a fuller picture. Looking at how consumers leverage alternative financial products to manage debt can also reveal responsible credit-management behaviors. Consumers who appear to be low-risk in the eyes of traditional credit data may actually be riskier if they do not manage their alternative finance products well – an activity that doesn't appear on most credit reports. The challenges of non-traditional credit data Non-traditional credit data has the potential to open the world of credit to underserved communities. For lenders, it can unlock opportunities by bringing in a wider range of potential customers. But it's important to recognize that there are challenges too. For starters, lenders are still figuring out how to incorporate it into their lending decisions. While non-traditional credit data has always been available, big data collection now makes it easier to access. As lenders and regulators become more comfortable with its use, they will begin to incorporate it into credit decisions, while also being aware of its limitations. Consumers, meanwhile, may have data security and privacy concerns about how their information will be used and who may have access to it. The Consumer Financial Protection Bureau is working on guidelines that ensure that lenders are using data appropriately and fairly. Related Posts

The Beyond The Trends Report - Fall 2021 Out Now!   Did you know that there are about a million restaurants in the U.S? And those restaurants employ nine million people?  As we prepared the latest Beyond the Trends report for Fall 2021, I took a deep dive into the restaurant industry in our small business data set to explore how restaurants were performing through the pandemic and how resilient they are now. Here's a quick snippet — the SBA's Restaurant Revitalization fund delivered 74,498 grants accounting for $22.4B in funds for May through June of 2021. It's a shot in the arm for restaurants. Here's how the funds were distributed based on annual sales. Distribution of Restaurants by Annual Sales Size source: SBA, Experian The RRF program has done well servicing a diverse set of applicants and underserved community segments. The Women-owned businesses made up almost half of the recipients Veteran-owned businesses were only 5% of the program. Veterans received fewer loans overall but had much higher average loan amounts awarded Restaurants in LMI designated areas were over a quarter of the program Restaurants in lower socioeconomic areas were over a third of the program's recipients Would you like to learn about this and other trends impacting small business? Download the Fall 2021 Beyond The Trends Report! Download the Latest Report

  Gain the ability to identify the most stable and profitable small business clients Join our webinar, in partnership with the Small Business Financial Exchange (SBFE): Disruptive Strategies to Empower Small Business Lending Tuesday, September 21, 2021, 10:00 a.m. PDT | 1:00 p.m. EDT Learn how to target small business growth opportunities and enhance the customer experience through automated credit-risk decisioning, with special focus on: Advanced methodologies for developing and leveraging new data attributes Advantages to having explainable, machine-learned models Effortless data visualization to conceptualize growth opportunities Ability to target populations and product mix for financial inclusion Register for Webinar

Q2 2021 Main Street Report Highlights   Experian and Moody's Analytics have just released the Q2  2021 Main Street Report. The report brings deep insight into the overall financial well-being of the small-business landscape and offers commentary on business credit trends and what they mean for lenders and small businesses. Here are a few highlights:  Price increases and supply chain issues persist The labor shortage is driving wage growth in some industries GDP grew at 6.5 percent As some industries struggle to contain price increases and to survive in a post-pandemic world, others are thriving on the back of economic reopenings driving consumption. Reopenings and pent-up demand for services are pushing up economic growth and powering a robust economic recovery. Moderately delinquent small business credit, defined as 31-90 days past due (DPD), moved down in the second quarter to 1.19 percent. But severe delinquency moved higher in the second quarter to 2.35 percent. After a long period of decline, this upward movement in severe delinquency rates is the largest in the post-recession period. Rising costs is becoming a factor among small businesses as they service their credit obligations. In the most recent NFIB survey, 39 percent of respondents indicated they were raising wages. If we break this down, we can see that wages are rising at double-digit rates in industries, such as leisure and hospitality. And this could spell trouble on the horizon in some sectors, as employers fight to control expenses. Real GDP grew at an annualized rate of 6.5 percent in the second quarter, led by consumption. The rapid rebound from Covid-driven shutdowns sustained the rapid economic growth of the second quarter as stimulus continued and vaccination rates increased. Join us for a deep dive If you would like to get the full analysis of the data behind the latest Main Street Report, watch our Quarterly Business Credit Review webinar. Just scan the code or go to the short link and remember to download your copy of the latest report. Download Q2 Report

Summer 2021 Beyond the Trends report. This report goes into a deep dive into the economic trends that we're seeing in the market. We look at some commercial and consumer credit trends that will impact recovery. And we'll deep dive into some of the industries that are most impacted. One of the things we talk about in this edition is the important role small businesses play in the economy.  With vaccination rates rising, consumers are starting to return to Main Street, dining at restaurants, going to movies, and traveling.   But supply-chain shortages are driving prices up, and with it, the worry over inflation. Stay informed by downloading your copy of the Beyond the Trends report. Download Beyond The Trends Report

Experian dashboard of PPP program helps lenders mitigate future first-party fraud risk The last round of stimulus for the Paycheck Protection Program (PPP) ran out of funds this week. The $953 billion stimulus program, designed to help businesses, self-employed workers, sole proprietors, nonprofit organizations, and tribal businesses continue paying their workers during the COVID-19 pandemic. As a result of emergency conditions and immediate concern to serve businesses in need, lenders relaxed vetting restrictions on PPP loan applicants. Also, they rushed to digitalize services to accommodate the massive influx of new PPP loan applications. Relaxed restrictions, high demand, and time sensitivity surrounding PPP loans created potential entry points for first-party fraud, or fraud committed by known customers (individuals and entities). Lenders looking to cross-sell or up-selling PPP client's new loan products should first understand the amount of first-party fraud exposure in their PPP portfolio. Understanding potential fraud levels will help avoid unnecessary reputational risk related to the new population of PPP-related commercial clients. Experian's Commercial Data Sciences team wanted to give lenders the ability to understand the amount of first-party fraud in their PPP portfolio. To start the conversation on the scope of fraud in the PPP program, Experian evaluated the publicly available SBA PPP loan data for the first round of PPP loans; these were public-only loans originated without a private guarantor. We anonymized and scored this dataset with Experian's newly developed Commercial First-party Fraud Score. The score measures the risk probability with a machine-learned algorithm to predict first-payment or early-stage defaults within seven months from account opening. Revealing elevated levels of fraud Scoring this public data revealed segments in some PPP lender portfolios with an elevated risk of first-party fraud, in some cases 10x to 20x riskier than the baseline. First-party fraud is a type of fraud where customers intentionally default on payments, either first-time payment or a payment sometime down the line. By examining the distribution of a lender's accounts as they fall within the score bands for first-party fraud risk, lenders can understand a projected dollar amount of balances to be charged off. They can also grasp the estimated dollar amount of losses per account or loss-prevention potential for the account if it had been reviewed (assuming reviewers catch 100% of fraud.) When dealing with first-party fraud, a lender's existing identity fraud prevention tools are typically unable to detect potential fraud. If underwriting relies on a point-in-time assessment, the lender would be blind to applicants' behaviors that may change after loan origination and fraud insights gained from evaluating accounts from other lenders. As a result, first-party fraud would be hidden in charge-offs, preventing lenders from identifying it for future analysis before marketing to their PPP loan population. Experian's Commercial First-Party Fraud Score helps lenders understand the first-party fraud risk of their PPP portfolio to limit future exposure for their new PPP population. Data visualization View the PPP dataset displayed in our tableau data visualization. Suppose you are a lender and concerned about fraudulent PPP loans in your portfolio. In that case, Experian can provide you with a Lender ID so you can assess risk levels revealed by the Experian Commercial First-party Fraud Score. View PPP Dashboard