Experian study of utility data reveals opportunity for unscored small businesses through early bureau data contribution. In today's business landscape, creditworthiness is critical to accessing the capital necessary for growth and success. However, many businesses, particularly small businesses, struggle to establish and maintain a strong credit profile. These businesses may be profitable, but to the credit system, until enough of their trading partners report payment experiences to the credit bureaus, they fall into a "Credit Invisible" segment. Experian Commercial Decision Sciences recently conducted a study of a regional utility company's portfolio, revealing a significant number of credit-invisible small businesses that had been doing business with the utility for years, yet lacked a business credit profile with Experian. This underscores the importance of data contribution to credit bureaus for establishing credit profiles, and the study provides valuable insights into the relationship between business age and credit risk. By measuring the benefits of being credit established longer, businesses can improve their credit risk profile and gain access to commercial credit. The pandemic reveals a deep disparity between large and small businesses As the U.S. continues to pull itself out of the pandemic, key economic measures provide divergent signals. From the height of 15 percent unemployment in April 2020, the rate has edged down to 6 percent by March 2021. In 2020, the stock market saw double-digit growth, supported by drastic government spending and monetary policy levels. Despite or because of the pandemic, there were clear winners from Wall Street. But on Main Street, utter devastation. According to Yelp, 55% of businesses marked as closed on Yelp could not re-open and have gone out of business. Commercial data contribution lags behind consumer Businesses, just like consumers, need capital to survive and prosper, and establishing good credit is a vital component. Most consumer credit profiles are rich in payment history because lenders and financial institutions must contribute their consumer financial trade payment experiences, such as credit card, loan, lease, and line of credit, to a credit bureau. However, there is no such requirement for commercial trade experiences. Therefore, unlike consumers, it’s not enough for a business to pay its credit obligations on time to develop a healthy credit profile. For their excellent payment history to be reflected in their credit profile, creditors must contribute the payment information to a commercial credit bureau. While the permanent business closures noted by Yelp are troubling, the pandemic saw record numbers of new business filings. According to census data, nearly 5.4 million applications to form new businesses were filed in 2021, a 53 percent increase over 2019 and 23 percent higher than 2020. A high percentage of these new businesses are minority-owned. These businesses and millions of other “Credit Invisible” businesses will need to establish a commercial credit profile with a history of payment experiences in order to qualify for better credit terms. Data contribution is essential to help these unscored small businesses succeed. Digital transformation comes at a cost for some For the past several years, there has been a concerted shift toward automated credit decisions, driven by efficiency, competitive pressures, and improving the customer experience. However, the push toward automation adversely impacts businesses with limited or no credit experience. In the animation below we outline an example of the typical credit approval process and steps where small businesses may fall off the automation path. The point of auto decisioning is to ensure a smooth and seamless process from application to approval for all applications, but it falls short in practice. When the credit inquiry is submitted to a commercial credit bureau, the business has to be found or matched. If matched, the business has to have existed for a period of time. Then there are negative event exclusions, and finally, the approval is based on the risk score. For businesses that do not have a credit profile, or even for those that do, if the credit age is not mature enough, getting credit is a slow and bumpy process. Commercial credit experience expands with age As the businesses survive past infancy and continue to mature, their credit experiences also grow. The diagram below shows the relationship between the age of a business, the average number of commercial tradelines, and the average total balance across those tradelines. For the first five years, the average spend increases at a rate of over 125% per year, while the average number of trade relations doubles during this time. The higher rate of spend per tradeline indicates the business is growing, and those businesses can establish more tradelines as they mature. The second chart below focuses on the Financial Stability Risk Score (FSR) of the businesses in the utility company portfolio. The Financial Stability Risk Score predicts the likelihood of business bankruptcy or significant delinquency, defined as 75% or more of outstanding balances 91 days plus past due. The average risk score for all businesses in our dataset is 50. The Financial Stability Risk Score average will increase as the businesses age, but as the chart shows, businesses do not get to a score of 50 until they are 5 to 8 years old. The chart shows that the vast majority of businesses become financially stable after 12 years. As businesses mature, their credit trade relationships grow. As credit trade experience grows over time, the risk of business failure decreases. This animation illustrates that transformation over time. Utility data analysis Let’s examine the negative consequences for businesses that do not have a commercial credit presence. Experian assisted a utility company with the development of a commercial deposit strategy by calculating the risk associated with the Financial Stability Risk score with their customers’ likelihood of severe delinquency in paying their utility bills over the next 12 months. The chart below shows the relationship between the score range and the bad rate (br), which is the likelihood of severe payment delinquency. As the score gets higher, the bad rate gets lower, from 24% in the worst score range to 6%. Understanding the risk associated with the score, the utility company can use the score to appropriately decision new applicants, assessing deposits for higher-risk businesses to mitigate against future loss. The blue vertical bar represents the percentage of their portfolio that falls into each score range, so the utility company understands the severe late payment risk for each of these scored accounts. Credit invisible small businesses are unduly penalized Unfortunately, 30% of the utility company’s population were unscored, and for this unscored segment, the bad rate is 21%. If these unscored accounts had been new applicants, they would have been assigned a 3-month deposit. However, because they are existing customers, we can look at the relationship between the age of the account and the bad rate. The chart below shows that 66% of the unscored segment had been active for 0-4 years with them, and the bad rate is 24%. For accounts 5-11 years old, the bad rate decreases to 19% but is still high enough to warrant a deposit. For accounts 12+ years old, they are at lower risk of becoming severely delinquent and should not be assessed a deposit. That’s 10% of the unscored segment that would be unduly penalized because they are credit invisible. In Summary Data contribution to a credit bureau can have significant benefits for establishing a commercial credit presence. As Experian highlights, many businesses, even those with a long history, may not have an established credit profile. By contributing data to a credit bureau, businesses can accelerate the process of building a stable and mature credit profile, which in turn can increase access to capital and better terms. This is especially important for emerging businesses that need continued access to credit to survive and thrive. In short, early data contribution can dramatically improve a business's creditworthiness and chances of success. In the case study, we see that younger businesses without a credit score are at high risk. How would the risk of these businesses have changed if this utility company had been contributing their portfolio accounts receivable data to a bureau? We know that businesses reach an average score of 50 around 5 to 8 years of being established on a credit bureau. By contributing a commercial portfolio to a bureau, the data provider will increase the likelihood of success for every business in their portfolio. And, in turn, every business in their portfolio will likely become lower risk and better customers. Learn more about the Trade Data Contribution Program

Consumers are borrowing to maintain spending levels even though higher interest rates make borrowing more expensive Consumer spending is by far, the largest component of the U.S. economy. At the height of the COVID-19 pandemic lockdowns, consumers were not spending and instead saved huge amounts of money. Since re-openings occurred, consumers went on spending sprees to make up for the time in lockdown. The higher demand along with supply chain issues are partly driving the high inflation. Consumers dug into their savings to continue to spend and cover higher prices. With savings dwindling, the FDIC reporting that Q2 & Q3 2022 were the two largest recorded declines in bank deposits in the U.S., consumers have increased borrowing so that they can continue to spend. As the Federal Reserve increases interest rates, a large portion of the increase in debt burden is becoming much more expensive than a year ago. These highly leveraged consumers are likely to begin driving up delinquencies, causing banks to react and tighten lending policies. With bank account deposits dwindling and borrowing becoming less available and more expensive, consumers will have no option but to cut back on spending. When consumers reduce spending, the first sectors to be impacted are discretionary areas such as travel, accommodation, restaurants, arts and entertainment, and certain retail. Businesses in those sectors have been seeking higher amounts of commercial funding over the past year compared to pre-pandemic levels. In addition, their delinquencies are increasing, indicating that these sectors are tight on cash. If sales decline at a high pace going forward, these sectors may feel the brunt of the impact of an economic slowdown. What I am watching: The Federal Reserve has taken an aggressive approach to slow the economy and cool inflation to return to the target 2% inflation rate. However, since the Fed’s most recent rate hike on Feb. 1, the January jobs and retail sales reports both came in stronger than expected, including a 3.4% unemployment rate which was the lowest in 53 years. While CPI is showing inflation slowly reducing, the latest PCE numbers show consumer prices continuing to increase. These factors are a good reason to believe that the Federal Reserve is likely to not only continue to increase interest rates at their March meeting and beyond but will also revert to larger increases of more than a quarter of a point.

This week Experian and Oxford Economics released the Q4 2022 Main Street Report. The report provides insight into the financial well-being of the small business landscape. Critical factors in the Main Street Report include business credit data (credit balances, delinquency rates, utilization rates, etc.) and macroeconomic information (employment rates, income, retail sales, industrial production, etc.). Report Highlights Consumer sentiment improved in Q4 2022, despite a softening of spending behavior. This positive behavior has contributed to the positive health and growth perspective of small businesses heading into 2023, leading to stable cash flow performance. In addition, commercial lending markets remained open and commercial delinquencies returned to pre-pandemic levels. However, higher goods and services costs may pressure spending as affordability tightens and personal cash flows thin. The US economy grew strongly in Q4 2022, but the core of the economy was soft, indicating that a repeat performance in early 2023 is unlikely. The trend in job growth has decelerated, and the Fed needs to engineer a soft landing. The Fed is pushing back against market expectations of rate cuts and is likely to hike more than expected. Download Q4 2022 Report  

Get the latest quarterly small business trends Mark your calendars! Experian and Oxford Economics will present key findings in the latest Main Street Report for Q4 2022 during the Quarterly Business Credit Review. Ryan Sweet, Oxford’s U.S. Chief Economist will share his take on Experian’s most recent small business credit data and a macroeconomic outlook for the coming quarter. Brodie Oldham, Experian’s V.P. of Commercial Data Science, will cover commercial credit trends. Presenters Brodie Oldham, V.P. Commercial Data Science Experian Ryan Sweet, U.S. Chief Economist Oxford Economics Q4 2022 Main Street Report The Q4 2022 Experian/Oxford Economics Main Street report will release at the end of February. If you are not already subscribed to thought leadership updates, be sure to sign up for updates on our Commercial Insights Hub. Event Details Date: Thursday, March 9th, 2023Time: 10:00 a.m. (Pacific), 1:00 p.m. (Eastern) Why you should attend: Leading Experts on Commercial and Macro-Economic Trends Credit insights and trends on 30+ Million active businesses Ask our panel questions in real-time Industry Hot Topics Covered (Inclusive of Business Owner and Small Business Data) Commercial Insights you cannot get anywhere else Peer Insights with Interactive Polls (Participate) Discover and understand small business trends to make informed decisions Actionable takeaways based on recent credit performance Save My Seat

For many, the outlook for 2023 was gloomy and we were all bracing for a bad year for the economy. But, so far, the economy has been extremely resilient with Q4 GDP coming in above expectations at 2.9%, inflation cooling, supply chain issues easing, and unemployment remaining low. In addition, consumers continue to spend — the 2022 holiday shopping season saw holiday spending increase by 7.6% YOY, according to Mastercard, as consumers kept their discretionary spending for goods and services heightened. While the retail sector appears healthy at this time, the uncertainty has led to planning issues. 2022 & 2021 marked the highest volatility of monthly inventory recorded since the data was tracked in 1992. What I am watching: In 2023, retailers will fight for consumer spending, but consumers will find their purchasing power limited as interest rates increase and debt payments increase. U.S. small businesses are already facing an extended period of higher costs and weakening demand. All eyes will continue to focus on the Federal Reserve’s actions to slow U.S. economic growth, fueling small business development. The focus will be on cooling inflation in the next few years and The Fed indicated they plan to continue to increase rates at their Feb 1st meeting but at a lower amount than the large increases of 2022. Lenders and creditors will need to assess how they will respond to struggling small businesses in 2023 as consumers tighten their belts. Download your copy of Experian's Commercial Pulse Report today. Better yet, subscribe so you'll always know when the latest Pulse Report comes out. Subscribe Today

After a busy holiday season, we are pleased to announce the publication of our Winter 2023 Beyond the Trends report. Holiday spending increases by 7.6% Small businesses' health and performance in 2022 was strong as consumers spent beyond their means, to prolong demand behaviors learned in an economy overflowing with stimulus, coming out of the pandemic where personal savings was running lean. Despite impact of inflation on incomes, spending continues Retailers will fight for consumer spending, but consumers will find their purchasing power limited as interest rates increase and assumption of unexpected debt payments. Other highlights Consumer credit overall decreased 16% month over month in the fourth quarter as delinquencies climbed as mortgage markets continue to slow. New unsecured credit card debt rose 4% as thin consumer savings forced more debt to the consumers credit card. New U.S. emerging businesses seeking credit is down 5.7% year over year as new business applications in the U.S. slow and commercial delinquencies rise.     Experian saw a 61% YOY increase in the percentage of high risk small business credit inquiries with emerging business seeking credit up 78.5% year over year with limited commercial credit history in the 4th quarter leading to lower-than-normal average credit lines across the industry. Small business lenders will focus on four critical areas in the coming months to ensure their businesses remain stable and continue to grow. Market expansionDeterring fraud Limiting portfolio exposureDeveloping loyalty among profitable customers Download Winter 2023 Beyond The Trends Report

Happy New Year! The burning question for 2023 is whether the U.S. economy will fall into recession. A robust 2022 labor market has been a major factor in staving off recession culminating with a low unemployment rate of 3.5% in December. The number of people in the U.S. labor force surpassed pre-pandemic levels despite lower participation rates, indicating fewer job seekers. This can be explained in part by the increase in retirement of employees due generally to an aging population choosing to retire from the workforce during Covid. Over the past year, with higher demand for labor, easing of health concerns of the pandemic, financial pressure from inflation and 2022 financial markets experiencing their worst performance in 15 years, people are re-entering the labor force and the “unretirement” rate is on the rise. Individuals are returning to the work force in two forms; as employees, and as business owners, as new businesses continue to open at a rapid pace. New businesses continue to account for a growing portion of commercial trades with small businesses (under 10 employees) accounting for over 80% of new commercial credit account originations. New small businesses still require capital to operate however with inflation, high interest rates and decreases in consumer (sole proprietor) and commercial credit scores, average loan amounts are decreasing, driving commercial credit delinquencies up 95% year-over-year for businesses with fewer than 10 employees. What I am watching: In December, wages declined for the first time in almost two years, indicating that going forward, labor may not drive inflation to the same extent as before. When the Federal Reserve meets at the end of January, I will be watching whether interest rates are raised, or the slowing of the labor market is considered a positive sign for slowing inflation. The higher delinquencies and lower credit scores are pointing to a continued tightening of the commercial credit markets thereby making access to necessary capital more difficult and expensive. This negative pressure could stifle new business openings and increase business closures. Download your copy of Experian's Commercial Pulse Report today. Better yet, subscribe so you'll always know when the latest Pulse Report comes out. Subscribe Today

Why leave money on the table during challenging economic times? In this post we explore how Experian's Commercial Ascend Microservices can unlock hidden potential at a lower risk through automated reject inferencing and more. Another year is well underway as businesses return to their offices and mull the state of the economy and the risks associated with it. The unpredictable winter season, combined with the current economic outlook, reminds us of finding gratitude in unexpected places and making the most with what you have in strategizing through possibly yet one more dynamic year of unpredictable post-pandemic recovery. As economic conditions remain in flux, resource-constrained firms should include automation in their processes to adjust commercial credit strategies, allowing them to bring on more accounts without taking on additional risk. Whether your economic outlook is bearish or bullish, it is highly advisable as 2023 quickly approaches to leverage technology and data to make better business decisions, especially as resources, like human capital, dwindle with the current outlook and labor trends. The post-pandemic world has seen a lot of socio-economic change that even the best risk managers could never have anticipated. We call it the new normal, but how does this new normal affect small businesses in gaining access to capital? Furthermore, how are firms upstream of those businesses affected from making sound decisions? The lone commercial analyst and a tidal wave of new businesses In an unexpected turn of events, the pandemic produced the most business starts ever recorded in years before, a drastic contrast from the volume of business closures that resulted from strict measures to stop the spread of the COVID-19 virus. As reported from Experian’s Fall 2022 Beyond the Trends Report, forty percent of small businesses have been operating for less than one year. The pattern of new business formation has created a challenging environment for commercial credit analysts looking to bring on new accounts without taking on unprecedented risk. Advances in technology have made it possible for credit departments to better predict the likelihood of first payment defaults for this new breed of small business. However, analysts are still struggling with the ability to adjust to a rapidly changing economy. Credit analysts wearing multiple hats, taking on more responsibility Firms that serve small businesses by providing goods and services, leases, or loans often don’t have a dedicated analyst responsible for addressing commercial credit policy, often leaning on personnel who manage consumer credit strategies to do so. If you need to perform complex commercial analysis and model building to inform or adjust your credit policy, it really requires a dedicated hand familiar with the nuances of the consumer or commercial space, if not both. Microservices: a windfall for banks and small business service providers The new microservices from Experian Business Information Services offer a faster, more dynamic experience for firms looking to carry out commercial analyses at lower costs and significantly less time. The Ascend Commercial Suite addresses the analytical needs of firms at every level of sophistication. This includes commercial benchmarking to understand your competitive market position, analytical microservices, graduated levels of sandbox capabilities, and even cloud-to-cloud data transfer. The ability to automate reject inferencing can be a saving grace for credit departments that need to grow commercial lines of business in a rapidly changing market that carries more risk. Firms need to be able to adjust to deteriorating economic conditions more rapidly. Reject inferencing can help credit analysts to redevelop their scorecards, adjust their buy box or lending volume, and validate scores in less time and at a lower cost. Leave fewer deals on the table by optimizing buy box parameters Commercial lenders and service providers are still challenged when learning from rejected applicants who did not meet the criteria. In higher-risk situations, validating the scorecard to ensure it works as intended is critical. Why leave money on the table in lean economic times? These denied applicants may not pose more risk than others if the buy box is optimal. Suppose reject inferencing can be done more quickly. In that case, firms can check their buy box, adjust it without redeveloping credit score models, and expand use cases where information learned from the analysis could become very helpful. Many firms need to gain this edge by expanding their lending footprint, with minimal resources, to carry out analytical work. To meet this challenge, Experian’s Ascend Commercial Microservices helps firms to quickly identify the grey areas near score cut-offs. The area where applicants that should be approved are denied, even though they are well within the risk tolerance. The reject inferencing microservice also lends valuable insights to new credit model development by providing a sample of application criteria that would be rejected, commonly known as, a sample of ‘bads’, for firms that don’t have a large enough sample to test within their models. The benefits of automated reject inferencing along with score validation Automated microservices from the Ascend Commercial Suite have long-term benefits that spur the development of future credit strategies. Firms that adjust their credit policies quickly can boost account acquisition to bring on more customers without increasing risk. This facilitates sustainable growth. Suppose you are a credit analyst who fears an economic downturn. In that case, you can now tighten your buy box quickly, dynamically, and more often, as many microservices take a fraction of the time it would to do the work manually and at a lower cost. The ease of conducting automated reject inferencing and other analyses this way can enable firms to perform analysis more frequently instead of waiting years to adjust to economic cycles. The Ascend Commercial Suite Microservices are a beneficial tool to automate commercial analytics and answer some of the most pressing analytical questions that firms have in addressing their credit strategy, given rapid economic fluctuations and labor trends. If you would like to learn how automated microservices like reject inferencing can answer questions about how commercial models will perform in a changing economy, connect with us today. Learn more about Commercial Ascend Microservices

Consumer confidence tailed off in November after four consecutive months of increases bouncing back a little from the record low in June. Higher interest rates are affecting the way that businesses report doing business and their appetite for expanding credit usage. However, so far new commercial credit originations are still climbing so many businesses still have a need for credit. The average loan/line amount given out per new commercial account has fallen 16% year-over-year, which could indicate either businesses requesting lower lines, or lenders starting to tighten their policies — or a combination of both. As commercial delinquencies rise, it is likely that lenders will further tighten policies and availability of credit may become limited for small businesses. Another strong jobs report for November displays the resiliency of the U.S. economy despite the Federal Reserve’s aggressive efforts to tame inflation. However, the tight labor market makes it difficult for small business owners to hire. With higher credit costs and limited labor availability, small businesses will have difficulty growing in the coming months. What I am watching: While there have been some very public large-scale layoffs in the tech industry, hiring is still strong, and businesses are still looking for workers. It will be interesting to see what actions the Federal Reserve take at their next meeting in mid-December. The Fed has indicated they may slow the pace of interest rate hikes which could help businesses and the economy strike the balance between inflation and interest rates. thereby achieving the soft-landing the Fed is aiming for. Download your copy of Experian's Commercial Pulse Report today. Better yet, subscribe so you'll always know when the latest Pulse Report comes out. Download Report

Small and mid-size businesses, or “SMBs”, serve as the foundation of the nation’s economic vitality. The number, diversity, and significance of SMBs have mushroomed in recent years, with a corresponding growth in the tools and technology available to them. But, as with SMBs, the commercial lending institutions that service them are also experiencing fluctuating interest rates, payment hierarchy shifts, and competition from other lenders. These growth aspects are conducive for both rapidly growing cash flows and borrowing volumes, but they are also conducive to something more nefarious. With digital transformations still very much underway in many firms, and economic uncertainty looming, one constant remains: Application fraud is relentless, persistent, and always increasing in sophistication. What’s causing the rise in application fraud? The growing problem of SMB loan fraud has been keeping compliance and risk management professionals up at night for years. But, to understand how loan and application fraud morphed from primarily a consumer issue into a crisis for commercial lenders, it’s important to understand what led fraudsters to these types of institutions in the first place. Prior to 2020, credit risk professionals were struggling to process SMB loan applications, and  while modernizing that process was something they hoped to tackle further down the line, the COVID-19 pandemic disrupted those plans. In a recent report the SBA identified more than 70,000 potentially fraudulent loans totaling over $4.6 billion were released by August 2020, mere months after the inception of the program. Lenders shored up online applications to handle the millions of PPP loan applications on behalf of the SBA and, naturally, fraudsters saw this as a massive opportunity. They turned their attention towards PPP loans by picking off more diminutive, less sophisticated regional banks and lenders, submitting fraudulent credit applications using false information. SBA identified more than 70,000 potentially fraudulent loans totaling over $4.6 billion were released by August 2020, mere months after the inception of the program.Oversight.gov  When the Recovery Act funds dried up, fraudsters shifted their attention back to larger commercial lenders, using a combination of tactics to defraud them out of loans they had no intention of paying back. In fact, one study found that 98% of B2B businesses reported fraud attacks in 2021, losing on average 3.5% of their annual sales revenues. Commercial lenders began to understand the extent of their vulnerabilities, which prompted a rapid increase in digital transformations, modernizing customer journeys to be more mobile friendly and capable of screening for fraud. And although many had already begun to ramp up their digital transformations, this process ultimately presented them with three distinct problems. Weak identity screening bodes well for fraudsters First, the online environment is attractive to fraudsters because they can exploit weaknesses in identity screening technology. So as consumer channels fortified their anti-fraud capabilities, it forced scammers to redirect their efforts and move on to new targets. Looking for big payouts, they turned to commercial lending institutions, who had yet to fully implement proper protections. Older infrastructure a primary weakness Second, because many online lending application systems lacked the type of sophistication necessary for real-time, accurate fraud screening, criminals could quickly leverage that lack of sophistication in their favor. As a result, commercial lenders across all industries felt vulnerable, especially those with limited or untrained staff who could not complete thorough manual reviews of suspect applications. As a result, fraud rates among commercial lenders increased dramatically. Manual application reviews sap resources   Finally, in the wake of this sharp increase in SMB application fraud, many commercial lenders struggled to implement advanced analytics and fraud protection software to combat the growing issue. When Forrester Research polled credit services decision-makers in 2019 for Experian, one of the most interesting findings was the amount of time they spent processing new applications for credit. They spent 41.9 hours a week on average, with 1 in 3 businesses struggling to deploy advanced analytics or automated account reviews: SMB application fraud: As diverse as the businesses themselves A common misconception among commercial lenders is that they do not have an SMB fraud problem. For those that do recognize instances of fraud, there is a lack of certainty around how much it affects their bottom line, and what type of fraud it is. So, it’s important to understand what SMB application fraud is, and how it manifests. SMB application fraud occurs when an individual or set of individuals applies for financial assistance with a commercial lender using deceptive means for personal profit. This deception can occur in several ways, presenting as first-party fraud, third-party fraud, or synthetic fraud and usually impacts commercial lenders during the account opening or onboarding process. First-party fraud occurs when: A person willfully misrepresents their personal information to take out credit with no intention of repaying. Third-party fraud occurs when: A fraudster uses another individual’s personal details without consent to gain credit or steal products. Synthetic fraud occurs when: An individual uses a combination of true and false personal information to fabricate an identity or application. SMB application fraud affects commercial lenders across multiple industries, from traditional banking and fintechs, to trade credit, telecommunications, energy, and manufacturing firms. While these lenders range widely in scale, diversity, and sophistication, all are subject to SMB application fraud. One of the reasons fraudsters have disguised themselves as SMBs and increased their targeting of commercial lenders is that most of these institutions don’t have adequate protections to catch instances of fraud at this early stage. As a result, it has already affected the bottom line by the time it becomes clear that a loss was due to fraud.   Commercial lenders engaged in markets with high inherent fraud risk generally understand the safeguards to achieve nominal fraud protection. Still, they seldom have the right solutions in place at the right time. Alternatively, commercial lenders with minimum exposure to SMB application fraud are generally less aware of how these different types of fraud are impacting their revenue. Consider the following realistic scenarios: Equity Bank Southeast (EQBS) is a large financial services institution with branches and operations from Texas to West Virginia, with roughly $5 billion in assets. EBS facilitates cash management services for individuals and SMBs. Like most other financial services institutions, they were caught off guard by the widespread and rapid impacts of the COVID-19 pandemic and struggled to scale their efforts and fraud protections quickly. They have misclassified fraud losses as credit losses and bad debt, unsure of their true fraud exposure. They are looking for a solution that can integrate seamlessly into their current systems to improve their direct deposit account (DDA) opening and loan application processes. Broadband Communications Inc. is a telecommunication holding firm with close to $450 million in net profits per year. The 2020 shift to remote working proved challenging for them as they struggled to reconcile the number of new customer applications with their diminished workforce. They do not currently have a team dedicated to mitigating fraud, despite observing an increase in losses over the last three consecutive quarters. They are vetting various organizations and solutions to help them establish a comprehensive fraud mitigation strategy, to deter fictitious applications at the onset of account onboarding. Logistical Mechanical Supply (LMS) Inc. is a nationwide supplier of tractors, compressors, boilers, and other mechanical goods to local dealers and contractors. They have struggled in their recent operations to adjust to a more virtual environment with less physical staff and more technology. For example, their SMB application approval processes ran for decades with face-to-face authentication checks, a fitting procedure for a lender dealing with tangible goods and services. However, they noticed a major uptick in losses with less staff available to perform physical checks ahead of equipment deliveries. In addition, a few large-scale shipments have gone missing, resulting in over $850k in losses. Consider how these businesses approach fraud: Protecting your business from SMB application fraud As fraudsters continue to advance in sophistication and awareness, siloed fraud strategies are no longer sufficient, and commercial lenders should consider arming themselves on multiple levels to stay ahead of losses. Without a holistic fraud protection strategy and modern, digital tools in place, commercial lenders are facing a reality of limited business growth and the potential for significant losses in revenue. A recent PYMTS study found that 47% of B2B businesses had chosen not to onboard new clients due to fraud concerns. Of course, developing a comprehensive anti-fraud strategy requires resources and the right tech stack. The same study found that 71% of organizations plan to implement better digital solutions for fraud prevention in the near future. Commercial lenders will need to remain vigilant to prevent fraudsters from enacting SMB loan scams. Manual, reactive strategies and models with limited scope ultimately cost businesses more in the long run than investment in the right software and strategies. By investing in competitive, automated anti-fraud solutions commercial lenders can eliminate friction with honest customers and prevent unnecessary losses from scammers. Don’t wait until fraud losses affect your bottom line Experian can help you. No matter where you are on your journey, Experian is a trusted industry leader in fraud prevention. The new Sentinel™ fraud suite offers solutions specifically designed to help commercial lenders detect entity fraud during the application stage of the customer lifecycle. Backed by industry-leading data repositories containing over 250 million consumer data files and more than 28 million business records, the Sentinel suite works in concert to provide unparalleled coverage and predictive value. Learn more about the Sentinel Commercial Entity Fraud Suite: Sentinel Commercial Entity Fraud Suite

Labor market gives the Fed cover to keep hiking Experian Business Information Services and the economists at Oxford Economics have just released the Q3 2022 Main Street Report. The report brings deep insight into the overall financial well-being of the small-business landscape, as well as providing commentary around what specific trends mean for credit grantors and the small-business community. Report Overview Sustained consumer spending and strong job market performance have perpetuated U.S. small business health and positive market sentiment. The third quarter highlighted open and growing commercial lending markets, inclusive of all tiers of credit risk, even as measured commercial delinquencies returned to pre-pandemic levels. Signals in the financial market point to a heightened risk of a more significant U.S. economic slow-down in 2023, as consumers change spending behavior as affordability tightens and personal cashflows are challenged first in the lower income segments. Download Report

The Federal Reserve increased interest rates at each of their last six meetings. The goal is to combat inflation with higher interest rates that make borrowing more expensive and saving more beneficial, thereby reducing consumer demand and spending so that prices stabilize. Despite the interest rate hikes, consumers are still spending at a high rate and saving at a low rate yet October data show that inflation is beginning to subside. The October inflation rate of 7.7% is the lowest since January. However, the reduction was primarily driven by lower gas prices. Core inflation, excluding food and energy, decreased slightly to 6.3% from 6.6% in September. Producer price inflation (PPI), also known as wholesale inflation, decreased for the fourth month in a row to 8% and is now the lowest since July 2021. For a while, businesses have passed the higher costs to produce goods on to the consumers. With four consecutive months of declining PPI, there is hope that consumer prices will stabilize soon. What I am watching: Heading into the holiday season, it will be interesting to see if consumers continue to spend at high levels or if the headwinds of higher prices, higher interest rates and lower savings create a drag on retail sales. According to the Adobe online shopping forecast, retailers will offer record high holiday discounts for categories such as electronics, toys and computers in order to combat some of the pressures facing consumers. In addition, many retailers built up inventories as they navigated supply chain constraints and will not want to carry excess inventories beyond the holiday season. The October consumer inflation rate of 7.7% is the lowest since January, driven by lower fuel costs. However, core inflation, excluding food and energy, only decreased slightly to 6.3% from 6.6% in September. Producer price inflation decreased for the fourth month in a row to 8% and is now the lowest since July 2021.