If the current economic cycle has you craving more insight into the small business sector you have come to the right place. We are delighted to release the Spring 2023 Beyond The Trends report. This release finds credit markets remaining largely open across risk tiers, but small business lenders will be more sensitive to market factors such as labor, wages, inflation, global supply chain disruptions, sanction activity, and rising delinquency trends as small businesses look for growth as consumer spending although strong, begins to moderate. Here are a few highlights contained in the latest report: Inflation-adjusted income has risen for seven-consecutive months Consumers spend as income acceleration continues. This spending increase does not mean that consumers are getting more value or products for the purchase volume. It also does not mean that spending is hitting all sectors of the market. Retail spending slowed in February for department stores, restaurants, and bars. Consumers continue to spend on vacations, up 17% (Bureau of Economic Analysis), and luxury goods through the first part of the new year. This behavioral volatility in spending may have retailers reconsidering their strategy for the remainder of the race. Costs are still elevated, and that cuts into the buying power of the average consumer. Inflation appears to have peaked, but moderation has been slower than expected. Consumers may see some relief as price acceleration eases, fuel costs decline, and food inflation cools. However, service industry inflation and shelter costs are expected to remain elevated. Factory and manufacturing velocity follow consumer demand As retail-focused supply chains return to pre-pandemic efficiency and shipping container costs decline, retail spending slowed in February. Retailers are cautious in pre-order inventory volume for 2023 due to concerns about economic instability. Download Spring 2023 Beyond The Trends Report

Account takeover fraud is a lucrative type of identity theft in which online account information or login credentials are stolen and used for nefarious means. When fraudsters gain access to an account, they manipulate things like passwords and usernames to prevent the rightful account owner from receiving notifications so they can make withdrawals, submit fraudulent payments, or open new accounts using the compromised credentials. A 2021 Javelin study1 reported huge increases in account takeover fraud, with losses increasing 90% from the prior year. With limited resources to devote to cybersecurity, small and midsize businesses are at a higher risk for account takeover. Small business account takeover, also known as “corporate account takeover”, represents a significant and ongoing threat to both businesses themselves and the lending institutions who service with them. In this article, we are going to review how corporate account takeover manifests in various businesses who are applying for credit and explain how risk professionals can leverage automated fraud detection software to improve review processes, streamline their lending services, and perhaps most importantly protect their reputations. What is Corporate Account Takeover Fraud and how does it happen? Account takeover is an insidious type of cybercrime in which fraudsters or hackers gain access to online accounts and use them to withdraw money, make purchases, or extract information. Their goal is either to use that information to gain access to associated accounts or sell it on the dark web to increase damage and their potential profit. Account takeover schemes can happen right under the business or business owner’s nose, and the results vary. Some fraudsters are looking for instant gratification and a big payout while some play a longer game, accessing accounts via weak passwords, malware, or email phishing schemes and selling sensitive information on the dark web to other cybercriminals. 62% of businesses experienced an increase in fraud losses due to account opening and account takeover. Source2 Small and midsize businesses are particularly vulnerable to account takeover schemes as they often have limited resources to devote to cybersecurity, or weaker security measures in place compared to larger corporations. The 2021 Identity Fraud Study by Javelin Strategy & Research found that the number of identity fraud victims in the US increased by 113% between 2019 and 2020, with small businesses experiencing a higher rate of fraud than larger businesses3. Here are a few examples of account takeover schemes in small business lending: When an account takeover attempt has been successful, there is an increase in suspicious activity like changes in usernames, passwords, and addresses, or unauthorized bank account activity or transfers. It is also common for fraudsters to use the newly stolen information to try and open new lines of credit, all before the business or business owner is aware there has been a breach. According to the Better Business Bureau (BBB), business email compromise affects organizations big and small, and has resulted in more losses than any other type of fraud in the U.S. with 80% of organizations receiving at least one email in a scam attempt4. How does Account Takeover impact lending services? Despite uncertain economic circumstances, small and midsize businesses continue to press on and evolve. According to Experian’s 2023 Beyond the Trends Report, SMBs make up 99.9% of all businesses in the U.S. and new business applications continue to rise5. But weaker security measures and limited resources mean SMBs are at a higher risk for account takeover fraud. This ultimately impacts lending institutions, who may unknowingly release funds to a compromised business account. Aite research shows that 64% of financial institutions are seeing higher rates of Account Takeover Fraud attacks now than prior to the pandemic. Source6 So how does this work in an SMB environment? A fraudster who has successfully obtained the account information of a small business, small business owner, or personal guarantor can bypass legacy security protocols to appear legitimate. That fraudster can then commit various harmful acts, like apply for lines of credit, open new accounts, and make transfers. For more insight into how these account takeover attacks play out, consider the realistic scenarios below: It’s important to note that most, if not all, lending services providers experience some degree of fraud loss, and competing business priorities no doubt play a role in the adoption of fraud prevention technology. Budgetary restrictions, high turnover rates, and technological expertise and limitations all play a role, but without modern fraud solutions in place, lenders run the risk of experiencing more than just financial losses. They risk losing confidential or proprietary information, encountering legal liabilities, and perhaps most importantly damage to their reputation. So, the question is, what kind of risk are you willing to take? Account takeover schemes, though pervasive, are just one type of fraud attack. The reality is fraudsters continue to evolve and become more sophisticated all the time, and to stay competitive lenders should consider implementing a comprehensive fraud strategy that will arm them against unnecessary losses. If you are a financial institution coming to terms with growing fraud rates, below are some questions you should consider asking. Questions to ask when formulating your fraud mitigation strategy: What kind of fraud losses are you currently experiencing and what impact are they having on your business? Are you able to accurately assign your fraud losses? Do you have a fraud prevention strategy? If so, what types of fraud does it solve for? If not, what are your barriers to implementing one? What do your current approval processes look like? How much time are you spending manually reviewing applications and what would the cost-to-benefit be if you had something automated in place that could streamline those efforts? What solutions, do you have in place? Do they solve for one or more types of fraud? For example, can they detect the specific information anomalies that indicate an account takeover? Proactive, automated solutions are the key to preventing Account Takeover Fraud With increasing business applications and high fraud rates, now is the perfect time for risk professionals and lending institutions to take a close look at their current fraud prevention strategy and consider what improvements could be made. Many legacy fraud solutions are limited in scope compared to their modern counterparts, and often leave large referral volumes on the shoulders of analysts who simply can’t keep up with demand. This, coupled with outdated screening protocols which offer limited scope into the full picture of the application, makes it that much harder for analysts to detect account takeover fraud even when it’s right in front of them. Some institutions use tools that only seek to meet for Know Your Customer (KYC) or Know Your Business (KYB) requirements, while others may only look to verify the identity of the personal guarantor. But the key to preventing account takeover fraud is to implement an automated fraud solution that uses different data sources to confirm both the identity of the applicant and their association to the SMB. 75% of organizations rate developing better fraud detection processes as an important focus area with 71% currently planning to implement new digital fraud prevention solutions. Source7 The most effective fraud solutions provide more than simple KYC and KYB checks, they also look for various inconsistencies and connections between the business owner, personal guarantor, and the business itself. For example, a fraudster who has committed account takeover might appear legitimate on an application, passing KYC identification checks without issue, but perhaps they aren’t associated with the business, or the business itself is illegitimate. A comprehensive fraud solution looks beyond KYC and KYB at multiple and varied data sources, like professional and social networks, SBA status, website linkage, and more to detect hidden anomalies indicative of account takeover fraud. The best part about these fraud screening tools is that they work during the account opening or onboarding stage of the customer lifecycle to proactively prevent account takeover fraud losses before they impact lenders. Implementing a comprehensive fraud strategy may be in competition with other business priorities, but lenders who prioritize upgrading their outdated or limited risk processes to a seamless, automated fraud strategy will set themselves apart. They will effectively and efficiently reduce their risk of approving fraudulent applications, including those which have experienced account takeover, save time and resources spent manually reviewing large volumes of applications, and fortify their reputations as institutions that put integrity first. Sources: https://javelinstrategy.com/press-release/identity-fraud-losses-total-52-billion-2021-impacting-42-million-us-adults?cmpid=na-im-23-blog-what-is-account-takeover-fraud-how-can-you-mitigate-risk https://www.experian.com/decision-analytics/global-fraud-report https://javelinstrategy.com/research/2021-identity-fraud-study-shifting-angles https://www.bbb.org/content/dam/0734-st-louis/bec-study/bbb-explosion-of-bec-scams.pdf https://www.experian.com/business-information/landing/beyond-the-trends-report https://aite-novarica.com/report/key-trends-driving-fraud-transformation-2021-and-beyond?cmpid=Insightsblog-021121-solving-fraud-problem-account-takeover-fraud https://www.pymnts.com/study/reframing-anti-fraud-strategy-modernization-risk-management-b2b-ap-ar/

Bankruptcies and collections are on the rise since mid 2022. Pandemic-related relief and forgiveness suppressed collections for most of 2021 and the first half of 2022. Since the height of the pandemic, new business openings are at a highly elevated level. Businesses under two years in businesses accounted for 40% of new commercial credit account openings in 2022, up from 27% in 2020. While new businesses seek credit, they tend to be risky – – as it is broadly known that about a third of all businesses fail within the first couple of years in business. That is evident in the collections numbers, which show that newer businesses are driving the overall higher collection levels. As collections become a larger factor, it is critical for lenders to look for ways to mitigate losses through portfolio management efforts. Further interest rate increases likely this year Recently, Federal Reserve Chair Powell indicated that further interest rate increases are likely this year. However, the magnitude of increases is unknown since there are still mixed signals in the economy. Inflation has been slowing but is persistent. After February’s labor market reported strong numbers with continued low unemployment and high job creation, eyes will turn to the inflation report coming out on March 14th. With mixed economic indicators, it will be interesting to see if the Fed increases rates a more modest quarter of a point or takes a more aggressive position with a half-point increase at their March meeting. 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

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