Modern credit approvals make the customer onboarding process efficient, and it begins with credit data In today's rapidly evolving financial landscape, the shift towards modern credit approvals is not just a trend but a necessary step for businesses aiming to streamline their customer onboarding process. This transformation is powered by advanced data analytics and digital technologies, making credit decisions faster, more accurate, and incredibly efficient. Modern credit approvals stand at the forefront of this change, revolutionizing how companies assess creditworthiness and manage risk in real-time. This post marks the second installment in our series on the "Path to Modernization," where we unravel the intricate steps and strategies businesses can adopt to embrace modern credit approvals. Spearheaded by Sr. Product Manager, Erikk Kropp, our series offers a deep dive into optimizing credit processes for the digital age. Today's focus is on the vital role of diverse data sources—a cornerstone in enhancing risk assessment and driving efficiency within credit departments through modern credit approvals. As we navigate through the complexities of digitizing and automating credit approval processes, it becomes evident that modern credit approvals are not just about adopting new tools but about rethinking our approach to credit risk management. By leveraging a blend of traditional and innovative data insights, businesses can unlock unparalleled efficiency and accuracy in their credit operations, setting a new standard for customer onboarding and financial assessment. The Path To Modernization Framework About the Framework The “Path to Modernization” framework is intended to highlight five key areas where Experian can potentially assist clients when introducing digitization and automation to help drive change across their risk management process. The framework is based on observed best practices and common tools frequently used today in the industry. Higher levels of modernization and performance can be achieved with each subsequent step of the process. Understanding Your Data Landscape The journey to modernizing risk assessment begins with recognizing the importance of diverse data sources. This is crucial for comprehensively understanding the risks associated with your clients. Often, clients are unaware of the wealth of options available to them for risk analysis. Providing a structured framework helps clients identify where they stand and offers guidelines and tools for a new perspective on risk assessment. Exploring Data Sources Beyond the Basics Credit reporting agencies like Experian are commonly known for their role in assessing risk through commercial credit data, payment history, public records, demographics, and firmographics. However, the landscape is much broader, especially for small businesses where personal and business finances often overlap. Blended credit reports that combine a business's commercial health with the owner's personal credit history offer a deeper insight into potential risks. This approach not only helps in evaluating small business delinquency but also enriches the existing data, making it more actionable in the risk management process. Leveraging Consortium Data and International Insights The concept of consortium data, such as the Small Business Financial Exchange, introduces a reciprocal data-sharing model. This "give to get" strategy enables access to unique credit insights, enhancing the risk assessment process with additional financial information. Furthermore, with the global economy continually expanding, considering international data sources becomes essential for businesses looking to operate or expand overseas. Tools like Experian’s Global Data Network can provide valuable financial and credit risk insights across different regions, thus broadening your risk assessment capabilities. The Role of Data in Modern Credit Approvals The trend towards incorporating alternative data sources into risk assessment is growing. These sources offer a new dimension of insights that, when combined with existing data, can significantly enhance the understanding of a business's risk profile. This approach not only diversifies the data pool but also offers a more nuanced view of potential risks. Modernizing risk assessment requires a multifaceted approach, embracing a variety of data sources beyond traditional credit data. From leveraging blended credit reports and consortium data to exploring international insights and alternative data sources, businesses can gain a comprehensive understanding of risk. This journey towards modernization is not only about enhancing data accessibility but also about enriching the quality of risk assessment, ensuring businesses are well-equipped to navigate the complexities of today’s financial landscape.

Over the next several weeks, we will be sharing a series of videos featuring Sr. Product Manager, Erikk Kropp talking about the Path To Modernization framework. Path To Modernization is centered around common needs we help clients to address when modernizing their credit process. This includes managing risk in customer acquisition and retention, especially important as market conditions evolve. Credit Departments Adapting to Change The COVID-19 pandemic led to significant shifts, such as employee furloughs and changing demand, forcing businesses to reconsider their operations. Credit departments, despite facing staff reductions, had to continue managing risk amidst these challenges, pointing to a need for long-term strategic adjustments rather than short-term fixes. Long-Term Strategy Shifts In the new normal, businesses are modifying their models to accommodate these changes sustainably, focusing on automation and remote work to manage risks more effectively with fewer resources.In our next post we will focus in on the various forms of data available to credit departments in addition to traditional business credit reports and scores so be sure to subscribe to this blog to be notified when we post. Pivotal Growth: A Guide to Modernization If you are looking to modernize your credit processes, Experian's guide, Pivotal Growth, offers a structured framework to navigate these changes. We encourage downloading the guide and consulting with an Experian representative for further discussion.

Since January 2021, a seasonally adjusted average of 444K new businesses opened each month, 52% higher than the pre-pandemic 2018-2019 monthly average. In light of the influx of new businesses, and in a higher-interest rate environment, the goal of this week’s analysis was to evaluate if commercial credit usage and payments by product shifted pre- and post-pandemic. Businesses with two different trade types were evaluated as of 2018 (prepandemic) and 2022 (post-pandemic). The two-trade-type combinations observed were Card + OECL (open ended credit line), Card +Term Loan, Card Lease, and Card + LOC (line of credit). Despite more younger businesses entering the market and lenders tightening credit policies over the past two years, businesses with two-trade types had higher lines/loans post-pandemic. Delinquencies also increased post-pandemic for all the two-trade type combinations except businesses with a Card & OECL. Commercial Cards are the most prevalent type of credit for businesses. As businesses grow, they seek additional credit for business needs such as expansion, new facilities, and acquisitions. When businesses seek additional credit, it is most often in the form of commercial loans, leases and credit lines which compared to cards, generally provide higher levels of funding, longer terms and higher monthly fixed payments. For businesses that had two types of accounts, including a commercial card with another commercial credit product, the commercial card stayed current longer and more often the non-card product went delinquent first. Businesses rely on commercial cards for day-to-day operating expenses and lower dollar financing needs. Furthermore, commercial card balances are significantly lower than any of the other commercial trade types allowing for a lower monthly minimum payment to keep the card in good standing. What I am watching: Federal Reserve Chairman Powell stated in last week’s Congressional hearings that the Fed will act slowly and cautiously in terms of cutting interest rates. With inflation declining but still persistent and the labor market still robust, rate cuts may not occur until the second half of the year. Download Report Download the latest version of the Commercial Pulse Report here. Better yet, subscribe so you'll get it in your inbox every time it releases, or once a month as you choose.

With 2024 well underway, it's an opportune time to reflect on the previous year to discern global trends and insights from Experian’s Global Data Network. Analyzing product usage data from 2022 and 2023 provides a unique lens to examine economic trends affecting international trade, offering a window into the global economic and financial shifts worldwide. This analysis reveals which countries and regions are experiencing the most significant shifts in international credit report requests and hints at the underlying credit and risk dynamics in these areas. These insights can help shape expectations for the coming year. Countries with the most significant Increases: Switzerland, known for exports of pharmaceuticals, watches, chemicals, and machinery, experienced a dramatic increase of 366% in credit report generation from 2022 to 2023. This increase might indicate a growing emphasis on credit and risk assessment in the Swiss market. The Swiss economy cooled in 2023 with less than 1% growth. The significant increase in report usage may indicate that businesses are evaluating relationships under the pressure of a strained economy. The British Virgin Islands, known for financial services, experienced a 294% increase in report usage in 2023. They continue to be of significant interest to Experian clients. This increase may be partly fueled by greater interest and scrutiny of crypto investing and other financial activity. Australia, known for exports of minerals, energy resources, and agricultural products, suffered a slowdown in economic growth in 2023, settling at around 2%. Meanwhile, report usage increased 171%. Despite being mid-pack on y/y GDP growth, we continue to see strong interest from US businesses seeking expansion opportunities down under. Canada, known for exports of energy resources, natural resources, and manufactured goods, showed a 167% increase in report usage despite a notable slowdown in economic growth and persistent inflation. Yet, as one of our largest trade partners, Experian clients continue working closely with our neighbors to the north, although the increased usage might be a sign of caution. Countries with the Largest Decreases: Russia: Experienced a dramatic decrease of 97%, which could be due to economic sanctions, market isolation, or changes in financial reporting standards. Although the Virgin Islands were among those with the highest growth in usage, the trend did not prove to be a regional phenomenon, with the usage of reports from Jamaica and Puerto Rico each decreasing 64% in 2023. However, this is a tale of two islands. On the one hand, Puerto Rico's economy continues to struggle. At the same time, Jamaica is seen as a standout among emerging markets with recent credit-rating upgrades, historically low unemployment rates, and significantly reduced debt levels. Jamaica's focus on developing human capital and investments in logistics, business process outsourcing, technology, and infrastructure present potential nearshoring opportunities for US companies. Bangladesh had strong GDP growth in 2023 despite pressure for economic reform, inflation, and the impact of the Russian invasion of Ukraine. Demand for international reports saw a 62% decrease, possibly driven by the focus on Western Europe and nearshoring trends. There remain many upsides to doing business in Bangladesh, but reason for caution, especially if reform efforts stall. Singapore narrowly avoided recession in 2023 and saw a 60% decrease in report usage. Although there are signs of a rebound, including closing out 2023 with a 2.8% year-over-year third-quarter growth rate, expect a slow but continued recovery in 2024. Implications and Expectations for 2024: Although credit report usage data is not a substitute for economic performance, the trends reveal some important insights. Economic Growth and Credit Expansion: Countries leading the way with significant increases tended to be historically strong US trade partners in Europe, Canada, and Australia. This trend could indicate that companies focus more on traditional markets amid continued economic uncertainty and tightening credit policies. As we head into 2024, we expect continued interest in these markets, with businesses increasingly leveraging global credit data to manage risk. Market Contraction and Regulation: Drivers are mixed among countries with significant decreases in demand, although they tend to indicate risk. Russia highlights risks from broadening international conflicts. With further escalations late in 2023, global uncertainty will continue well into this year. Puerto Rico highlights the continued downward pressure of inflation and tightening credit markets and is expected to sustain soft growth over the next decade. Bangladesh stands out, having achieved strong growth while facing headwinds from growing pressure for economic reform and nearshoring trends among US businesses. As 2024 continues to take shape, it will be crucial for businesses and credit issuers to stay on top of changes in risk to avoid losses. The US economy has defied consensus and avoided recession to this point, but there continues to be significant global uncertainty. These trends highlight the dynamic nature of global credit and risk landscapes and underscore the importance of data-driven insights for businesses and credit issuers to navigate these changes effectively. Experian's Global Data Network facilitates seamless integration of the world's most predictive business information into our clients' workflows. Our BusinessIQ turnkey solution provides users with rapid access to impactful insights, while our API connections offer the flexibility for highly tailored implementations. Expand Safely with International Credit Reports In this 15-minute Sip and Solve webinar, Kyle Matthies, Director of Product Management, shares his take on effective risk mitigation when expanding into foreign markets including: Unraveling what international data entails and its significance in global business. Understanding the elements that make up comprehensive business credit reports in an international context. Debunking common misconceptions held by domestic credit managers when dealing with international data. Watch Recording

As of recent years, women-owned businesses in the United States have experienced significant growth and have become a substantial force in the economy. It is estimated that there are more than fourteen million women owned business generating over two trillion dollars in annual revenue. The growth in women owned businesses has been fueled by a myriad of reasons, is occurring across all age groups and serves a diverse number of industries. Even with the growth in the number of women owned businesses and the economic impact these business have, women owned businesses are still underserved in the commercial credit markets. Female business owners tend to operate in industries that have a greater need for continuous working capital, thus women owned businesses tend to rely on revolving credit lines. Even with this demand for capital, women business owners are hesitant to apply for financing, and when they do, they are receiving a growing proportion of commercial credit, but the amount of credit granted still trails that of men. The recent growth in women owned businesses could be a driving factor in this disparity. New business have limited to no commercial credit history forcing lenders to evaluate the guarantor’s personal credit. On average, female business owners have a lower consumer credit score, which could be because they are carrying more personal debt to fund their businesses, ultimately decreasing their access to commercial credit. There are a number of factors that when combined, are limiting equal access to commercial credit for female business owners. The good news is that the number of successful women owned businesses continues to climb, and more grants and loans are available to women business owners. What I am watching While inflation in the U.S. is easing, it is still above the Fed’s 2% target. It is widely expected that the Federal Reserve will begin to lower interest rates later this year. It appears that the anticipated recession which led lenders to tighten credit will not occur. Therefore, lenders will likely begin to loosen credit criteria and potentially provide more opportunities for women-owned businesses to obtain the credit they need to operate and expand.

As we enter 2024, small businesses face both opportunities and challenges in the evolving economic landscape. Brodie Oldham, Experian's V.P. of Commercial Data Science has prepared an extensive review of the current landscape in the latest report. Here are some key takeaways: The Labor Market is Cooling The red-hot labor market of 2021-2022 is cooling. Job openings have declined 19% from last year. This gives employers more leverage in hiring and tempers wage growth that drove inflation. However, it means consumers have less discretionary income to drive spending. Small businesses should budget conservatively around labor and consumer demand. Prices and Inflation Easing Inflationary pressures are beginning to ease after hitting 40-year highs in 2022. Consumer and producer prices are rising at a slower clip, though still elevated. This relief gives small businesses some reprieve after two difficult years of escalating costs, but staying lean on operations and monitoring inflation remains prudent. Consumers Remain Resilient Despite economic uncertainties, consumers continue spending more than expected. Holiday sales closed 2023 at a robust 5.8% growth over 2022. Savings rates have also rebounded. This resilience bodes well for small businesses heading into 2024. However, high debt servicing costs and inflation strain consumer budgets. Small businesses should focus on value, loyalty programs and personalized service to attract recurring sales. Credit Environment Tightening As the economy cools, lenders are tightening credit standards and limiting exposure to riskier borrowers. Interest rates remain high after aggressive Federal Reserve hikes. This may require small businesses to look beyond traditional lenders for financing needs. Building strong cash reserves and maintaining good credit health is critical to accessing affordable capital. Recession Risk Still Looms While key indicators show the economy avoiding an immediate downturn, global headwinds such as supply chain disruptions, market volatility and geopolitics could slow growth in 2024. Small businesses should stress test their models for revenue scenarios and have contingency plans ready. Cost control, customer retention and strategic partnerships will help small businesses stay resilient if conditions deteriorate. Technology and Innovation AI and digital solutions will streamline lending processes and allow for faster, data-driven loan decisions. Small businesses should embrace digital tools to enhance customer experience, operational efficiency and data analytics capabilities. Targeted digital marketing and social media outreach will also help small businesses boost visibility and sales. Despite risks, small businesses have proven their mettle handling successive economic shocks. By monitoring trends proactively, stress testing their models, and leveraging technology, small businesses can continue to adapt and innovate in 2024. Though the terrain ahead remains challenging, the resilience and tenacity of small business owners points to brighter days ahead. Download Beyond The Trends Winter 2024 Report

Retail sales reached a 4-year high of over $615B in December 2023 with yearly retail sales growing 4.6%. At the same time, lenders are tightening credit and businesses within the retail sector are showing signs of stress with higher late-stage delinquency rates and falling commercial credit scores. We see retailers seeking commercial credit less often, new originations slowing and lower lines over the past several months. As retail sales continue to rise so does the proportion of online retail sales. Online sales peaked during the COVID-19 pandemic and fell slightly once the lockdowns were lifted. Online retail sales remain approximately 56% higher than pre-pandemic levels and are trending up and may soon exceed 2020 levels. Growth in online retail sales has led to growth in retail returns. Retail returns peaked in 2022 at over $800MM and over 16% of total retail sales. Prior to 2021, retail returns as a percentage of retail sales averaged 8.9%, since 2021 that rate has grown to 14.6%. As returns increase so do fraudulent returns. Retailers have implemented strategies and solutions to address retail returns which resulted in a decrease in return dollars between 2022 and 2023 yet the percentage of returns that were fraudulent increased from 10.2% to 13.7% or over $100B. Increases in both legitimate and fraudulent returns are prompting retailers to identity solutions and operational strategies to slow growth across all returns. What I am watching: The U.S. economy expanded 3.3% in Q4 2023, and 2023 real GDP increased 2.5% over 2022. Strong consumer spending fueled the economy. Multiple sources are expecting The Federal Reserve to cut interest rates up to six times in 2024 with the rate cuts beginning in Q2 2024 and continuing into 2025. Lower interest rates likely means that consumer spending will continue at an elevated rate. As spending continues to increase, specifically in the retail sector, the need for commercial credit could continue to slow as cash-flows satisfy operational capital requirements. Cash on hand should begin to satisfy outstanding delinquencies, improving commercial credit scores resulting in improved access to commercial credit.

Small business owners’ optimism remains low due to concerns about the economy and credit conditions. According to the NFIB survey, business owners do not expect current business conditions to improve in the coming months and report that financing is their top business problem. Stringent credit underwriting policies are creating an environment where owners’ current borrowing needsare not met. According to the Federal Reserve’s SLOOS report, many lenders were loosening credit policies in mid-2022, making credit readily available to small business owners. As inflation and interest rates began to rise, commercial credit delinquencies began to increase at a rapid pace and lenders tightened credit underwriting criteria to mitigate accelerated risk. It appears that efforts have worked. Across most commercial credit financial products, the increase in delinquency rates slowed over the past few months. The loans originated under the tighter underwriting is proving to be lower risk. At the same time, account closures have increased suggesting that high risk default accounts are being removed from lenders portfolio’s thus leveling late-stage delinquency curves. As observed in the commercial credit cards space, late-stage delinquencies are leveling out. Lenders continue to issue commercial cards to lower-risk borrowers and while the average loan/line amount for all other financial products has been decreasing month over month, commercial card limits have increased. Monthly lower risk commercial card originations coupled with monthly high risk commercial card account closures is in part slowing and leveling late-stage delinquency rates in the commercial credit market. What I am watching The commercial credit market could shift in 2024. As reported in the SLOOS survey, while lenders are still tightening credit, fewer of them tightened in Q4 2023. If the economy can achieve a “soft-landing” rather than go into recession, lenders will be even more likely to loosen credit standards. The Federal Reserve is expected to start reducing interest rates in 2024, thereby making borrowingmore affordable. According to the December NFIB survey, business owners are planning capital outlays, increases in inventory, increases in hiring in the coming months but require commercial credit to do so. These business expansions will rely on the availability of credit.

Anyone who’s traveled internationally knows the world is a big place and every country has differences, however big or small. But how do those differences affect evaluating credit risk of foreign businesses?The truth is, international data is as nuanced as the countries themselves and once you scratch the surface, understanding credit risk solutions isn’t as straightforward as it seems. Many domestic assumptions don’t hold when working with international data. We’re seeing a trend across industries that may resonate with you: domestic credit managers are increasingly being tapped to take over a portion or all of their organization’s international portfolio. Sound familiar? Kyle Matthies, Experian's Director of Product Management delivered a very informative 15-minute Sip and Solve talk about the pitfalls and challenges of international data, check it out. Watch Our Sip and Solve Session What You Will Learn: Defining International Data: Demystify international data and its significance in global business. Components of Business Credit Reports: Understanding the elements that make up comprehensive business credit reports in an international context. International Data Challenges: Exploring the hurdles and complexities in gathering and interpreting global credit data. Bridging the Language Gap: Learn how to translate linguistic hurdles into effective risk assessment and communication. Assumptions Domestic Credit Managers Make: Debunking common misconceptions held by domestic credit managers when dealing with international data. Want more information about what Experian has to offer to help you assess international risk? Gain valuable global insight to reduce risk and increase profits through our international reports. Learn More

The November jobs report paints a picture of a robust yet nuanced job market. While job gains and a low unemployment rate inspire optimism for a soft-landing scenario, the cooling employment growth reflects the impact of Federal Reserve interest rate hikes on consumer and business activities. Labor shortages are gradually easing, but challenges persist, particularly in the service sector. Wage growth is slowing down, offering relief from recent highs and contributing to the mitigation of inflationary pressures. Moreover, a new layer of complexity emerges with a rise in layoffs, totaling over 16 million in the first 10 months of the year, representing a 12% increase from 2022. Although layoffs are expected to rise further as the job market normalizes, projections indicate that the numbers will stay "well within the norm." Examining specific sectors reveals unique dynamics. The health care industry, propelled by long-term structural factors, continues to add jobs, providing stability to the overall economy. Conversely, the retail trade sector experiences job losses despite strong sales, signaling the industry’s transition to online channels and COVID-related changes in retail behavior. Navigating this intricatelandscape requires keen insight into sector-specific trends and an awareness of the evolving dynamics shaping the broader economic trajectory. What I am watching: Following the positive November inflation and labor market reports, the Federal Reserve did not change interest rates at their December meeting. After the aggressive interest rate increases since March 2022, this is now the third consecutive meeting with no change, but the Fed indicated that there will be multiple rate cuts beginning in 2024 and beyond. One key to the economy will be how consumers approach holiday spending. With consumer confidence low and news of upcoming layoffs, people may tighten their belts, thereby slowing the economy. Download Report Download the latest version of the Commercial Pulse Report here. Better yet, subscribe so you'll get it in your inbox every time it releases, or once a month as you choose.

As new car production is finally nearing pre-pandemic levels, supply is catching up to demand. For many potential new car buyers that held off because of the tremendous mark-up on new and usedcars during the pandemic, the beginning trend of new car incentives and discounts is welcoming. However, the increase in car loan interest rates are eating up any incentives being offered, and those consumers who have patiently waited are actually worse off now than if they had purchased a car during the past couple of years. Many consumers did purchase cars during the pandemic, driven by necessity. During the pandemic, jobs were lost due to business shuts downs, and many were forced to seek new job opportunities. As remote work became the new normal and the demand for delivery of food and products skyrocketed, people purchased cars at marked up prices to employ themselves to meet this increasing demand. It turned out to be a good business decision as higher interest rates now make car purchasing an even more expensive experience. What I am watching: It will be interesting to see how quickly the automotive industry and car dealers increase the incentives to offset the increased cost of borrowing to purchase a car. After the aggressive interest rate increases by the Federal Reserve to combat inflation over the past 18 months, there is rumbling that the Fed will soon begin cutting rates. If interest rates come down and borrowing for auto loans is more reasonable, the increase in demand will be a welcome sight for the auto sector that finally was able to ramp up supply.

The aggressive interest rate hikes instituted by the Federal Reserve over the past year and a half may have achieved the desired goal. Easing inflation (3.2% in October) and strong GDP growth (4.9% in Q3) are some of the first indications that the economy may experience the “soft landing” hoped for instead of a recession. The consistently strong labor market produced low unemployment and increasing wages, enabling personal spending to increase. However, while spending continues to grow, the growth rate is on a downward trend. The high rate of spending has been driven by consumers digging into savings and borrowing more. As savings dwindle and the cost to borrow increases, it is likely that consumers will retreat and the pull-back will likely hit discretionary categories first. What I am watching: Heading into the holiday season, consumer spending is still strong but how long will it last? The National Retail Federation is projecting that November and December retail sales will grow 3-4% which is in line with the 3.6% average increase from 2010-2019 but lower than the past three years. People are already dipping into savings and borrowing more to continue their consumption but that well will run dry at some point. In addition, 36% of consumers cite December is a month for seasonal financial distress, according to PYMNTS. While consumers may continue spending through the holiday season, the tide may turn in early 2024 when bills hit with higher interest rates. Download Full Report Download the latest version of the Commercial Pulse Report here. Better yet, subscribe so you'll get it in your inbox every time it releases, or once a month as you choose.