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What lenders should consider when evaluating their underwriting and decisioning policies for the next 12 months

August 12, 2020 by Managing Editor, Experian Decision Analytics

The global pandemic led to swift and unexpected shifts in consumer behavior, from the significant increase in the use of digital channels, to the decrease in ability to pay for many. Based on this environment, we’ll highlight where senior financial services executives should focus their analytics and decisioning teams’ efforts to provide a bit of certainty in an uncertain time:

Confidence and demand for credit

First off, it’s important that lenders consider current dynamics when monitoring and measuring the effect of fluctuating market conditions on their portfolio. Overall lower consumer confidence in the ability to access credit is not surprising, but the true impact on demand for credit is yet to be concluded.

“As a result of both the pandemic itself and the changed economic conditions it caused, consumers’ appetite for new credit and the ways in which they are using existing credit are in flux.”

– Leslie Parrish, “Uncertainty Is Certain: Consumers’ Financial Outlook at Mid-Year 2020,” Aite Group, July 2020

From late June to early July 2020, we surveyed 3,000 consumers and 900 businesses in 10 countries. This research indicates some consumers are responding to economic uncertainty by reducing spend and tapping into financial reserves, while other consumers are using credit to make strategic decisions such as refinancing, buying a new house, or opening new lines of credit for access to money.

Regardless of customer sentiment, it’s important for businesses to understand these realities:

  1. Consumer demand for digital is increasing — our research shows it’s gone up 20% since Covid-19
  2. Digital channels will help fuel new business — with a marked 40% increase in consumers opening new loans digitally based on our research

These indicators should drive investment in solutions to secure the digital channel and improve digital onboarding, including data, analytics, and technology. Such investments help meet consumers’ digital demands, safeguarding your ability to retain existing customers and win new business.

Ability to pay

Lenders should also be mindful of the volatility of the current environment and ensure their teams rely on data and analytics that enable accurate decisions based on a consumer’s current financial situation. Given active programs established to supplement a decline in consumer income, we are still enjoying a nourished economic environment.

However, our research shows that globally, since Covid-19 began, the number of consumers having difficulty paying their bills has doubled, and according to Aite Group, half of consumers in the U.S. reported their household has suffered a loss of employment income since mid-March.1

These conditions enforce the need to have the right tools in place to best assess consumer creditworthiness.

Decisioning in the new norm

As lenders continue to focus on business health, it’s key to consider operational efficiency and ongoing optimization. Given there is no precedent to the current global pandemic, lenders will need to rely on innovative solutions to learn and adapt in real-time.

Our research shows that many businesses know change is needed and are seeking solutions to tackling this challenge. One in five businesses globally lack confidence in the effectiveness of their credit risk and collection decisions since Covid-19 began. Sixty percent plan to increase budget for analytics and credit risk management. Meanwhile, the top three solutions businesses believe will improve operational efficiency when supporting customers’ financial needs are: automated decision management, cloud-based applications, and artificial intelligence.

To keep pace and be successful through this unchartered territory, lenders must leverage innovative technologies such as cloud-enabled solutions, artificial intelligence, and machine learning.

Though today’s lending environment is likely to include levels of volatility for some time, making the right adjustments now can help lenders support consumers and business performance in the long term.

>> Get more insights on the impact of Covid-19 on consumer behaviors and business strategies

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1 “Uncertainty Is Certain: Consumers’ Financial Outlook at Mid-Year 2020,” Aite Group, July 2020

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