Credit Lending

Identity management traditionally has been made up of creating rigid verification processes that are applied to any access scenario. But the market is evolving and requiring an enhanced Identity Relationship Management strategy and framework. Simply knowing who a person is at one point in time is not enough. The need exists to identify risks associated with the entire identity profile, including devices, and the context in which consumers interact with businesses, as well as to manage those risks throughout the consumer journey. The reasoning for this evolution in identity management is threefold: size and scope, flexible credentialing and adaptable verification. First, deploying a heavy identity and credentialing process across all access scenarios is unnecessarily costly for an organization. While stringent verification is necessary to protect highly sensitive information, it may not be cost-effective to protect less-valuable data with the same means. A user shouldn’t have to go through an extensive and, in some cases, invasive form of identity verification just to access basic information. Second, high-friction verification processes can impede users from accessing services. Consumers do not want to consistently answer multiple, intrusive questions in order to access basic information. Similarly, asking for personal information that already may have been compromised elsewhere limits the effectiveness of the process and the perceived strength in the protection. Finally, an inflexible verification process for all users will detract from a successful customer relationship. It is imperative to evolve your security interactions as confidence and routines are built. Otherwise, you risk severing trust and making your organization appear detached from consumer needs and preferences. This can be used across all types of organizations — from government agencies and online retailers to financial institutions. Identity Relationship Management has three unique functions delivered across the Customer Life Cycle: Identity proofing Authentication Identity management Join me at Vision 2016 for a deeper analysis of Identity Relationship Management and how clients can benefit from these new capabilities to manage risk throughout the Customer Life Cycle. I look forward to seeing you there!

Who sports higher scores, less debt and more on-time payments? According to Experian’s latest analysis, women take the credit title.

It’s hard to remember a world without online lenders. Today, fintech players continue to pop up, making it easier to cross-shop loans and land instant approvals.  Gone are the days of lengthy applications and waiting to hear if you’ve scored the latest credit line or personal loan. Consumers, especially with top-tier credit, can easily seek lower monthly payments or consolidate another loan with a cash-out option. Whatever the need, there’s a lender ready to serve. Strike that. There’s actually two or three lenders waiting to serve you. In fact, a recent Experian data pull revealed an increasing share of personal loan balances is actually going to lenders outside of the traditional banks and credit union space (they still own the lion’s share of the business). In 2013 (Q4), these more non-traditional lenders had 15.36 percent of personal loan balances. In Q4 of 2015, that number increased to 27.26 percent. The personal loan business today is just over $222.9 billion in outstanding balances. As the competition heats up, lenders will need to diversify, stand out and provide more value to consumers. Those that engage with new, value-added services, and deliver timely, personalized needs-based messages will capture the greatest share of the market. Here is a sampling of ways to draw consumers in and deliver the value they seek in a financial institution: Be Transparent Lending Club, one of the original peer-to-peer lenders and currently the biggest in terms of dollars funded, continues to grow by providing consumers and investors with transparency, good loan terms and speed. Prosper, on the other hand, recently acquired an app that allows their customers to track spending, budget and monitor their credit. They plan to leverage this technology in the near future and offer it to customers and investors for free. Research reveals Millennials especially are looking to tech and free services to manage their personal finances. A recent Experian survey focused on Millennials and credit revealed 48 percent have used free financial services, like Mint, to manage their finances. Additionally, 57 percent use on average three financial apps. Know Your Customers Payoff uses survey data to segment their customers into roughly 10 financial personalities based on how they use and think about their debt. These personality types are used to tailor marketing messages and customer service conversations about how to improve their financial situation. Their site features a quiz, Discover the Secrets of Your Financial Personality, helping consumers and Payoff understand more about trends attached to spending, saving and managing money. Offer Solutions for Debt Consolidation Even after consumers consolidate debt and pay it off successfully, unforeseen expenses, unexpected life events, evolving spending habits and the increasing cost-of-living expenses mean there will always be a market for debt consolidation solutions. Understanding consolidation credit account behavior is mandatory for lenders looking to stand out and stay ahead of the consolidation needs of consumers. Having visibility to consumers’ interest rates, revolving loan balances and the remaining months on existing loans provides unique ways to segment and engage clients with need-based offers. Consumer-tailored messages during the prospecting, acquisition and account management stages of the relationship sets the stage for repeat business. The research is clear. Individuals are willing to switch brands if they feel a different provider will better meet their needs. Lenders – in both the traditional and fintech spaces – should not expect many chances when it comes to getting it right with consumers. Fail to keep them engaged and you’ll fail to keep them. Period.   Learn more about identifying profitable consolidation candidates, check out Experian’s annual Vision Conference in May.

Experian analyzed millions of 2015 data to identify e-commerce fraud attacks across the United States for fraud by shipping and billing locations.

Time to dust off those compliance plans and ensure you are prepared for the new regulations, specifically surrounding the Military Lending Act (MLA). Last July, the Department of Defense (DOD) published a Final Rule to amend its regulation implementing the Military Lending Act, significantly expanding the scope of the existing protections. The new, beefed-up version encompasses new types of creditors and credit products, including credit cards. While the DOD was responsible for implementing the rule, enforcement will be led by the Consumer Financial Protection Bureau (CFPB). The new rule became effective on October 1, 2015, and compliance is required by October 3, 2016. Compliance, however, with the rules for credit cards is delayed until October 3, 2017. While there is no formal guidance yet on what federal regulators will look for in reviewing MLA compliance, there are some insights on the law and what’s coming. Why was MLA enacted? It was created to provide service members and their dependents with specific protections. As initially implemented in 2007, the law: Limited the APR (including fees) for covered products to 36 percent; Required military-specific disclosures, and; Prohibited creditors from requiring a service member to submit to arbitration in the event of a dispute. It initially applied to three narrowly-defined “consumer credit” products: Closed-end payday loans; Closed-end auto title loans; and Closed-end tax refund anticipation loans. What are the latest regulations being applied to the original MLA implemented in 2007? The new rule expands the definition of “consumer credit” covered by the regulation to more closely align with the definition of credit in the Truth in Lending Act and Regulation Z. This means MLA now covers a wide range of credit transactions, but it does not apply to residential mortgages and credit secured by personal property, such as vehicle purchase loans. One of the most significant changes is the addition of fees paid “for a credit-related ancillary product sold in connection with the credit transaction.”  Although the MAPR limit is 36 percent, ancillary product fees can add up and — especially for accounts that carry a low balance — can quickly exceed the MAPR limit. The final rule also includes a “safe harbor” from liability for lenders who verify the MLA status of a consumer. Under the new DOD rule, lenders will have to check each credit applicant to confirm that they are not a service member, spouse, or the dependent of a service member, through a nationwide CRA or the DOD’s own database, known as the DMDC. The rule also permits the consumer report to be obtained from a reseller that obtains such a report from a nationwide consumer reporting agency. MLA status for dependents under the age of 18 must be verified directly with the DMDC. Experian will be permitted to gain access to the DMDC data to provide lenders a seamless transaction. In essence, lenders will be able to pull an Experian profile, and MLA status will be flagged. What is happening between now and October 2016, when lenders must be compliant? Experian, along with the other national credit bureaus, have been meeting with the DOD and the DMDC to discuss providing the three national bureaus access to its MLA database. Key parties, such as the Financial Services Roundtable and the American Bankers Association, are also working to ease implementation of the safe harbor check for banks and lenders. The end goal is to enable lenders the ability to instantly verify whether an applicant is covered by MLA by the Oct. 1, 2016 compliance date. --- If you have inquiries about the new Military Lending Act regulations, feel free to email MLA.Support@experian.com or contact your Experian Account Executive directly. Next Article: A check-in on the latest Military Lending Act news

For lenders, credit bureau data is vitally important in making informed risk determinations for consumer and small business loans. And the backbone of this data is credit reporting. With the rise of online marketplace lenders, there is a renewed focus on reporting credit data, particularly in light of the rapid growth of this sector. According to Morgan Stanley research, online marketplace loan volumes in the U.S. have doubled every year since 2010, reaching $12 billion in 2014. It is predicted this growth will nearly double by 2020. As more consumers and small businesses flock to online marketplace lenders, these lenders have a growing responsibility to be good stewards of the credit ecosystem, doing their part to support the value of information available for the entire industry – and for their own benefit. After all, failure to report credit data could have an adverse impact on the financial landscape, affecting consumers, small businesses and online lenders themselves. While there are already several online lenders currently reporting credit data, there is still a significant number of the marketplace that do not. So why specifically should marketplace lenders report? 1. Stay One Step Ahead of Regulators. It’s true data reporting is currently voluntary for marketplace lenders. But the Consumer Financial Protection Bureau’s (CFPB) recent activities reflect a growing focus by regulators to advocate for and protect consumers. Voluntary data reporting reflects the spirit of transparency and aligns with many regulatory priorities. By taking proactive steps and reporting data on their own, online lenders can stay one step ahead of regulators, hopefully alleviating the need for new regulations. 2. Gain a Competitive Advantage in the Long Run. Sure, data reporting is about “doing the right thing” for consumers, but it can be good for business too. Online marketplace lenders can gain distinct advantages by reporting. For example, with access to more accurate consumer information, lenders are able to develop and offer more competitive products tailored to the unique needs of their customers. By expanding their offerings, online lenders can differentiate themselves and thereby grow market share. Reporting also enables lenders to emphasize their commitment to consumers as part of their value proposition, demonstrating how they are helping to grow customer credit. Reporting rewards customers with good payment history, allowing them to take advantage of better loan rates and lower fees available to those with exemplary credit scores. This in turn can lead to higher customer satisfaction, loyalty and return business. With access to more complete and comprehensive consumer credit data, online lenders gain a clearer picture of a consumer’s credit worthiness, enabling them to make more informed, and less risky, lending decisions. Reporting also encourages on-time payments. When customers know that lenders report, they are more likely to pay on-time and less likely to default on their debt. 3. Have You Heard of the “Millennials?”  Millennials, and their passion for all things Internet-enabled, are the perfect match for online marketplace lenders. In fact, the latest research from Experian reveals 47 percent of millennials expect to use alternative finance sources in the near future. And 57 percent reported they are willing to use alternative companies and services that innovate to meet their needs. Millennials are clearly more open to nontraditional banking, but at the same time have a greater expectation of transparency, making it all the more important for online marketplace lenders to report credit data. 4. Achieve Data Quality. Complying with Fair Credit Reporting Act (FCRA) data furnishing requirements might seem daunting for marketplace lenders, but there are tools and solutions available to help lenders proactively assess the accuracy of credit data and help identify systemic issues. Marketplace lenders can measure and monitor quality and completeness, dispute metrics, as well as industry and peer-benchmarking data. 5. Qualify More Consumers. With reporting, marketplace lenders can gain access to an invaluable wealth of information that goes well beyond the traditional credit score. Armed with robust analytics, online lenders are in a position to qualify more consumers and small businesses, which creates a significant opportunity to gain long-term customers by improving the overall customer experience. --- Reporting really is a win for marketplace lenders and consumers. In the end, it will contribute to a healthy credit ecosystem and ensure lending decisions are based on the highest quality of information available. For more information about data reporting, including how to start, visit www.experian.com/datareporting. Learn more about data reporting, or about our Online Marketplace Lending track, at Experian's annual Vision Conference in May.

Every portfolio has a set of delinquent customers who do not make their payments on time. Truth. Every lender wants to collect on those payments. Truth. But will you really ever be able to recover all of those delinquent funds? Sadly, no. Still, financial institutions often treat all delinquent customers equally, working the account the same and assuming eventually they’ll get their funds. The sentiment to recover is good, but a lot of collection resources are wasted on customers who are difficult or impossible to recover. The good news? There is a better way. Predictive analytics can help optimize the allocation of collection resources by identifying the most effective accounts to prioritize to your best collectors, do not contact and proceed to legal actions to significantly increase the recovery of dollars, and at the same time reduce collection costs. I had the opportunity to recently present at the annual Debt Buyer Association’s International Conference and chat with my peers about this very topic. We asked the room, “How many of you are using scoring to determine how to work your collection accounts?” The response was 50/50, revealing many of these well-intentioned collectors are working themselves too hard, and likely not getting the desired returns. Before you dive into your collections work, you need to respond to two questions: Which accounts am I going to work first? How am I going to work those accounts? This is where scoring enters the scene. A scoring model is a statistical algorithm that assigns a numerical expression based on known information to predict an unknown future outcome. You can then use segmentation to group individuals with others that show the same behavior characteristics and rank order groups for collection strategies. In short, you allow the score to dictate the collection efforts and slope your expenses based on the propensity and expected amount of the consumer to pay. This will inform you on: What type, if any, skip trace tactic you should use? If you should purchase additional data? What intensity you should work the account? With scoring, you will see different performances on different debts. If you have 100 accounts you are collecting on, you’ll then want to find the accounts where you will have the greatest likelihood to collect, and collect the most dollars. I like to say, “You can’t get blood from a stone.” Well the same holds true for certain accounts in your collections pile. Try all you like, but you’ll never recoup those dollars, or the dollars you do recoup will be minimal. With a scoring strategy, you can establish your “hit list” and find the most attractive accounts to collect on, and also match your most profitable accounts with your best collectors. My message to anyone managing a collections portfolio can be summed up in three key messages. You need to use scoring in your business to optimize resources and increase profits. The better data that goes into your model will net you better performance results. Get a compliance infrastructure in place so you can ensure you are collecting the right way and stay out of trouble. The beauty of scores is they tell you what to do. It will help you best match resources to the most profitable accounts, and work smarter, not harder. That’s the power of scoring.

Large number of HELOC loans will soon be entering their HELOC end of draw period, giving lenders an opportunity for new finance options

Providing the essentials to credit risk managers

Data Privacy Day reminds consumers to protect their privacy online — and for organizations to ensure they are vigilant in their fight against fraud.

Who will take the coveted Super Bowl title in 2016? Now that we’re down to the final two teams, the commentary will heighten. Sportscasters, analysts, former athletes, co-workers ... even your local barista has an opinion. Will it be Peyton Manning's Denver Broncos or the rising Carolina Panthers? Millions will make predictions in the coming weeks, but a little research can go a long way in delivering meaningful insights. How have the teams been trending over the season? Are there injuries? Who is favored and what’s the spread? Which quarterback is leading in pass completions, passing yards, touchdowns, etc.? Who has been on this stage before, ready to embrace the spotlight and epic media frenzy? The world of sports is filled with stats resulting from historical data. And when you think about it, the world of credit could be treated similarly. Over the past several years, there has been much hype about “credit invisibles” and the need to “score more.” A traditional pull will likely leave many “no-file” and “thin-file” consumers out, so it’s in a lender’s best interest to leverage alternative scoring models to uncover more. But it’s also important to remember a score is just a snapshot, a mere moment in time. How did a consumer arrive to that particular score pulled on any given day? Has their score been trending up or down? Has an individual been paying off debt at a rapid pace or slipping further behind?   Two individuals could have the exact same score, but likely arrived to that place differently. The backstory is good to know – in sports and in the world of credit. Trended data can be attached to balances, credit limits, minimum payment due, actual payment and date of payment. By assessing these areas on a consumer file for 24 months, more insights are delivered and lenders can take note of behavior patterns to assist with risk assessment, marketing and share-of-wallet analysis. For example, looking closer at those consumers with five trades or more, Experian trended data reveals: 27% are revolvers, carrying balances each month 27% are transactors, paying off large portions, or all of their balances 9% are rate surfers, who tend to frequently transfer balances to credit cards with 0% or low introductory rates. Now these consumers can be viewed beyond a score. Suddenly, lenders can look within or outside their portfolio to understand how consumers use credit, what to offer them, and assess overall profitability. In short, trended data provides a more detailed view of a borrower’s historical credit performance, and that richness makes for a more informed decision. Without a doubt, there is power in the score – and being able to score more – but when it comes time to place your bets, the trended data matters, adding a whole new dimension to an individual’s credit score. Place your wagers accordingly. As for who will win Super Bowl 2016? I haven’t a clue. I’m more into the commercials. And I hear Coldplay is on for the half-time show. If you’re betting, best of luck, and do your homework.

With the rapid growth in the number of online marketplace lenders , and projections the field will continue to grow in 2016, winning the race to greater revenue and profitability is key to survival. In 2014, online marketplace lenders issued loans totaling around $12 billion in the United States. In a recent report, Morgan Stanley said it expects the U.S. number to grow to $122 billion by 2020, and the global number will surpass $280 billion in the same time period. Investors fear growth in acquisition costs will erode profitability as more online marketplace lenders enter the market. And as portfolios grow, there will be a need for greater sophistication as it pertains to managing accounts. Online marketplace lenders use a variety of different models to generate revenue including charging interest, loan origination and other service fees. However, regardless of the model, there are typically three key levers all should monitor in order to increase their odds for a profitable and sustainable future. 1. Cost per Account (CPA) CPA is more than a simple calculation spreading marketing cost across new account volume. Rather, it is a methodical evaluation of individual drivers such as channel lead cost, success rates, identity verification and cost of marketing collateral. When measured and evaluated at the granular lever, it is possible to make the most informed strategic decisions possible. Marketplace lenders will have to go much deeper than simply evaluating lead costs, clicks, completed and accepted applications, and funding/activation including whether customers take the loan proceeds or use a revolving product. Don’t forget ID verification and the costs associated with risk mitigation and determining if the low-risk customers are deciding to apply elsewhere. In addition, take into account marketing costs including collateral and channel strategies including any broadcast media, direct mail, web and social media expenses. Evaluate results across various product types – and don’t forget to take into account web content and layout, which can impact all metrics. 2. First Pay Default (FPD) FPD is not a long-term loan performance measure, but it is a strong indicator of lead source and vintage quality. It will most closely correlate to long-term loan performance in short-term loans and non-prime asset classes. It is also a strong indicator of fraud. The high value of online loans, combined with the difficulty of verifying online applicants, is making online lenders a prime target for fraud, so it is essential to closely monitor FPD. Online lenders’ largest single cost category is losses from unpaid loans with fraud serving as a primary driver of that number. It is important to evaluate FPD using many of the same segments as CPA. Online lenders must ask themselves the tough questions. Is a low-cost lead source worthwhile? Did operational enhancements really improve the customer experience and credit quality? 3. Servicing Online account servicing is generally the least costly means of servicing customers, an obvious advantage for online marketplace lenders. However, a variety of factors must be considered when determining the servicing channels to use. These include avoidance of customer backlash and regulatory scrutiny, servicing channel effectiveness in providing feedback regarding product design and administration, servicing policies and marketing collateral. Already, we know the legal and regulatory landscape will evolve as policy makers assess the role of marketplace lending in the financial system, while a recent federal appeals court ruling increases the risk that courts could deem some loans void or unenforceable, or lower the interest rates on them. An effective customer complaint escalation policy and process must also be created and allow for situations when the customer is not “right.” Voice of the customer (VOC) surveys are an effective method of learning from the customer and making all levels of staff know the customer better, leading to more effective marketing and account servicing. Lastly, online lenders can’t ignore social media. They should be prepared for customers, especially millennials, to use it as a means to loudly complain when dissatisfied. But also remember that the same media can be an excellent medium for two-way engagement and result in creating raving fans. A Final Consideration As online marketplace lenders continue to come of age, they are likely to find themselves facing increased competition from incumbent consumer lenders, so optimizing for profitability will be essential. Assessing these three key areas regularly will help in that quest and establish their business for a sustainable future. For more information, visit www.experian.com/marketplacelending.

What will 2016 hold for our market and the economy in terms of demand deposit accounts

The world of online marketplace lending has grown tremendously over the past several years. Still, for as much hype as it has received, it’s important to note the sector represents only 1.1 percent of unsecured loans and 2.5 percent of small business loans in the United States. While the industry is still in its infancy, it's expected to grow at an annual rate of 47 percent in the U.S by 2020, according to Morgan Stanley. And as it transitions from its “start-up” phase into “adolescence,” many expect it will become a high-growth, mature and stable market, bringing great benefit to consumers of financial services. So what does the future hold for online marketplace lenders? Who better to weigh in than those in the space, going through the evolution, seeing challenges first-hand and keeping a pulse on where they need to invest in order to survive. This video features a diverse group of leaders in the online marketplace lending industry. // Peter Renton, Founder, Lend Academy Scott Sanborn, COO, Lending Club Sam Hodges, Co-founder, Funding Circle USA Andrew Smith, Partner, Covington & Burling Joseph DePaulo, CEO, College Ave. Kathryn Ebner, VP, Credibly Without stealing all of their thunder, a few key themes emerged for 2016. Online marketplace lenders will look to expand their product offerings into all credit verticals – personal loans, auto, student, small business and beyond. Expect competition to continue to heat up. Large institutional investors will increasingly back and test the space. Some players will partner with large banks. Many will explore scoring with the use of alternative data. Innovations to come in customer service and product expansion. Bottom line, alternative finance doesn’t seem so “alternative” anymore. As such, competition will heat up, and regulators will continue to keep an eye on business practices, processes and what it all means for consumers. To learn more about online marketplace lending, visit https://www.experian.com/business-services/landing/marketplace-lending.html

The new year has started, the champagne bottles recycled. Bye-bye holidays, hello tax season. In fact, many individuals who are expecting tax refunds are filing early to capture those refunds as soon as possible. After all, a refund equates to so many possibilities – paying down debt, starting a much-needed home improvement project or perhaps trading up for a new vehicle. So what does that mean for lenders?  As consumers pocket tax refunds, the likelihood of their ability to make payments increases. By the end of February 2014, more than 48 million tax refunds had been issued according to the IRS – an increase of 5.6 percent compared to the same time the previous year. As of Feb. 28, the average refund in 2014 was $3,034, up 3 percent compared to the average refund amount for the same time in 2013. To capitalize on this time period, introducing collection triggers can assist lenders with how to manage and collect within their portfolios. Aggressively paying down a bankcard, doubling down on a mortgage payment or wiping out a HELOC signal to the lender a change in positive behavior, but without a trigger attached, it can be hard to pinpoint which customers are shifting from their status quo payments. Experian actually offers around 100 collection triggers, but lenders do not need all to seek out the predictive insights they require. A “top 20” list has been created, featuring the highest percentages in lift rates, and population hit rates. Experian has done extensive analysis to determine the top-performing collection triggers. Among the top 15 to 20 triggers, the trigger hit rate ranged from 2 to 8 percent on an average client’s total portfolio, taking into consideration liquidation rates, average percent of payment lifts, lift in liquidation rates over the baseline liquidation, percent of overall portfolio that triggered, percent of overall portfolio that triggered only on the top-selected triggers, and percent of volume by trigger on the total customers that had a trigger hit. With that said, it is essential to implement the right strategy that includes a good mixture of the top-performing triggers. The key is diversifying and balancing trigger selection and setting triggers up during opportune times. Tax season is one of those times. Some of the top-ranked triggers include: Closed-Zero Balance Triggers: This is when a consumer’s account is reported as closed after being delinquent for a certain number of days. Specifically, the closed-zero balance trigger after being delinquent for 120 days has the highest percent of payment lift over an average payment that you would receive from a customer (at a 710 percent lift rate). These triggers are good indicators the consumer is showing positive improvement, thus having a higher likelihood for collections. Paid Triggers: This is when a consumer’s account is reported as paid after being delinquent, in collections, etc. Five of the top 20 triggers are paid triggers. These triggers have good coverage and a good balance between high lift rates (100 percent to 500 percent) and percent of the triggered population. These triggers are also good indicators the consumer is showing positive improvement, thus having a higher likelihood for collections. Inquiry Triggers: This is when a consumer is applying for an auto loan, mortgage loan, etc. The lift rates for these triggers are lowest within the Top 20, but on the other hand, these triggers have the highest hit rates (up to a 33 percent hit rate). These triggers are good indicators consumers are seeking to open additional lines of credit. Home Equity Loan Triggers: These triggers indicate the credit available on a consumer’s home equity loan. They are specifically enticing to collectors due to the fact that home equity lines of credit are usually larger than your average credit on your bank card. The larger the line of credit, the more you are able to potentially collect. To learn more about collection triggers, visit https://www.experian.com/consumer-information/debt-collection.html