Data & Analytics

Changing consumer behaviors caused by the COVID-19 pandemic have made it difficult for businesses to make good lending decisions. Maintaining a consistent lending portfolio and differentiating good customers who are facing financial struggles from bad actors with criminal intent is getting more difficult, highlighting the need for effective decisioning tools. As part of our ongoing Q&A perspective series, Jim Bander, Experian’s Market Lead, Analytics and Optimization, discusses the importance of automated decisions in today’s uncertain lending environment. Check out what he had to say: Q: What trends and challenges have emerged in the decisioning space since March? JB: In the age of COVID-19, many businesses are facing several challenges simultaneously. First, customers have moved online, and there is a critical need to provide a seamless digital-first experience. Second, there are operational challenges as employees have moved to work from home; IT departments in particular have to place increase priority on agility, security, and cost-control. Note that all of these priorities are well-served by a cloud-first approach to decisioning. Third, the pandemic has led to changes in customer behavior and credit reporting practices. Q: Are automated decisioning tools still effective, given the changes in consumer behaviors and spending? JB: Many businesses are finding automated decisioning tools more important than ever. For example, there are up-sell and cross-sell opportunities when an at-home bank employee speaks with a customer over the phone that simply were not happening in the branch environment. Automated prequalification and instant credit decisions empower these employees to meet consumer needs. Some financial institutions are ready to attract new customers but they have tight marketing budgets. They can make the most of their budget by combining predictive models with automated prescreen decisioning to provide the right customers with the right offers. And, of course, decisioning is a key part of a debt management strategy. As consumers show signs of distress and become delinquent on some of their accounts, lenders need data-driven decisioning systems to treat those customers fairly and effectively. Q: How does automated decisioning differentiate customers who may have missed a payment due to COVID-19 from those with a history of missed payments? JB: Using a variety of credit attributes in an automated decision is the key to understanding a consumer’s financial situation. We have been helping businesses understand that during a downturn, it is important for a decisioning system to look at a consumer through several different lenses to identify financially stressed consumers with early-warning indicators, respond quickly to change, predict future customer behavior, and deliver the best treatment at the right time based on customer specific situations or behaviors.  In addition to traditional credit attributes that reflect a consumer’s credit behavior at a single point in time, trended attributes can highlight changes in a consumer’s behavior. Furthermore, Experian was the first lender to release new attributes specifically created to address new challenges that have arisen since the onset of COVID. These attributes help lenders gain a broader view of each consumer in the current environment to better support them. For example, lenders can use decisioning to proactively identify consumers who may need assistance. Q: What should financial institutions do next? JB: Financial institutions have rarely faced so much uncertainty, but they are generally rising to the occasion. Some had already adopted the CECL accounting standard, and all financial institutions were planning for it. That regulation has encouraged them to set aside loss reserves so they will be in better financial shape during and after the COVID-19 Recession than they were during the Great Recession. The best lenders are making smart investments now—in cloud technology, automated decisioning, and even Ethical and Explainable Artificial Intelligence—that will allow them to survive the COVID Recession and to be even more competitive during an eventual recovery. Financial institutions should also look for tools like Experian’s In the Market Model and Trended 3D Attributes to maximize efficiency and decisioning tactics – helping good customers remain that way while protecting the bottom line. In the Market Models Trended 3D Attributes  About our Expert: [avatar user="jim.bander" /] Jim Bander, PhD, Market Lead, Analytics and Optimization, Experian Decision Analytics Jim joined Experian in April 2018 and is responsible for solutions and value propositions applying analytics for financial institutions and other Experian business-to-business clients throughout North America. He has over 20 years of analytics, software, engineering and risk management experience across a variety of industries and disciplines. Jim has applied decision science to many industries, including banking, transportation and the public sector.

As subprime originations decrease, some think that subprime consumers are being locked out of the automotive finance market, but that’s not the whole story.

This is the fourth in a series of blog posts highlighting optimization, artificial intelligence, predictive analytics, and decisioning for lending operations in times of extreme uncertainty. The first post dealt with optimization under uncertainty, the second with predicting consumer payment behavior, and the third with validating consumer credit scores. This post describes some specific Experian solutions that are especially timely for lenders strategizing their response to the COVID Recession. Will the US economy recover from the pandemic recession?  Certainly yes. When will the economy recover? There is a lot more uncertainty around that question. Many people are encouraged by positive indicators, such as the initial rebound of the stock market, a return of many of the jobs lost at the beginning of the pandemic, and a significant increase in housing starts. August’s retail spending and homebuilder confidence are very encouraging economic indicators. Other experts doubt that the “V-shaped” recovery can survive flare-ups of the virus in various parts of the US and the world, and are calling for a “W-shaped” recovery.  Employment indicators are alarming: many people remain out of work, some job losses are permanent, and there are more initial jobless claims each week now than at the height of the Great Recession. Serious hurdles to economic recovery may remain until a vaccine is widely available: childcare, urban transportation, and global trade, for example. I’m encouraged by the resilience of many of our country’s consumer lenders. They are generally responding well to these challenges. If past recessions are a guide, some lenders will not survive these turbulent times. This time, many lenders—whether or not they have already adopted the CECL accounting standards—have been increasing allowances for their anticipated credit losses. At least one rating agency believes major banks are prepared to absorb those losses from earnings.  The lenders who are most prepared for the eventual recovery will be those that make good decisions during these volatile times and take action to put themselves in the best position in anticipation of the recovery that will certainly follow. The best lenders are making smart investments now to be prepared to capitalize on future opportunities. Experian’s analytics and consulting experts are continuously improving our suite of solutions that help consumer lenders and others assess consumer behavior and respond quickly to the rapidly fluctuating market conditions as well as changing regulations and credit reporting practices. Our newly announced Economic Response and Recovery Suite includes the ABCD’s that lenders need to be resilient and competitive now and to prepare to thrive during the eventual recovery: A – Analytics. As I’ve written about in prior blog posts, data is a prerequisite to making good business decisions, but data alone is not enough. To make wise, insightful decisions, lenders need to use the most appropriate analytical techniques, whether that means more meaningful attributes, more predictive and compliant credit scores, more accurate and defensible loss forecasting solutions, or optimization systems that help develop strategies in a world where budgets, regulations, and other constraints are changing. For example, Experian has released a set of Spotlight 2020 Attributes that help consumer lenders create a positive experience for customers who have received an accommodation during the pandemic. In many cases motivated by the new race to improve customer experience online, and in other cases as a reaction to new and creative fraud schemes, some clients are using this period as an opportunity to explore or deploy ethical and explainable Artificial Intelligence. B – Business Intelligence. Credit bureaus like Experian are uniquely situated to understand the impact of the COVID recession on America’s consumers. With impact reports, dashboards, and custom business intelligence solutions, lenders are working during the recession to gain an even better understanding of their current and prospective customers. We’re helping many of them to proactively help consumers when they need it most. For example, lenders have turned to us to understand their customer’s payment hierarchy—which bills they pay first when times are tough. Our free COVID-19 US Business Risk Index helps make lending options available to the businesses who need them most. And we’ve armed lenders with recommendations for which of our pre-existing attributes and scores are most helpful during trying times. Additional reporting tools such as the Auto Market Tracker, Ascend Market Insights Dashboard, and the weekly economic update video provide businesses with information on new market trends—information that helps them respond during the recession and promises to help them grow during the eventual recovery. C – Consulting. It’s good to turn data into information and information into insight, but how do these lenders incorporate these insights in their business strategies? Lenders and other businesses have been turning to Experian’s analytics and Advisory services consultants to unlock the information hidden in credit and other data sources—finding ways to make their business processes more efficient and more effective while developing quick response plans and more long-term recovery strategies. D – Delivery.  Decision science is the practice of using advanced analytics, artificial intelligence, and other techniques to determine the best decision based on available data and resources. But putting those decisions into action can be a challenge. (Organizations like IBM and Gartner estimate that a great majority of data science projects are never put into production.) Experian technologies—from our analytics platform to our attribute integration and decision management solutions ensure that data-driven decisions can be quickly implemented to make a real difference. Treating each customer optimally has a number of benefits—whether you are trying to responsibly grow your portfolio, reduce credit losses and allowances, control servicing costs, or simply staying in compliance during dynamic times. In the age of COVID, IT departments have placed increased priority on agility, security, customer experience, and cost control, and appreciate cloud-first approach to deploying analytics. It’s too early to know how long this period of extreme uncertainty will last. But one thing is certain: it will come to an end, and the economy will recover someday. I predict that many of the companies that make the best use of data now will be the ones who do the best during the recovery. To hear more ways your organization can navigate this downturn and the recovery to follow, please watch our on-demand webinar and check out our Economic Response and Recovery Suite. Watch the Webinar

Since the start of the COVID-19 health crisis, gross domestic product (GDP) has continued to fall in the U.S. In fact, the GDP collapsed at a 32.9% annualized rate last quarter, which is the deepest decline since 1947. But as some states throughout the U.S. begin to relax their stay-at-home orders and start to reopen businesses, economists are taking note of how this will affect the nation’s recovery as a whole. When it comes to tracking the nation’s economic recovery, economists and policymakers need to account for all of the factors that will influence the outcome. This includes tracking the performance of individual states and understanding each state’s trajectory and recovery prospects. There are many factors that will impact each state’s trajectory for recovery. One example, in particular, can be seen in a state’s preparedness level and rainy day fund that’s set aside for emergencies. At the onset of the pandemic, many states were unprepared for the financial crisis. The Government Finance Officers Association recommends that states set aside at least two months of operating expenses in their rainy day funds – or roughly 16% of their general fund. However, although some states had set aside some budget to prepare for a recession, it was simply not enough. Only a few states were able to fulfill this requirement. Other factors that will impact each state’s recovery include: the efficiency of its unemployment program, state lockdown measures, and the concentration of jobs in vulnerable industries. Our new white paper, featuring key insights from Joseph Mayans, Principal Economist with Advantage Economics, provides a deep dive on: The economic landscape at the onset of the pandemic Statewide discrepancies for unemployment programs, lockdown measures, and labor markets Underlying factors that determine a state’s recovery prospects Why tracking state-level economies is critical for national recovery Listen in as he describes the importance of having a different perspective when tracking the national economy and download the white paper for greater insights. Download White Paper Now

Achieving collection results within the subprime population was challenging enough before the current COVID-19 pandemic and will likely become more difficult now that the protections of the Coronavirus Aid, Relief, and Economic Security (CARES) Act have expired. To improve results within the subprime space, lenders need to have a well-established pre-delinquent contact optimization approach. While debt collection often elicits mixed feelings in consumers, it’s important to remember that lenders share the same goal of settling owed debts as quickly as possible, or better yet, avoiding collections altogether. The subprime lending population requires a distinct and nuanced approach. Often, this group includes consumers that are either new to credit as well as consumers that have fallen delinquent in the past suggesting more credit education, communication and support would be beneficial. Communication with subprime consumers should take place before their account is in arrears and be viewed as a “friendly reminder” rather than collection communication. This approach has several benefits, including: The communication is perceived as non-threatening, as it’s a simple notice of an upcoming payment. Subprime consumers often appreciate the reminder, as they have likely had difficulty qualifying for financing in the past and want to improve their credit score. It allows for confirmation of a consumer’s contact information (mainly their mobile number), so lenders can collect faster while reducing expenses and mitigating risk. When executed correctly, it would facilitate the resolution of any issues associated with the delivery of product or billing by offering a communication touchpoint. Additionally, touchpoints offer an opportunity to educate consumers on the importance of maintaining their credit. Customer segmentation is critical, as the way lenders approach the subprime population may not be perceived as positively with other borrowers. To enhance targeting efforts, lenders should leverage both internal and external attributes. Internal payment patterns can provide a more comprehensive view of how a customer manages their account. External bureau scores, like the VantageScore® credit score, and attribute sets that provide valuable insights into credit usage patterns, can significantly improve targeting. Additionally, the execution of the strategy in a test vs. control design, with progression to successive champion vs. challenger designs is critical to success and improved performance. Execution of the strategy should also be tested using various communication channels, including digital. From an efficiency standpoint, text and phone calls leveraging pre-recorded messages work well. If a consumer wishes to participate in settling their debt, they should be presented with self-service options. Another alternative is to leverage live operators, who can help with an uptick in collection activity. Testing different tranches of accounts based on segmentation criteria with the type of channel leveraged can significantly improve results, lower costs and increase customer retention. Learn About Trended Attributes Learn About Premier Attributes

New challenges created by the COVID-19 pandemic have made it imperative for utility providers to adapt strategies and processes that preserve positive customer relationships while continuing to collect delinquent balances during an unpredictable and unprecedented time. As part of our ongoing Q&A perspective series, Beth Bayer, Experian’s Vice President of Energy Sales, and Danielle Grigaliunas, Product Manager of Collection Solutions, discuss the changing collections landscape and how the utility industry can best adapt. Check out what they had to say: Q: How are the COVID-19 crisis and today’s economic environment impacting consumer behavior? Particularly as it relates to delinquencies and payments? BB: Typically, when we experience recessions, delinquency goes up. In this recession, delinquency is declining. Stimulus money and increased unemployment benefits, coupled with stay at home orders, appear to be leading to more dollars available for consumers to repay obligations and debts. Another factor is related to special accommodations, forbearances, and payment holidays or extensions, that provide consumers with flexible options in making their regularly scheduled payments. Once an accommodation is granted, the lender or bank puts a code on the account when it’s reported to the bureaus and the account does not continue to age. Q: As a result of the pandemic, many regulatory bodies are recommending or imposing changes to involuntary disconnect policies. How can utility providers effectively collect, even if they can’t disconnect? BB: The public utility commissions in many areas have suspended disconnects due to non-payment, further increasing balances, delinquency and delaying final bill generation. Without the fear of being disconnected for non-payment in some regions of the country, customers are not paying delinquent utility bills. Utility providers should continue to provide payment reminders and delinquency notices and offer payment plans in exchange for partial payments to continue to engage customers. Identifying which customers can pay and are actively paying other creditors and institutions helps prioritize proactive outreach. Q: For utility providers who offer in-house collection services, what strategies and credit data do you find most valuable? DG: Current and accurate data is key when looking to provide stronger and more strategic collections. This data is built into efficient scoring models to articulate which debts are most collectible and how much money will be recovered from each consumer. Without the overlay of credit data, it’s harder for utility providers to predict how consumers prioritize utility debt during times of economic stress. By better understanding the current state of the consumer, utility providers can focus on consumers who are most likely to pay. Investing in monitoring solutions allows utility providers to receive notifications when their consumers are beginning to cure and pay off other obligations and take a more proactive approach. Q: What are the best methods for utility providers to reach collection consumers? What do they need to know as they begin to utilize omnichannel communications? DG: Regular data hygiene checks and skipping are the first line of defense in collections. Confirming contact information is correct and up to date throughout the entire consumer lifecycle helps to establish a strong relationship. Those who are successful in collections invest in omnichannel messaging and self-service payment options, so consumers have a choice on how they’d like to settle their obligations. Q: What current collection trends/challenges are we seeing within the utility space? BB: Utility providers do not traditionally report active customer payments and delinquencies to the credit bureaus. Anecdotally, our utility partners tell us that delinquencies are up and balances are growing. Many customers know that they cannot currently be disconnected if they fall behind on their utility payments and are using this opportunity to prioritize other debts. We also know that some utilities have reduced collection activities during the pandemic due to office closures and have cut back on communication efforts. Additionally, we’re hearing from some of our utility partners that collections and recoveries of final billed or charged-off accounts are increasing, despite many agencies closing and limited to no collection activities occurring. We assume this is because these balances are typically reported to the credit reporting agencies, triggering a payment and interest in clearing that balance first. Constant communication, flexibility, and empathizing with your customers by offering payment plans and accommodations will lead to an increase in dollars collected. DG: There’s been a large misunderstanding that because utility providers can’t disconnect, they can’t attempt to collect. The success of collections has been seen within first parties, as they are still maintaining strong relationships by reaching out at optical times and remaining top-of-mind with consumers. The utility industry needs to take a proactive approach to ensure they are focusing on the right consumers through the right channels at the right time. Credit data that matches the consumer’s credit health (i.e. credit usage and payments) is needed insight when trying to understand a consumer’s overall financial standing. For more insight on how to enhance your collection processes and capabilities, watch our Experian Symposium Series event on-demand. Watch now About our Experts: Beth Bayer, Vice President of Sales, Experian Energy, North America Beth leads the Energy Vertical at Experian, supporting regulated, deregulated and alternative energy companies throughout the United States. She strives to bring innovative solutions to her clients by leveraging technology, data and advanced analytics across the customer lifecycle, from credit risk and identity verification through collections. Danielle Grigaliunas, Product Manager of Collections Solutions, Experian Consumer Information Services, North America Danielle has dedicated her career to the collections space and has spent the last five years with Experian, enhancing and developing collections solutions for various industries and debt stages. Danielle’s focus is ensuring that clients have efficient, compliant and innovative collection and contact strategies.

In today’s uncertain economic environment, the question of how to reduce portfolio volatility while still meeting consumers’ needs is on every lender’s mind.  With more than 100 million consumers already restricted by traditional scoring methods used today, lenders need to look beyond traditional credit information to make more informed decisions. By leveraging alternative credit data, you can continue to support your borrowers and expand your lending universe. In our most recent podcast, Experian’s Shawn Rife, Director of Risk Scoring and Alpa Lally, Vice President of Data Business, discuss how to enhance your portfolio analysis after an economic downturn, respond to the changing lending marketplace and drive greater access to credit for financially distressed consumers. Topics discussed, include: Making strategic, data-driven decisions across the credit lifecycle Better managing and responding to portfolio risk Predicting consumer behavior in times of extreme uncertainty Listen in on the discussion to learn more. Experian · Effective Lending in the Age of COVID-19

As the COVID-19 pandemic continues to create uncertainty for the U.S. economy, different states and industries have seen many changes with each passing month. In our July edition of the State of the Economy report, written by Principal Economist Joseph Mayans, we’ll be breaking down the data that financial institutions can use to navigate a recovery. Labor markets and state-level employment impact Prior to the pandemic, unemployment in the U.S. was at a 50-year low, at an astonishing rate of 3.5%. Following the start of the pandemic, research shows that unemployment rose from 6.2 million in February to 20.5 million in May 2020, and sent the unemployment rate soaring to 14.7%. However, the data from last month’s State of the Economy Report revealed that the unemployment rate began to decline, with 46 states seeing rises in new job opportunities. Although unemployment started to increase, many states (like Nevada) saw a 25.3% unemployment rate statewide. The numbers for June are much more promising, and reveal a continuous uptick in the number of jobs added. The unemployment rate in the U.S. also fell from 13.3% to 11.1%. The impact to industries COVID-19 had major impacts on every industry in the U.S., with the leisure and hospitality industry being the hardest-hit at 7.7 millions job lost. According to CNBC, “The large number of layoffs in this industry led the U.S. economy to its worst month of job losses in modern history.” However, job growth for the leisure and hospitality industry began to gain momentum in May, with 1.2 million jobs added. This can be attributed to a slow and gradual rollback of stay-at-home orders nationwide. As of June 2020, 4.8 million jobs have been added to this industry. The trade, transportation, and utilities, as well as education and health services, manufacturing, and business services industries also saw improvements in employment. The impact to retail sales Clothing stores, furniture, and sporting goods stores were only a few of the many retailers that saw heavy declines following lockdown orders. After two consecutive months of decline, retail sales finally rebounded by 17.7% in May, with the largest gains occurring in clothing stores (+188%). In June, retail sales continued to rise substantially, resulting in saw a v-shaped bounce. However, with unemployment benefits nearing the expiration date and the number of pandemic cases continuing to increase, recovery remains tentative. Our State of the Economy report also covers manufacturing, homebuilders, consumer sentiments, and more. To see the rest of the data, download our report for July 2020. We’ll be sharing a new report every month, so keep an eye out! Download Now

Do consumers pay certain types of credit accounts before others during financial distress? For instance, do they prioritize paying mortgage bills over credit card bills or personal loans? During the Great Recession, the traditional notion of payment priority among multiple credit accounts was upended, throwing strategies employed by financial institutions into disarray. Similarly, current circumstances in the context of COVID-19 might cause sudden shifts in prioritization of payments which might have a dramatic impact on your credit portfolio. Financial institutions would be better able to forecast and control exposure to credit risk, and to optimize servicing practices such as forbearance and collections treatments if they could understand changing customer payment behaviors and priorities of their existing customers across all open trades.  Unfortunately, financial institutions’ data—including their own behavioral data and refreshed credit bureau data--are limited to information about their own portfolio. Experian data provides insight which complements the financial institutions’ data expanding understanding of consumer payment behavior and priorities spanning all trades. Experian recently completed a study aimed at providing financial institutions valuable insights about their customer portfolios prior to COVID-19 and during the initial months of COVID-19. Using the Experian Ascend Technology Platform™, our data scientists evaluated a random 10% sample of U.S. consumers from its national credit file. Data from multiple vintages were pulled (June 2006, June 2008 and February 2018) and the payment trends were studied over the subsequent performance period. Experian tabulated the counts of consumers who had various combinations of open and active trade types and selected several trade type combinations with volume to differentiate performance by trade type. The selected combinations collectively span a variety of scenarios involving six trade types (Auto Loans, Bankcard, Student Loan, Unsecured Personal Loans, Retail Cards and First Mortgages). The trade combinations selected accommodate a variety of lenders offering different products. For each of the consumer groups identified, Experian calculated default rates associated with each trade type across several performance periods. For brevity, this blog will focus on customers identified as of February 2018 and their subsequent performance through February 2020. As the recession evolves and when the economy eventually recovers, we will continue to monitor the impacts of COVID-19 on consumer payment behavior and priorities and share updates to this analysis. Consumers with Bankcard, Mortgage, Auto and Retail accounts Among consumers having open and recently active Bankcard, Mortgage, Auto and Retail accounts, bankcard delinquency was highest throughout the 24-month performance window, followed by Retail.  Delinquency rates for Auto and Mortgage were the lowest. During the pre-COVID-19 period, consumers paid their secured loans before their unsecured loans. As demonstrated in the table below, customer payment priority was stable across the entire 24-month period, with no significant shift in payment priorities between trade types. Consumers with Unsecured Personal Loan, Retail Card and Bankcard accounts. Among consumers having open and recently active Unsecured Personal Loan, Retail Card and Bankcard accounts, consumers are likely to pay unsecured personal loans first when in financial distress. Retail is the second priority, followed by Bankcard. KEY FINDINGS From February 2018 through April 2020, relative payment priority by trade type has been stable Auto and Mortgage trades, when present, show very high payment priority Download the full Payment Hierarchy Report here. Download Now Learn more about how Experian can create a custom payment hierarchy for the customers in your own portfolio, contact your Experian Account Executive, or visit our website.

Account management is a critical strategy during any type of economy (pro-cycle, counter-cycle, cycle neutral). In times like these, marked by economic volatility, it is an effective way to identify which parts of your portfolio and which of your consumers need the most attention. Check out this podcast where Cyndy Chang, Senior Director of Product Management, and Craig Wilson, Senior Director of Consulting, discuss the foundational elements of account management, best practices and use cases. Account management today looks very different than what it has been during over a decade of growth proactive; account review is a critical part of navigating the path forward. Questions that need to be addressed include: Do you have the right data? Are you monitoring between data loads? Are you reviewing accounts at the frequency that today’s changing demands require? Listen in on the discussion to learn more. Experian · Look Ahead Podcast

Today, Experian and Oliver Wyman launched the Ascend Portfolio Loss ForecasterTM, a solution built to help lenders make better decisions – during COVID-19 and beyond – with customized forecasts and macroeconomic data. Phrases like “the new normal,” “unprecedented times,” and “extreme economic volatility” have flooded not only media for the last few months, but also financial institutions’ strategic discussions regarding plans to move forward. What has largely been crisis response is quickly shifting to an urgent need to answer the many questions around “Will we survive this crisis?,” let alone “What’s next?” And arguably, we’ve entered a new era of loss forecasting. After the longest period of economic growth in post-war U.S. history, previously built models are not sufficient for the unprecedented and sudden changes in economic conditions due to COVID-19. Lenders need instant insights to assess impact and losses to their portfolios. The Ascend Portfolio Loss Forecaster combines advanced modeling from Oliver Wyman,  pandemic-specific insights and macroeconomic scenarios from Oxford Economics, and Experian’s quality data to analyze and produce accurate loan loss forecasts. Additionally, all of the data, including the forecasts and models, are regularly updated as macroeconomic conditions change. “Experian’s agility and innovative technologies allow us to help lenders make informed decisions in real time to mitigate future risk,” said Greg Wright, chief product officer of Experian’s Consumer Information Services, in a recent press release. “We’re proud to work with our partners, Oxford Economics and Oliver Wyman, to bring lenders a product powered by machine learning, comprehensive data and macroeconomic forecast scenarios.” Built using advanced modeling and expert scenarios, the web-based application maximizes the more than 15 years of Experian’s loan-level data, including VantageScore® credit score, bankruptcy scores and customer-level attributes.  Financial institutions can gauge loan portfolio performance under various scenarios. “It is important that the banks take into account the evolving credit behaviors due to the COVID-19 pandemic, in addition to the robust modeling technique for their loss forecasting and strategic decisioning,” said Anshul Verma, senior director of products at Oliver Wyman, also in the release. “With the Ascend Portfolio Loss Forecaster, lenders get robust models that work in the current conditions and take into account evolving consumer behaviors,” Verma said. To watch Experian’s webinar on portfolio loss forecasting, please click here and to learn more about the Ascend Portfolio Loss Forecaster, click the button below. Learn More

With many individuals finding themselves in increasingly vulnerable positions due to COVID-19, lenders must refine their policies based on their consumers’ current financial situations. Alternative Financial Services (AFS) data helps you gain a more comprehensive view of today's consumer. The COVID-19 pandemic has had far-reaching economic consequences, leading to drastic changes in consumers’ financial habits and behavior. When it comes to your consumers, are you seeing the full picture? See if you qualify for a complimentary hit rate analysis Download AFS Trends Report

The COVID-19 pandemic has created unprecedented challenges for the utilities industry. This includes the need to plan for – and be prepared to respond to – changing behaviors and a sudden uptick in collections activities. As part of our recently launched Q&A perspective series, Mark Soffietti, Experian’s Senior Manager of Analytics Consulting and Tom Hanson, Senior Energy Consultant, provided insight on how utility providers can evolve and refine their collections and recovery processes. Check out what they had to say: Q: How has COVID-19 impacted payment behavior and debt collections? TH: Consumer payment behavior is changing. For example, those who paid as agreed, may not currently have the means to pay and are now distressed borrowers. Or those who were sloppy payers before the pandemic may now be defaulting on a more consistent basis. MS: As we saw with the last recession when faced with economic stress, consumer and commercial payment behavior changes based on their needs and current cash flow. For example, people prioritize their car, as they need it to get to and from work, so they’ll likely pay their auto bills on time. The same goes for their credit cards, which they need to make ends meet. We expect this will also be true with COVID-19. The commercial segment will face more dramatic and challenging circumstances, where complete or partial business closures and lack of federal relief could have severe ramifications. Q: What new restrictions have been put in place surrounding debt collection efforts and outbound calls? TH: To protect consumers who may be experiencing financial distress, most states have imposed new, stringent restrictions to prevent utilities from engaging in certain collections activities. Utilities are currently not charging any late payment fees and are instead structuring payment plans. Additionally, all outbound collections efforts have been suspended and there is fieldwork being executed of services for both commercial and consumer properties. As of now, consumer and commercial fieldwork will likely not commence until after the first year or when the winter moratorium concludes. MS: The new restrictions imposed upon collections activities will likely drive consumer payment behavior. If consumers know that their utilities (i.e. energy and water) will not be shut off if they miss a payment, they will make these bills less of a priority. This will dramatically increase the amount owed when these restrictions are lifted next year. Q: Can we predict how the utilities industry will fare post-COVID-19? TH: The volume of accounts in collections and eligible for disconnect will be overwhelming. Many utility providers fear the unpaid balances consumers and commercial entities accumulate will be nearly impossible to fit into a repayment schedule. Both analyzing internal payment segments and overlaying external factors may be the best way to optimize the most critical go-forward plan. MS: The amount of people who fall into collections is going to greatly increase and utility providers need to start planning for it now to weather the storm. They will need to use data, analytics and tools to help them optimize their tasks, so they can be more efficient with their resources. Like many other industries, the utilities sector will look to increasing digitalization of their processes and having less social interaction where possible. This could mean the need and drive for expediting current smart meter programs where possible to enable remote fieldwork to assist in managing this unprecedented level of activity that is sure to overwhelm field operations (where allowed by state regulators). Q: What should utility providers be doing to plan for an uptick in collections activities post-COVID-19? TH: With regulatory mandated suspensions of collections activities for utility providers and self-selected reductions due to stay at home orders and staff protection, the backlog of payments, calls and inquiries once business resumes as normal is set to overwhelm existing capacity. More than ever, self-service options (text/web), Q&A and alternative communication methods will be needed to shepherd consumers through the collections process and minimize the strain on call center agents. Many utility providers are asking for external data points to segment their consumers by industry or by those whose employment would have been adversely impacted by COVID-19. MS: Utility providers should be monitoring consumer data in order to prepare for when they are able to collect. This will help them strategize the number of resources they will need in their call centers and out in the field performing shut off activities. Given that the rise in cases will be more volume than their call centers can handle, they will need to use their resources wisely and plan to use them efficiently when they are able to resume collections. Q: How can Experian help utility providers reduce collections costs and maximize recovery? TH: Experian can help revise collections tactics and segmentation strategies by providing insight on how consumers are paying other creditors and identifying new segmentation opportunities as we emerge from the freeze on collections activities. Collections cases will be complex, and many factors and constraints will need to balanced against changing goals, making optimization key. MS: Utilizing Experian’s credit data and models can help ensure that resources are being used efficiently (i.e. making successful calls). There is also a need to leverage ability to pay models as well as prioritization models. By using these models and tools, utility providers can optimize their treatment strategies, reduce costs and maximize dollars collected. Learn more About our Experts: Tom Hanson, Senior Energy Consultant, Experian CEM, North America Tom is a Senior Consultant within the Energy Vertical at Experian, supporting regulated energy companies throughout the U.S. He brings over 25 years of experience in the energy field and supports his clients throughout the customer lifecycle, providing expertise in ID verification, account treatment, fraud solutions, analytics, consulting and final bill/field optimization strategies and techniques. Mark Soffietti, Analytics Consulting Senior Manager, Experian Decision Analytics, North America Mark has over 15 years of experience transforming data into actionable knowledge for effective decision management. Mark’s expertise includes solution development for consumer and commercial lending across the credit spectrum – from marketing to collections.

The largest industry disruptor was a surprise to everyone. Where bets may have been placed on digital transformation, automated decisioning, or better omnichannel programs, no one foresaw the global pandemic of COVID-19 and the corresponding economic fall out that ensued. As financial institutions have spent the past two months scattered and then regrouping, whether with pivoted downturn contingency strategies or with a business-focused Hail Mary, some might argue that the dust is beginning to settle. While the world and the majority of businesses are working to manage and stabilize a new normal against a background of some form of chaos, once federal and state regulations are loosened, the world – and financial institutions in particular – will need a plan forward. So, what comes after COVID-19? With stimulus checks and what everyone hopes will soon be a re-stimulating of the economy, consumers will seek credit. And when that influx comes, there will be a need to strategize what is the right offer for the right consumer. How do you take on more customers while minimizing risk? Non-existent and/or shrinking budgets Many marketing budgets were already small prior to the global pandemic, so coming out of it, to say every marketing dollar counts is an understatement. Traditional prescreen, while a pillar in acquisition operations, is an antiquated strategy. Using hyper-segmentation via a true end-to-end marketing service, pumped up by the right data for decision making, enables financial institutions to not only build the right audience but tailor quality experiences that increase engagement and loyalty. That means ultimately reducing operating costs while improving experiences and take rates. Work from home turned life from home Going virtual has gone viral. Seemingly overnight, most brick and mortar operations went online. Some versions of digital transformation became a need to have, versus a nice to have, and the gap between the financial institutions who were equipped to pivot online, versus those who were not, spread further. As the vast majority of consumers are at home – whether by way of work from home or furlough – our society has quickly embraced everything being online. Reach your consumers where they are, in the digital-first channels to which they have become familiar with and accustomed. As consumers are at the center of every marketing strategy, engaging omnichannel delivery enhances reach across critical touchpoints. Inclusive of social media, email, direct mail, TV, and more, the campaign should provide a seamless experience, all working together in a synchronized fashion. Consistency has always been key, but especially during these volatile times, to reflect stability, empathy and constant messaging is an undertone that can only help strengthen consumers’ view of your organization. Learn fast, grow faster For marketing financial products, it’s a matter of connecting the dots between consumer touchpoints and results data. By making these critical connections, financial institutions will be better positioned to identify the most effective elements in the campaign. By gleaning more insights from campaign performance, organizations can optimize future campaigns and minimize wasted ad spend. These key learnings, delivered at the end of every campaign cycle, help your organization to remain nimble, pivot quickly and execute campaigns that get increasingly better ROI as you hone in on the nuances revealed by data on consumer behavior, preferences, motivations and more. Changing times and even faster-changing needs There’s always been a need for faster decisioning and more results with increasingly fewer resources. The need for speed has been put on hyperdrive as the economy has entered the current environment. How do you keep up with the changing needs of your consumers? Get your marketing right from the start and see results through to the end. Incorporating the right data, advanced analytics and constant access ultimately enable more strategic focus and shorter campaign cycles. As we all navigate the ever-changing “normal,” offering the right support to your consumers is the right thing to do for them and for you. Managing rising consumer needs, while also minimizing risk to your bottom line, is also the right thing to do for your business. Once plans move from managing business operations through the crisis to moving forward, make sure your marketing – how you are reaching out to existing customers and prospective customers for the next steps in their financial journey – is data-driven. To learn more about how Experian can help you execute data-driven marketing that fuels customer acquisition, visit our website. Learn More

This is the third in a series of blog posts highlighting optimization, artificial intelligence, predictive analytics, and decisioning for lending operations in times of extreme uncertainty. The first post dealt with optimization under uncertainty and the second with predicting consumer payment behavior. In this post I will discuss how well credit scores will work for consumer lenders during and after the COVID-19 crisis and offer some recommendations for what lenders can be doing to measure and manage that model risk in a time like this. Perhaps no analytics innovation has created opportunity for more individuals than the credit score has. The first commercially available credit score was developed by MDS (now part of Experian) in 1987. Soon afterwards FICO® popularized the use of scores that evaluate the risk that a consumer would default on a loan. Prior to that, lending decisions were made by loan officers largely on the basis on their personal familiarity with credit applicants. Using data and analytics to assess risk not only created economic opportunity for millions of borrowers, but it also greatly improved the financial soundness of lending institutions worldwide. Predictive models such as credit scores have become the most critical tools for consumer lending businesses. They determine, among other things, who gets a loan and at what price and how an account such as a credit line is managed through its life cycle. Predictive models are in many cases critical for calculating loan and loss reserves, for stress testing, and for complying with accounting standards. Nearly all lenders rely on generic scores such as the FICO® score and VantageScore® credit score. Most larger companies also have a portfolio of custom scorecards that better predict particular aspects of payment behavior for the customers of interest. So how well are these scorecards likely to perform during and after the current pandemic? The models need to predict consumer credit risk even as: Nearly all consumers change their behaviors in response to the health crisis, Millions of people—in America and internationally—find their income suddenly reduced, and Consumers receive large numbers of accommodations from creditors, who have in turn temporarily changed some of their credit reporting practices in response to guidelines in the federal CARES Act. In an earlier post, I pointed out that there is good reason to believe that credit scores will tend to continue to rank order consumers from most likely to least likely to repay their debts even as we move from the longest economic expansion in history to a period of unforeseen and unexpected challenges. But the interpretation of the score (for example, the log odds or the bad rate) may need to be adjusted. Furthermore, that assumes that the model was working well on a lender’s population before this crisis started. If it has been a long time since a scorecard was validated, that assumption needs to be questioned. Because experts are considering several different scenarios regarding both the immediate and long-term economic impacts of COVID-19, it’s important to have a plan for ongoing monitoring as long as necessary. Some lenders have strong Model Risk Management (MRM) teams complying with requirements from the Federal Reserve, Federal Deposit Insurance Corporation (FDIC), the Office of the Comptroller of the Currency (OCC). Those resources are now stretched thin. Other institutions, with fewer resources for MRM, are now discovering gaps in their model inventories as they implement operational changes. In either case, now’s the time to reassess how well scorecards are working. Good model validation practices are especially critical now if lenders are to continue to make the sound data-driven decisions that promote fairness for consumers and financial soundness for the institution. If you’re a credit risk manager responsible for the generic or custom models driving your lending, servicing, or capital allocation policies, there are several things you can do--starting now--to be sure that your organization can continue to make fair and sound lending decisions throughout this volatile period: Assess your model inventory. Do you have good documentation showing when each of the models in your organization was built? When was it last validated? Assign a level of criticality to each model in use. Starting with your most critical models, perform a baseline validation to determine how the model was performing prior to the global health crisis. It may be prudent to conduct not only your routine validation (verifying that the model was continuing to perform at the beginning of the period) but also a baseline validation with a shortened performance window (such as 6-12 months). That baseline validation will be useful if the downturn becomes a protracted one—in which case your scorecard models should be validated more frequently than usual. A shorter outcome window will allow a timelier assessment of the relationship between the score and the bad rate—which will help you update your lending and servicing policies to prevent losses. Determine if any of your scorecards had deteriorated even before the global pandemic. Consider recalibrating or rebuilding those scorecards. (Use metrics such as the Population Stability Index, the K-S statistic and the Gini Coefficient to help with that decision.) Many lenders chose not to prioritize rebuilding their behavioral scorecards for account management or collections during the longest period of economic growth in memory. Those models may soon be among the most critical models in your organization as you work to maintain the trust of your accountholders while also maintaining your institution’s financial soundness. Once the CARES accommodation period has expired, it will be important to revalidate your models more frequently than in the past—for as long as it takes until consumer behavior normalizes and the economy finds its footing. When you find it appropriate to rebuild a scorecard model, consider whether now is the time to implement ethical and explainable AI. Some of our clients are finding that Machine Learned models are more predictive than traditional scorecards. Early Experian research using data from the last recession indicates this will continue to be true for the foreseeable future. Furthermore, Experian has invested in Research and Development to help these clients deliver FCRA-compliant Adverse Action reasons to their consumers and to make the models explainable and transparent for model risk governance and compliance purposes. The sudden economic volatility that has resulted from this global health crisis has been a shock to all organizations. It is important for lenders to take the pulse of their predictive models now and throughout the downturn. They are especially critical tools for making sound data-driven business decisions until the economy is less volatile. Experian is committed to helping your organization during times of uncertainty. For more resources, visit our Look Ahead 2020 Hub. Learn more