Marketing & Acquisition
A vintage analysis comparing 60 or more days past due (DPD) delinquency performance at the one-year mark for mortgages originated between 2002 and 2010 shows that 2010 outperformed previous years, with a delinquency rate of 0.37 percent. The worst- performing vintage was 2006, with a 60 or more DPD delinquency rate of 3.84 percent – more than 10 times the delinquency rate of 2010. Listen to our recorded Webinar for a detailed look at the current state of strategic default in mortgage and an update on consumer credit trends. Source: Experian-Oliver Wyman Market Intelligence Reports
The average bankcard balance per consumer rose to $4,359 in Q1 2012 – an 8 percent increase from the previous quarter. The increase resulted primarily from balance increases to VantageScore® A and B segments, which increased 31 percent and 11 percent, respectively. Download the latest Experian industry white papers. VantageScore® is owned by VantageScore Solutions, LLC.
Despite low demand and a shrinking pool of qualified candidates, loan growth priorities continue to rank high for most small-business lenders – both for small to midsize banks and large financial institutions. Between 2006 and 2010, overall loan applications were down 5 percent where large financial institutions saw small-business loan applications rise 36.5 percent. Banks and credit unions with assets less than $500 million showed the most significant increase of 65 percent. Read more of the blog series: "Getting back in the game – Generating small business applications." Source: Decision Analytics' Blog: Relationship and Transactional Lending Best Practices
The strongest growth in new bankcard accounts is occurring in the near-prime and subprime segments of VantageScore® credit score C, D and F. Year-over-year (Q1 2011 over Q1 2010) growth rates of 20 percent, 46 percent and 53 percent were observed for each of the respective tiers. Listen to our recent webinar featuring bankcard credit trends Source: Experian-Oliver Wyman Market Intelligence Reports
Experian® QAS®, a leading provider of address verification software and services, recently released a new benchmark report on the data quality practices of top online retailers. The report revealed that 72 percent of the top 100 retailers are using some form of address verification during online checkout. This third annual benchmark report enables retailers to compare their online verification practices to those of industry leaders and provides tips for accurately capturing email addresses, a continuously growing data point for retailers. To find out how online retailers are utilizing contact data verification, download the complimentary report 2012 Address Verification Benchmark Report: The Top 100 Online Retailers. Source: Press release: Experian QAS Study Reveals Prevalence of Real-Time Address Verification Increasing Among Top Online Retailers.
A recent Experian credit trends study showcases the types of debts Americans have, the amounts they owe and the differences between generations. Nationally, the average debt in the United States is $78,030 and the average VantageScore® credit score is 751. The debt and VantageScore® credit score distribution for each group is listed below, with the 30 to 46 age group carrying the most debt and the youngest age group (19 to 29) carrying the least: Age group Average debt Average VantageScore® credit score 66 and older $38,043 829 47 to 65 $101,951 782 30 to 46 $111,121 718 19 to 29 $34,765 672 Get your VantageScore® credit score here Source: To view the complete study, please click here VantageScore® is owned by VantageScore Solutions, LLC
In Q3 2011, $143 billion – or nearly 44 percent of the $327 billion in new mortgage originations – was generated by VantageScore® A tier consumers. This represents an increase of 35 percent for VantageScore A tier consumers when compared with originations for the quarter before ($106 billion, or 39 percent of total originations). Watch Experian's Webinar for a detailed look at the current state of strategic default in mortgage and an update on consumer credit trends from the Q4 2011 Experian-Oliver Wyman Market Intelligence Reports Source: Experian-Oliver Wyman Market Intelligence Reports. VantageScore® is owned by VantageScore Solutions, LLC.
While retail card utilization rates decreased slightly in Q3 2011, retail card delinquency rates increased for all performance bands (30-59, 60-89 and 90-180 days past due) in Q3 2011 after reaching multiyear lows the previous quarter. Listen to our recent Webinar on consumer credit trends and retail spending. Source: Experian-Oliver Wyman Market Intelligence Reports
By: Joel Pruis Basic segmentation strategy for business banking asks the following questions: - Is there a uniform definition of small business across the industry? - How should small business be defined? Sales size of the applicant? Exposure to the financial institution? - Is small business/business banking a retail or commercial line of business? No One Size Fits All The notion of a single definition for small business for any financial institution is inappropriate as the intent for segmentation is to focus marketing efforts, establish appropriate products to support the segment, develop appropriate delivery methods and use appropriate risk management practices. For the purpose of this discussion we will restrict our content to developing the definition of the segment and high level credit product terms and conditions to support the segment. The confusion on how to define the segment is typically due to the multiple sources of such definitions. The Small Business Administration, developers of generic credit risk scorecards (such as Experian), marketing firms and the like all have multiple ways to define small business. While they all have a different method of defining small business, the important factor to consider is that each definition serves the purpose of the creator. As such, the definition of small business should serve the purpose of the specific financial institution. A general rule of thumb is the tried and true 80/20 rule. Assess your financial institution’s business purpose portfolio by rank ordering individual relationships by total dollar exposure. Using the 80/20 rule, determine the smallest 80% of the number of relationships by exposure. Typically the result is that the largest 20% of relationships will cover approximately 80% of the total dollars outstanding in your business purpose portfolio. Conversely the smallest 80% of relationships will cover only about 20% of the total dollars outstanding. Just from this basic analysis we can see the primary need for segmentation between the business banking and the commercial (middle market, commercial real estate, etc.) portfolios. Assuming we do not segment we have a significant imbalance of effort vs. actual risk. Meaning if we treat all credit relationships the same we are spending up to 80% of our time/resources on only 20% of our dollar risk. Looking at this from the other direction we are only spending 20% of our credit resources assessing 80% of our total dollar risk. Obviously this is a very basic analysis but any way that you look at it, the risk assessment (underwriting and portfolio management) must be “right-sized” in order to provide the appropriate risk management while working to maximize the return on such portfolio segments. The realities of the credit risk assessment practices without segmentation is that the small business segment will be managed by exception, at best. Given the large number of relationships and the small impact that the small business segment has on traditional credit quality metrics such as past dues and charge offs, the performance of the small business portfolio can, in fact, be hidden. Such metrics focus on percentage of dollars that are past due or charged off against the entire portfolio. Since the largest dollars are in the 20% of relationships, it will take a significant number of individual small business relationships being delinquent or charged off before the overall metric would become alarming. Working with our clients in defining small business, one of the first exercises that we recommend is assessing the actual delinquency and charge off rates in the newly defined small business/business banking portfolio. Simply put, determine the total dollars that fit the new definition and apply the charge-offs by borrowers that meet the definition that have occurred over the past 12 months divided by total outstanding in the new portfolio segment. Similarly determine the current dollars past due of relationships meeting the definition of small business divided by the total outstanding of said segment. Such results typically are quite revealing and will at least provide a baseline for which the financial institution can measure improvement and/or success. Without such initial analysis, we have witnessed financial institutions laying blame on the new underwriting and portfolio management processes for such performance when it existed all along but was never measured. So basically our first attempt to define the segment has created a total credit exposure limit. Such limits should be used to determine the appropriate underwriting and portfolio management methods (both of which we will discuss further subsequent blogs), but this type of a definition does little to support a business development effort as the typical small business does not always borrow nor can we accurately assess the potential dollar exposure of any given business until we actually gather additional data. Thus for business development purposes we establish the definition of small business primarily by sales size. Looking at the data from your existing relationships, your financial institution can get an accurate indication of the maximum sales size that should be considered in the business development efforts. As a result we have our business development definition by sales size of a given company and our underwriting and portfolio management defined by total exposure. You may be thinking that such definitions are not always in sync with each other and you would be correct. You will have some companies with total sales under your definition that borrower more than your total exposure limits while companies with total exposure that falls under small business but the total sales of such companies may exceed the business development limit. It is impossible to catch every possibility and to do so is an exercise in futility. Better that you start with the basics of the segmentation and then measure the new applications that exceed the total exposure or the relationships meeting the total exposure cap but exceed the sales limitation. During the initial phase, judgment on a case by case basis will need to be used. Questions such as: Is the borrower that exceeds our sales limitations likely to need to borrow more in the near future? Is the exposure of the borrower that meets our sales size requirement likely to quickly reduce its exposure to meet our definition? Will our underwriting techniques be adequate to assess the risk of this relationship? Will our portfolio monitoring methods be sufficient to assess the changes in the risk profile after it has been booked? Will the relationship management structure be sufficient to support such a borrower? As you encounter these situations it will become obvious to the financial institution the frequency and consistency of such exceptions to the existing definition and prompt adjustments and/or exclusions. But to try and create the exclusions before collecting the data or examining the actual application volumes is where the futility lies. Best to avoid the futility and act only on actual data. Further refinement of the segment definition will also be based on the above assessment. Additional criteria will be added such as: Industry segments (Commercial Real Estate, for example) Product types (construction lending) Just know that the definition will not stay static. Based upon the average credit request changes from 2006 to 2010, changes can and will be significant. The following graph represents the average request amounts from 2010 data compared to the dollar amounts from 2006 (noted below the chart). So remember that where you start is not where you have to stay. Keep measuring, keep adjusting and your segmentation strategy will serve you very well. Look for my next post on generating small business applications. Specifically I’ll cover who should be involved in the outbound marketing efforts of your small business segment. I look forward to your continued comments, challenges and debate as we continue our discussion around small business/business banking. And if you're interested, I'm hosting a 3-part Webinar series, Navigating Through The Challenges Affecting Portfolio Performance, that will evaluate how statistics and modeling, combined with strategies from traditional credit management, can create a stronger methodology and protect your bottom line.
It’s time to focus on growth again.In 2010, credit marketers focused on testing new acquisition strategies. In 2011, credit marketers are implementing learnings from those tests.As consumer lending becomes more competitive, lenders are strategically implementing procedures to grow portfolios by expanding their marketable universe. The new universe of prospective customers is moving steadily beyond prime to a variety of near-prime segments outside of the marketing spectrum that lenders have targeted for the past three years.Many credit marketers have moved beyond testing based on new regulatory requirements and have started to market to slightly riskier populations. From testing lower-scoring segments to identifying strategies for unbanked/underbanked consumers, the breadth of methods that lenders are using to acquire new accounts has expanded. Portfolio growth strategies encompass internal process enhancements, product diversification, and precise underwriting and account management techniques that utilize new data assets and analytics to mitigate risk and identify the most profitable target populations.Experian® can help you identify best practices for growth and develop customized strategies that best suit your acquisition objectives. Whether your needs include internal methods to expand your marketable universe (i.e., marketing outside of your current footprint or offers to multiple individuals in a household) or changes to policies for external expansion strategies (i.e., near-prime market sizing or targeting new prospects based on triggered events), Experian has the expertise to help you achieve desired results. For more information on the new acquisition strategies and expanding your marketing universe, leave a comment below or call 1 888 414 1120.
The end of 2010 was a transitional time for credit card lenders. Card issuers were faced with the need to jump-start “return to growth strategies” as a result of diminished profits stemming from the great recession and all of the credit tightening actions deployed over the last two years. Lenders were deliberate in their actions to shrink balance sheets eliminating higher risk customers. At the same time, risk adverse consumers were, and continue to be, more thoughtful about spending, taking deliberate measures to buy what they perceive to be necessary and able to pay back. Being the only safe bet in town, the super prime universe went from saturated to abundantly over-saturated, and only recently have lenders begun to turn the ship in anticipation of continued relief in default trends. As a result of sustained relief in credit card defaults and over-saturation in the prime+ space, more lenders have begun loosening policies. This has created price competition with 74% of new offers including low introductory rates for longer durations, averaging 12 months, up from 9 months just one year ago. The percent of annual fee offers decreased as well to 21% from 34% one year prior. Continuing the trend of competing for the prime+ segment, lenders have increasingly been promoting loyalty programs, in many cases, combined with spend-incented rebates. In fact, over a third of new offers were for rewards based products, up from 26% prior to the start of the economic turn in 2007. Lenders are now shifting gears to compete in new ways focusing on consumer demand for payment choices. Regardless of a consumer’s credit profile, lenders and technology providers are investing in innovative payment solutions. Lenders understand that if the Starbucks “My Coffee Card” is only available on their customer’s iPhone, Blackberry or Android using a re-loadable Starbucks app, then traditional card issuers will lose purchase volume. What is becoming more and more critical is a lenders ability to leverage new data sources in their targeting strategies. It is no longer enough to know what products provide the most relevance to consumer needs. A lender must now know the optimal communication channel for unique segments of the population, their payment preferences and the product terms and features that competitively match the consumer’s needs and risk profile. Lenders are leveraging new data sources around income, wealth, rent payment, ARM reset timing and strategic default, wallet spend and purchase timing.Loading...
This is the third post in our series about bundling. In the previous two posts, I discussed 1) the many benefits of bundling services and 2) how to determine who might be a good candidate for bundled services. When it comes to maximizing upside and mitigating risk, of primary concern is knowing your customer’s payment history and creditworthiness. But once you’ve identified good candidates for bundled services, just what is it you should offer? An offer they can’t refuse As with most marketing practices, there is no exact formula for creating a successful bundled package. Some considerations include: Making sure the package is worth more than the sum of its parts. If it costs the same to buy each of the services separately, your customers might very well go shopping elsewhere for each individual service. Creating a package that makes it easier to choose from various options. An overly complicated offer is more likely to drive customers away. On the other hand, an offer that simplifies your customer’s life is going to be more attractive. Ensuring that the customer feels at least one product in the bundle is a “need” item. For example, many consumers require a landline for an alarm system, which makes the landline a “need item” for them. Linking an essential service or product (“need item”) to a luxury product/service (“nice to have”) adds value to the package and makes it more attractive to certain consumers. Because the package includes a need item, these consumers would think twice before skipping a payment. Providing a few choices rather than a one-size-fits-all offer. Create several packages at different price points that include different options. To determine the most appropriate services to bundle, you need to drill down to find out what products are most appealing in a particular market. For instance, bundling might be more appealing in some higher income point populations as opposed to lower income areas. Understanding a customer’s cash flow situation and accommodating for a certain degree of bill shock can go a long way toward creating bundled offers that customers actually respond to in a positive way. Any questions? If you’re thinking about getting into the bundling game — or expanding on your current bundling strategy — you have a lot to consider beyond these three posts. If you have specific questions in the realm of bundling you would like to see addressed, please be sure to comment on this post.
In a previous post (“The Benefits of Bundling”), I discussed some of the advantages that can be derived from bundling services, including: • Enhanced customer loyalty • Simplified customer experience • Time and money savings • The ability to penetrate new markets • Easier and less risky upselling path for larger share of wallet Easier said than done While the benefits may be many, making bundling work for you is no simple task. Formulating a plan to maximize upside and mitigate risk starts with a deep understanding of your customer’s ability to pay a bundled services bill. I recommend the following: Leverage your current relationship (or your partner’s relationship) with the customer to understand past payment behavior. A long history of on-time payments is obviously a good sign, but it’s not the only attribute to consider. Look at the customer’s credit score to get an idea of creditworthiness. By setting certain thresholds, you can amass a list of customers that would likely respond positively to a bundled offer and also be able to pay for it. Incorporate broader data sets to improve business intelligence and obtain a more accurate assessment of each customer’s creditworthiness. Overlaying certain attributes on top of a base credit score can help you make more effective decisions about which customers to approach with a bundled offer. In fact, even a questionable credit group might receive a positive lift by applying the right attributers (see below). Alternatively you might be able to uncover the few members of an otherwise undesirable group that have the right attributes but that might otherwise have slipped under the radar. Ultimately your goal is to determine the point at which a customer is most profitable to you versus the point at which paying the bundled bill becomes a problem. But that’s not the end of the story. Just because a customer can pay for a bundled offer doesn’t mean he or she will. Once you’ve determined the right customers to approach, your next task is to determine how to create the most appropriate mix of services to bundle, a topic that will be covered in an upcoming post. In the meantime, if there are specific topics in the realm of bundling you would like to see addressed, please be sure to comment on this post.
Like all companies seeking to generate new revenue, wireless providers continually strive to expand their creditworthy universe of applicants and prospects, while shrinking or eliminating risk. Compared with other industries, however, telecom tends to have a disproportionate number of no-hit and unscorable thin files—primarily young adults and immigrants, emerging consumers, and alternative-finance transactors. The main reason is that these individuals typically acquire cell phones well before credit cards, mortgages or other loan products, and thus, fly under the radar of traditional credit scoring. Micro-segmentation—a paradox with a payoff Experian has found that, despite the lack of documented credit history, these often-ignored segments contain many potentially profitable accounts. Narrowing your focus (through targeted attributes and micro-segmentation) can actually expand your universe of prospects, creating a whole new world of opportunity that enables you to: Grow your portfolio without increasing your risk Match new customers with the appropriate deposit and payment structure Build trust, loyalty and long-term value Many companies also integrate market data, dealer data or other internal records to refine micro-segmentation efforts. Others enlist credit-reporting agencies to help combine traditional and alternative data sets to predict future performance. One or both methods can yield highly favorable results. Using high-quality information from proven, reliable sources enables wireless companies to segment information in innovative and profitable ways. In fact, when providers successfully expand their creditworthy customer universe, high-quality data is usually the bright and shining star. To learn more, read a related post about the role of data quality in effective customer acquisitions.
The passage of the Telecommunications Act of 1996 increased competition in the telecom industry. These days, nearly every telecommunications company is offering, or considering offering, bundled services to attract new customers, increase retention of current customers, or both. Every time I turn around, there seems to be a new variety of bundled services. Quality, ease of use, and the right price points in a market, make these bundles very attractive to consumers. Most offers are directed at consumers, but the industry is looking for emerging market spaces. AT&T just announced it would be offering its U-verse IPTV product and its via-resale DirecTV service, bundled together with landline voice, wireless voice and broadband Internet services, to the small business market. The company explained this package might be attractive for small businesses with client waiting rooms. Bundle of joy While there are a few risks involved in offering bundled services (a topic we will explore in a future post), by and large, the benefits of bundled services are many: 1. Enhanced customer loyalty - Customers are less likely to go to the trouble of unbundling services in order to switch providers. - Customers feel more connected to your organization on multiple fronts. (Both of these help to shield you from competitive displacement attempts.) 2. Simplified customer experience - Consumers enjoy the convenience of bundled services, which allows them to manage multiple services with a single billing statement and a single payment. - When money is tight, bundle customers will generally pay the entire bill, as opposed to paying only part of the bill. 3. Save provider time and money - Bundled billing reduces the number of bills sent each billing cycle, which means less paperwork for you and your customers. - Fewer bills sent also means fewer payments to process. 4. Penetrate new markets - Partnering with a company, who has a bigger footprint in a particular market, allows you to leverage that partner’s existing customer base. - Bundling also can help you penetrate a new market with more competitive price points. 5. Easier and less risky up-selling path for larger share of consumer products and services - The partner, already having an established relationship with the consumer, will have an easier time up selling your product offerings to their customer base. If you’re thinking about getting into the bundling game — or expanding on your current bundling strategy — you need to know that getting bundling right is no easy task. Check back for future blog posts in which I’ll discuss what makes a “smart” bundled offering, as well as how to ensure you’re offering the right bundle to the right customers. In the meantime, if there are specific topics in the realm of bundling you would like to see addressed, please be sure to comment on this post.