I love a good analogy, and living in Southern California, lately I’ve been thinking a lot about earthquakes, and how lenders might want to start thinking like seismologists when considering the risk levels in their portfolios. Currently, scientists that study earthquakes review mountains of data around fault movement, tidal forces, even animal behavior, all in an attempt to find a concrete predictor of ‘the big one’. Small tremors are inputs, but the focus is on predicting and preparing for the large shock and impact of large earthquakes. Credit risk modeling, conversely, seems to focus on predicting the tremors, (risk scores that predict the risk of individual default) and less so the large-shock risk to the portfolio. So what are lenders doing to forecast ‘the big one’?  Lenders are building sophisticated models that contemplate the likelihood of the big event – developing risk models and econometric models that look at loan repayment, house prices, unemployment rates – all in an attempt to be ahead of the credit version of ‘the big one’.  This type of model and perspective is at a nascent stage for many lenders, but like the issues facing the people of Southern California, preparing for the big-one is an essential part of every lender’s planning in today’s economy.

Exciting research leveraging Experian’s fraud analytics and credit risk modeling are now enabling deposit institutions to understand the impacts of first party fraud and identity theft on their portfolios. Historically, deposit institutions have not considered application fraud to be a major concern and legislation regarding overdraft fees and the opt-in provision for overdraft services will reduce a deposit customer’s ability to spend the bank’s money; however, a determined thief can still: kite checks to commit first party fraud perpetrate an account takeover/identity theft   The result is that deposit institutions will continue to face losses that can be prevented using fraud best practices. The challenge for the institution is knowing whether it is facing first party fraud or identity theft. Increasingly, deposit institutions are turning to Experian to analyze customers that create losses early in the account life cycle in order to make the right modifications to their acquisitions strategies.  Using a combination of fraud analytics built to target specific types of fraud trends, deposit institutions can get a clear picture of the type of behavior that is generating their losses. This type of analysis is quickly climbing the list of fraud best-practices. Armed with the right diagnosis, deposit institutions can respond by prioritizing the right set of fraud alerts.    

We’ve written a number of posts suggesting how telecom and cable providers can use reliable consumer credit data to improve acquisition, prospecting, retention and risk mitigation, but we haven’t yet covered collections.  So here is the first in what will probably be several collections-related entries. Please let us know what you think. What’s in your data mix? As you know, the ranks of “skips” or delinquent accounts have grown considerably over the past few years. This phenomenon has compelled many telecom and cable companies to reevaluate the quality and use of their skip tracing data. What they’ve discovered is that contact data alone—current address, previous addresses, land line and cell phone numbers—may not be enough to recover lost payments. Which brings us to the missing ingredient. Reliable consumer credit data Combining fresh contact data AND reliable consumer credit data enables you to recapture more funds from more delinquent accounts. Adding credit history to the mix broadens your view of consumers’ overall financial health, allowing you easily distinguish between those who can pay and those who can’t. What the data can reveal Assuming your consumer credit data comes from a reputable, knowledgeable source, you’ll be able to immediately learn a lot about your customers’ behaviors and circumstances, including: Attempts to open a new account while they’re still overdue with you Recently declared bankruptcies Once delinquent customers who now have the ability to pay Tying in “triggers” Some communications providers use collection tools called “triggers.” When tied to a consumer credit report, triggers alert you to new information, including cell or landline number, address, employer, or changes in financial status, such as when bankcard funds become newly available. Quality credit data + tools like triggers + a reliable data partner = a surefire recipe for collections success. Collections not your focus? Check out the post on “Using Data Intelligence to Reduce Churn, Build Loyalty and Keep the Right Customers.”