Tag: economy
“Learn how to learn.” One of Zack Kass’, AI futurist and one of the keynote speakers at Vision 2024, takeaways readily embodies a sentiment most of us share — particularly here at Vision. Jennifer Schulz, CEO of Experian, North America, talked about AI and transformative technologies of past and present as she kicked off Vision 2024, the 40th Vision. Keynote speaker: Dr. Mohamed El-Erian Dr. Mohamed El-Erian, President of Queens’ College, Cambridge and Chief Economic Advisor at Allianz, returned to the Vision stage to discuss the labor market, “sticky” inflation and the health of consumers. He emphasized the need to embrace and learn how to talk to AI engines and that AI can facilitate content, creation, collaboration and community Keynote speaker: Zack Kass Zack Kass, AI futurist and former Head of Go-To-Market at OpenAI, spoke about the future of work and life and artificial general intelligence. He said AI is aiding in our entering of a superlinear trajectory and compared the thresholds of technology versus those of society. Sessions – Day 1 highlights The conference hall was buzzing with conversations, discussions and thought leadership. Some themes definitely rose to the top — the increasing proliferation of fraud and how to combat it without diminishing the customer experience, leveraging AI and transformative technology in decisioning and how Experian is pioneering the GenAI era in finance and technology. Transformative technologiesAI and emerging technologies are reshaping the finance sector and it's the responsibility of today's industry leaders to equip themselves with cutting-edge strategies and a comprehensive understanding to master the rapidly evolving landscape. That said, transformation is a journey and aligning with a partner that's agile and innovative is critical. Holistic fraud decisioningGenerative AI, a resurgence of bank branch transactions, synthetic identity and pig butchering are all fraud trends that today's organizations must be acutely aware of and armed to protect their businesses and customers against. Leveraging a holistic fraud decisioning strategy is important in finding the balance between customer experience and mitigating fraud. Unlocking cashflow to grow, protect and reduce riskCash flow data can be used not only across the lending lifecycle, but also as part of assessing existing portfolio opportunities. Incorporating consumer-permissioned data into models and processes powers predicatbility and can further assess risk and help score more consumers. Navigating the economyAmid a slowing economy, consumers and businesses continue to struggle with higher interest rates, tighter credit conditions and rising delinquencies, creating a challenging environment for lenders. Experian's experts outlined their latest economic forecasts and provided actionable insights into key consumer and commercial credit trends. More insights from Vision to come. Follow @ExperianVision and @ExperianInsights to see more of the action.
This series will dive into our monthly State of the Economy report, providing a snapshot of the top monthly economic and credit data for those in financial services to proactively shape their business strategies. As we near the end of the first quarter, the U.S. economy has maintained its solid standing. We're also starting to see some easing in a few areas. This month saw a slight uptick in unemployment, slowed spending growth, and a slight increase in annual headline inflation. At the same time, job creation was robust, incomes continued to grow, and annual core inflation cooled. In light of the mixed economic landscape, this month’s upcoming Federal Reserve meeting and their refreshed Summary of Economic Projections should shine some light on what’s in store in the coming months. Data highlights from this month’s report include: Annual headline inflation increased from 3.1% to 3.2%, while annual core inflation cooled from 3.9% to 3.8%. Job creation remained solid, with 275,000 jobs added this month. Unemployment increased to 3.9% from 3.7% three months prior. Mortgage delinquencies rose for accounts (2.3%) and balances (1.8%) in February, contributing to overall delinquencies across product types. Check out our report for a deep dive into the rest of March’s data, including consumer spending, the housing market, and originations. To have a holistic view of our current environment, we must understand our economic past, present, and future. Check out our annual chartbook for a comprehensive view of the past year and download our latest forecasting report for a look at the year ahead. Download March's State of the Economy report Download latest forecast For more economic trends and market insights, visit Experian Edge.
There’s an undeniable link between economic and fraud trends. During times of economic stress, fraudsters engage in activities specifically designed to target strained consumers and businesses. By layering risk management and fraud prevention tools, your organization can manage focus on growing safely. Download infographic Review your fraud strategy
No two customers are the same. That’s why it’s important to go beyond the traditional credit score for a closer look at each consumer’s individual circumstance and create personalized response plans. Learn more about some of the many different customers you’ll encounter and download our guide to get recommendations for every stage of the lifecycle. Get the Guide
Big data is bringing changes to the way credit scores are reported and making it easier for lenders to find creditworthy consumers, and for consumers to qualify for the financing they need. Since last year’s annual report, alternative credit data1 has continued to gain in popularity. In Experian’s latest 2020 State of Alternative Credit Data report, we take a closer look at why alternative credit data is supplemental and essential to consumer lending and how it’s being adopted by both consumers and financial institutions. While the topic of alternative credit data has become more well known, its capabilities and benefits are still not widely discussed. For instance, did you know that … 89% of lenders agree that alternative credit data allows them to extend credit to more consumers. 96% of lenders agree that in times of economic stress, alternative credit data allows them to more closely evaluate consumer’s creditworthiness and reduce their credit risk exposure. 3 out of 4 consumers believe they are a better borrower than their credit score represents. Not only do consumers believe they’re more financially astute than their credit score depicts – but they’re happy to prove it, with 80% saying they would share various types of financial information with lenders if it meant increased chances for approval or improved interest rates. This year’s report provides a deeper look into lenders’ and consumers’ perceptions of alternative credit data, as well as an overview of the regulatory landscape and how alternative credit data is being used across the lending marketplace. Lenders who incorporate alternative credit data and machine learning techniques into their current processes can harness the data to unlock their portfolio’s growth potential, make smarter lending decisions and mitigate risk. Learn more in the 2020 State of Alternative Credit Data white paper. Download now
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
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
Rays of hope are beginning to shine in the economy that suggest the U.S. may have moved beyond the most acute phase of the economic crisis. The housing sector, in particular, looks poised to regain momentum and perhaps lead the path towards stabilization in the second half of 2020. A “V-Shaped” rebound in mortgage applications Despite record levels of unemployment and widespread economic uncertainty, homebuyers have returned to the market with conviction. After shelter-in-place restrictions curtailed open-house visits and crimped buyer demand in early April, applications to purchase a home have risen for six consecutive weeks, according to the Mortgage Bankers Association. The latest data for the week of May 22nd, indicate that purchase applications were 9% higher than during the same period in 2019. If this trend continues, it will show that significant pent-up demand exists in the housing market that may be able to offset some of the lost spring buying season. April new home sales far exceed expectations After declining by 13.7% in March, new home sales rose a modest 0.6% in April. While this was only a slight gain, it was considerably above economists’ projections of a fall of 20% and may mark the turning point in the downtrend. Since the recording of new home sales data occurs when the purchase contract is signed or a deposit is accepted – and is typically for a house that hasn’t been built yet or is currently under construction – it provides a gauge of how buyers feel about their future economic prospects. Building a home also requires hiring new construction workers, buying building supplies, and supporting a host of ancillary industries, thus making it an indicator of further economic activity. Some of the increase in demand for new homes may have been driven by coronavirus quirks. The number of existing homes on the market is at record lows and many people may have been reluctant to put their home up for sale and have buyers tour as health concerns remain. Buyers, as well, may have preferred to steer clear of occupied homes or were unable to make in-person visits due to shelter-in-place restrictions. This lack of options for home buyers, coupled with record-low mortgage rates, likely drove sales of new homes higher. However, for the same reasons why new home sales rose, pending sales for existing homes fell sharply. In April, the National Association of Realtors reported that sales declined by 21.8%, which is the largest drop in ten years. Home prices continue to gain ground Even with shelter-in-place restrictions dampening buyer demand in early April, home values have continued to rise. This is because the supply of homes on the market also contracted, resulting in a simultaneous drop of demand and supply. According to Zillow Research, the total inventory of homes for sale is down roughly 20% from this time last year. With fewer competing homes on the market, sellers have been reluctant to slash prices and are betting that the lack of options and low mortgage rates will keep buyers on the hook. In April, U.S. home values rose 4.3% from the year before. The states with the strongest growth were Idaho (9.8%), Arizona (8.5%), Maine (7.6%), and Washington (7.4%). It will be interesting to see if this pattern of growth changes as newly implemented work from home policies may shift where people prefer to live and work. Why it matters The housing market has an outsized influence on the overall direction of the U.S. economy. Housing is not only is a big contributor to economic growth, but many owners have a large portion of their wealth tied up in their home. If the housing market can find its footing in the second half of 2020, then it could set the stage for an eventual economic recovery. Learn more
With jobs losses mounting and the prospects for a quick economic rebound fading, some segments of the financial markets are beginning to bet that the Federal Reserve will take interest rates negative for the first time in U.S. history. If that happens, it could have a profound impact on the U.S. economy, and more specifically, on financial institutions. While other nations such as Denmark, Japan, Sweden, and Switzerland have experimented with negative rates over the years, the U.S. has shied away – both for political and economic reasons. Instead, when interest rates are near zero, the Fed prefers to use a mix of large-scale asset purchases and forward guidance to support the economy. In the current crisis, the Fed has also launched several new emergency lending programs to ensure the smooth functioning of the financial system. The question remains, however, if these tools will be enough to keep the U.S. out of a deep recession, especially if Congress fatigues on further fiscal support. The Fed is independent but keep an eye on the markets In his May 13th remarks to the Peterson Institute for International Economics, Fed Chairman Jerome Powell said that he and the rest of the rate-setting committee unanimously shared the same view on negative rates: “For now, it is not something we are considering”. While some market watchers looked for clues in the “for now” phrasing, it was clear from the rest of his remarks that the bar for enacting negative rates was set very, very high. However, despite the Fed having independence in its policy-making decisions, financial markets and to some extent, politics, still have influence. And there is precedent for markets exerting pressure on the Fed and perhaps even getting their way. In 2013, when then-Fed Chairman Ben Bernanke made a surprise announcement that the Fed would reduce the level of asset purchases, global financial markets went into a frenzy. That period, now known as the “Taper Tantrum”, altered the way the Fed signals its policy actions. More recently, the big declines in equity markets in late 2018 were seen by many as a primary driver in the Fed’s sudden U-turn from raising rates four times that year to lowering them three times in 2019. Now, with equity markets wanting more stimulus and traders in fed fund futures appearing to anticipate negative rates from the central bank in early 2021, there is concern that the markets are trying to bully their way again. And with the president’s renewed call for the Fed to take rates negative, there is some reason to believe that “not now” could become “now” sooner than many expect. Concerns for financial institutions While several central banks have resorted to negative interest rate policy for years, the efficacy of its use is unclear. But what is clear, is that financial institutions bear the greatest burden in implementing the policy. Currently in the U.S., banks earn interest on excess reserves held at the Fed. Negative rates would essentially flip the script and penalize this practice, forcing banks either to pay the Fed interest or do something else with the money. The hope is that this will encourage banks to make more loans and stimulate the economy. However, as Fed Chair Powell said in his remarks, he believes that negative rates could have the opposite effect and curtail lending. Since negative rates would put a downward pressure on interest rates across the board, the net interest margin – the spread banks make between what they pay depositors and what they charge for loans – would be compressed and profitability would sink. If banks and other financial institutions are struggling, credit availability could decline when it is needed the most. Why it matters Financial institutions cannot ignore the possibility of negative interest rates in the U.S. as it would have wide-ranging effects and potentially significant consequences. And while Fed officials have said they are not considering negative rates, the notion is not totally off the table. As the famous economist, Stanley Fischer, advised his fellow central bankers in his well-known piece “Central Bank Lessons from the Global Crisis”: “In a crisis, central bankers (and no doubt other policymakers) will often find themselves deciding to implement policy actions that they never thought they would have to undertake – and these are frequently policy actions that they would prefer not to have to undertake. Hence, a few final words of advice for central bankers: Never say never.”
The effects of the COVID-19 pandemic has created extreme volatility in the US markets. While the high unemployment rate and impact on the stock market can be attributed to the pandemic, there were signs that the economy was already headed for a downturn. In a recent webinar, Mohammed Chaudhri, Experian’s UK Chief Economist, stated, “Even in the absence of COVID-19, […] the consensus was that the US was going into a period of a slowdown. Talks of a recession were building and financial indicators all pointed to an inverse yield curve.” With a global recession on the horizon, economists are using different scenarios to forecast potential outcomes. Chaudhri and his team of Experian economists mapped out four macroeconomic scenarios for economic recovery: V-shape scenario: A scenario in which the U.S. is able to recover losses and is able to recover quickly – possibly within 3 months. The impacts of strict lockdowns and social distancing may allow for a V-shape recovery. This V-shape follows previous pandemics and is the most likely outcome. Delayed V-shape scenario: A scenario in which the economy bounces back (albeit much slower than a regular V-shape). This may occur as various states slowly lift their lockdown guidelines and return to business as usual. This delay can be caused by regulations and guidelines that vary from state to state. U-shape scenario: A scenario in which the U.S. is unable to return to pre-COVID-19. W-shape scenario: A scenario that is much more serious than a U-shape and has the greatest impact on the economy. This can occur if the state lockdowns are lifted too early and a reemergence of the virus occurs. In our latest on-demand webinar, our experts discuss current trends which are indicative of emerging patterns and highlight economic forecasts that show some immediate concentrations of risk and exposure and the implications for your organization. Take a deeper dive into the latest data insights relating to the credit economy, and specifically, the impact brought by COVID-19. Explore the macroeconomic outlook, including: The immediate and near-term economic impact Views on how a downturn could impact consumers’ affordability and emerging signs of vulnerability Views on what KPIs you should focus on Watch the webinar
Many small businesses in the hardest-hit states missed out on the first round of federal relief through the recently created Paycheck Protection Program (PPP). The Coronavirus Aid, Relief, and Economic Security (CARES) Act established the PPP in order to disburse $349 billion in forgivable loans to small businesses hurt by the COVID-19 outbreak. However, the program’s funding limit and first-come, first-serve method for accepting loan applications put an immense strain on the financial institutions tasked with getting the money out the door. This resulted in many small businesses unable to get their applications submitted, approved, and funded before the program ran out of money after only two weeks. Where did the money go? The latest data from the Small Business Administration shows that the most populous states received the largest number of PPP loans. This is unsurprising, as states with higher populations tend to have a greater number of small businesses. One way to get a better picture of the impact of PPP loans on communities is to examine what percentage of a state’s small businesses received PPP loans (Figure 1). When viewed through this lens, the results are a quite striking - many of the coastal areas and larger markets missed out, while the rural, north-central states won out. Less than 4% of small businesses in California, Florida, and New York – three of the top five largest markets – were approved for PPP loans. While more than 12% of small businesses in North Dakota, Nebraska, and South Dakota received support. What happened? There are several factors that could have played a part in the uneven distribution of PPP loans. One explanation may be that some financial institutions in highly populated urban areas did not have the capacity to process such a large volume of loan applications in such a short amount of time. There may also be an urban-rural divide to how relationship banking occurs. Rural communities and small businesses with close-knit ties to area financial institutions may have had easier access to getting their PPP applications submitted and approved. In line with this, Figure 2 shows the top five and bottom five states in terms of financial institutions (banks and credit unions) per 100,000 people. The states with the highest prevalence of financial institutions were also the top states for PPP small business loan share. While the states with the lowest prevalence of financial institutions were the states with the smallest share. Another factor may have been the extent that shelter-in-place rules were being enforced. North Dakota, Nebraska, and South Dakota – the three top states for loan share – are part of the handful of states that still do not have statewide lockdowns. California, on the other hand, was the first state in the country to issue shelter-in-place measures. Why it matters The first round of stimulus through the Paycheck Protection Program provided relief for many small businesses around the country. However, the first-come, first-serve method of distributing loans may have resulted in some small business communities having easier access to the program than others. Insights as to why these differences occurred and why small businesses in the larger markets received a lower share of PPP loans can inform future stimulus efforts and ensure that recovery among the states is as even and broad as possible. Figure 1 Sources: Small Business Administration Paycheck Protection Program Report 4/16/2020, Census Bureau SUSB and NES Statistics. Author’s calculations. Figure 2 Sources: Experian data on financial institutions, Census Bureau population estimates. Author's calculations.
In the face of severe financial stress, such as that brought about by an economic downturn, lenders seeking to reduce their credit risk exposure often resort to tactics executed at the portfolio level, such as raising credit score cut-offs for new loans or reducing credit limits on existing accounts. What if lenders could tune their portfolio throughout economic cycles so they don’t have to rely on abrupt measures when faced with current or future economic disruptions? Now they can. The impact of economic downturns on financial institutions Historically, economic hardships have directly impacted loan performance due to differences in demand, supply or a combination of both. For example, let’s explore the Great Recession of 2008, which challenged financial institutions with credit losses, declines in the value of investments and reductions in new business revenues. Over the short term, the financial crisis of 2008 affected the lending market by causing financial institutions to lose money on mortgage defaults and credit to consumers and businesses to dry up. For the much longer term, loan growth at commercial banks decreased substantially and remained negative for almost four years after the financial crisis. Additionally, lending from banks to small businesses decreased by 18 percent between 2008-2011. And – it was no walk in the park for consumers. Already faced with a rise in unemployment and a decline in stock values, they suddenly found it harder to qualify for an extension of credit, as lenders tightened their standards for both businesses and consumers. Are you prepared to navigate and successfully respond to the current environment? Those who prove adaptable to harsh economic conditions will be the ones most poised to lead when the economy picks up again. Introducing the FICO® Resilience Index The FICO® Resilience Index provides an additional way to evaluate the quality of portfolios at any point in an economic cycle. This allows financial institutions to discover and manage potential latent risk within groups of consumers bearing similar FICO® Scores, without cutting off access to credit for resilient consumers. By incorporating the FICO® Resilience Index into your lending strategies, you can gain deeper insight into consumer sensitivity for more precise credit decisioning. What are the benefits? The FICO® Resilience Index is designed to assess consumers with respect to their resilience or sensitivity to an economic downturn and provides insight into which consumers are more likely to default during periods of economic stress. It can be used by lenders as another input in credit decisions and account strategies across the credit lifecycle and can be delivered with a credit file, along with the FICO® Score. No matter what factors lead to an economic correction, downturns can result in unexpected stressors, affecting consumers’ ability or willingness to repay. The FICO® Resilience Index can easily be added to your current FICO® Score processes to become a key part of your resilience-building strategies. Learn more
In today’s rapidly changing economic environment, the looming question of how to reduce portfolio volatility while still meeting consumers' needs is on every lender’s mind. So, how can you better asses risk for unbanked consumers and prime borrowers? Look no further than alternative credit data. In the face of severe financial stress, when borrowers are increasingly being shut out of traditional credit offerings, the adoption of alternative credit data allows lenders to more closely evaluate consumer’s creditworthiness and reduce their credit risk exposure without unnecessarily impacting insensitive or more “resilient” consumers. What is alternative credit data? Millions of consumers lack credit history or have difficulty obtaining credit from mainstream financial institutions. To ease access to credit for “invisible” and subprime consumers, financial institutions have sought ways to both extend and improve the methods by which they evaluate borrowers’ risk. This initiative to effectively score more consumers has involved the use of alternative credit data.1 Alternative credit data is FCRA-regulated data that is typically not included in a traditional credit report and helps lenders paint a fuller picture of a consumer, so borrowers can get better access to the financial services they need and deserve. How can it help during a downturn? The economic environment impacts consumers’ financial behavior. And with more than 100 million consumers already restricted by the traditional scoring methods used today, lenders need to look beyond traditional credit information to make more informed decisions. By pulling in alternative credit data, such as consumer-permissioned data, rental payments and full-file public records, lenders can gain a holistic view of current and future customers. These insights help them expand their credit universe, identify potential fraud and determine an applicant’s ability to pay all while mitigating risk. Plus, many consumers are happy to share additional financial information. According to Experian research, 58% say that having the ability to contribute positive payment history to their credit files makes them feel more empowered. Likewise, many lenders are already expanding their sources for insights, with 65% using information beyond traditional credit report data in their current lending processes to make better decisions. By better assessing risk at the onset of the loan decisioning process, lenders can minimize credit losses while driving greater access to credit for consumers. Learn more 1When we refer to “Alternative Credit Data,” this refers to the use of alternative data and its appropriate use in consumer credit lending decisions, as regulated by the Fair Credit Reporting Act. Hence, the term “Expanded FCRA Data” may also apply in this instance and both can be used interchangeably.
This is the introduction to a series of blog posts highlighting key focus areas for your response to the COVID-19 health crisis: Risk, Operations, Consumer Behavior, and Reporting and Compliance. For more information and the latest resources, please visit Look Ahead 2020, Experian's COVID-19 resource center with the latest news and tools for our business partners as well as links to consumer resources and a risk simulator. Responding to COVID-19 The response to COVID-19 is rolling out across the global financial system and here in North America. Together, we’re adapting to working remotely and adjusting to our “new normal.” It seems the long forecasted economic recession is finally and abruptly on our doorstep. Recession planning has been a focus for many organizations, and it’s now time to act on these contingency plans and respond to the downturn. The immediate effects and those that quickly follow the pandemic will widely impact the economy, affecting businesses of all sizes, employment and consumer confidence. We learned from the housing crisis and Great Recession how to identify and adapt to emerging risks. We can apply those skills while rebuilding the economy and focusing on the consumer. How should you respond? What strategies should you deploy? How can you balance emerging risks, changing consumer expectations and regulatory impacts? First, let's draw upon the best knowledge we gained from the last recession and apply those learnings. Second, we need to understand the current environment including the impact of major changes in technology and consumer behavior over the last few years. This approach will allow us to identify key themes to help build-out strategies to focus resources, respond successfully and deliver for stakeholders. Anticipate the pervasive and highly impactful market dynamics and trends The impact of this downturn on the consumer, on businesses and on financial institutions will be very different to that of the Great Recession. There will be a complete loss of income for many workers and small businesses. In a survey conducted by the Center for Financial Services Innovation (CFSI), more than 112 million Americans said that they don’t have enough savings to cover three months of living expenses*. These volatile market conditions and consumer insecurity will cause changes to your business models. You must prepare to manage increased fraud attacks, continue to push toward digital banking and understand regulatory changes. Learn More *U.S. Financial Health Pulse, 2018 Baseline Survey Results. https://s3.amazonaws.com/cfsi-innovation-files-2018/ wp-content/uploads/2018/11/20213012/Pulse-2018- Baseline-Survey-Results-11-16.18.pdf