Tag: portfolio growth

In today’s highly competitive landscape, credit card issuers face the challenge of optimizing portfolio profitability while also effectively managing their overall risk. Financial institutions successfully navigating the current market put more focus on proactively managing their credit limits. By appropriately assigning initial credit limits and actively overseeing current limits, these firms are improving profitability, reducing potential risk, and creating a better customer experience. But how do you get started with this important tool? Let’s explore how and why proactive credit limit management could impact your business. The importance of proactive credit limit management Enhanced profitability: Assigning the optimal credit limit that caters to a customer’s spending behavior while also considering their capacity to repay can stimulate increased credit card usage without taking on additional risk. This will generate higher transaction volumes, increase interest income, promote top-of-wallet use, and improve wallet share, all positively impacting the institution’s profitability. Mitigating risk exposure: A proactive review of the limits assigned within a credit card portfolio helps financial institutions assess their exposure to overextended credit usage or potential defaults. Knowing when to reduce a credit limit and assigning the right amount can help financial institutions mitigate their portfolio risk. Minimizing default rates: Accurately assigning the right credit limit reduces the likelihood of customers defaulting on payments. When an institution aligns their credit limits with a cardholder's financial capability, it reduces the probability of customers exceeding their spending capacity and defaulting on payments. Improving the customer experience: A regular review of a credit card portfolio can help financial institutions find opportunities to proactively increase credit limits. This reduces the need for a customer to call in and request a higher credit limit and can increase wallet share and customer loyalty. Strategies for effective credit limit management Utilizing advanced analytics: Leveraging machine learning models and mathematically optimized decision strategies allows financial institutions to better assess risk and determine the optimal limit assignment. By analyzing spending patterns, credit utilization, and repayment behavior, institutions can dynamically adjust credit limits to match evolving customer financial profiles. Regular review and adjustments: As part of portfolio risk management, implementing a system for a recurring review and adjustment of credit limits is crucial. It ensures that credit limits are still aligned with the customer's financial situation and spending habits, while also reducing the risk of default. Customization and flexibility: Personalized credit limits tailored to individual customer needs improve customer satisfaction and loyalty. Proactively increasing limits based on improved creditworthiness or income reassessment can foster stronger customer relationships. Protect profitability and control risk exposure  Using the right data analytics, processing regular reviews, and customizing limits to individual customer needs helps reduce risk exposure while maximizing profitability. As the economic landscape evolves, institutions that prioritize proactive credit limit management will gain a competitive edge by fostering responsible customer spending behavior, minimizing default rates, and optimizing their bottom line. With Experian, automating your credit limit management process is easy Experian’s Ascend Intelligence ServicesTM Limit provides you with the optimal credit limits at the customer level to generate a higher share of plastic spend, reduce portfolio risk, and proactively meet customer expectations. Let us help automate your credit limit management process to better serve your customers and quickly respond to the volatile market. To find out more, please visit our website. Ready for a demo? Contact us now!

Credit portfolio management has often involved navigating uncertainty, but some periods are more extreme than others. With the right data and analytics you can gain deeper insight into financial behaviors and risk to make better decisions and drive profitable growth. Along with access to an increasing amount of data, advanced analytics can help lenders more accurately: Forecast losses under different economic scenarios to estimate liquidity requirements. Identify fraud by detecting behaviors that could indicate identity theft, account takeover fraud, first-party or synthetic identity fraud. Incorporate real-time and alternative data,1 such as cash flow transaction data and specialty bureau data, in decisioning and scoring to accurately assess creditworthiness and expand your lending pool without taking on undue risk. Precisely segment consumers using internal and external data to increase automation during underwriting and identify cross-sell opportunities. Improve collections using AI-driven strategies and automated debt collection software to enhance operations and increase recovery rates. It’s imperative to take a proactive approach to portfolio monitoring. Monthly portfolio reviews with bureau scores, credit attributes and specialized scores — and using the results to manage credit lines and loan terms — are critical during volatile times. View our interactive e-book for the latest economic and consumer trends and learn how to set your portfolio up to succeed in any economic cycle. Download e-book 1"Alternative credit data" 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.

Today’s mortgage market is challenging. Mortgage lenders and servicers will need to focus on product expansion to continue to grow their business. In a recent Q&A session, Susan Allen, Head of Product for Experian Mortgage, shared best practices for leveraging data for profitable growth.Q: At a high level, how can mortgage lenders and servicers grow their businesses?A: There are a lot of options to increase pipeline. One best practice we’re seeing now is to consider expanding both your product suite and your footprint. Very few lenders offer a comprehensive set of solutions in a national footprint. But demand is strong for solutions that go beyond traditional 30-year fixed-rate mortgages, including options to tap home equity. These types of products can help you grow your business by exposing you to new borrowers and broadening your relationships with clients. For example, we see several clients, even non-banks, venturing into credit cards and personal loans to meet their customers’ broader financial needs.Q: You mentioned demand for home equity solutions is strong. What should lenders consider when it comes to home equity loan growth strategies?A: The current record level of untapped equity makes home equity lines of credit (HELOCs) attractive for borrowers to use for debt consolidation, remodeling or to add to their rainy-day fund. For lenders to decide whether HELOCs would be profitable for their business, they should look broadly at data about borrowers, volumes and indicators of profitability, such as credit lines and utilization.Q: It’s one thing to talk about the HELOC market, but does Experian have any home equity data to show what’s happening in this space?A: Absolutely. We’re seeing several things when it comes to home equity data. First, HELOC volumes have doubled since January 2021, which indicates strong borrower interest. Second, we know that home prices are at record highs across the board, and we see this record of “tappable” equity translating into credit lines well over $100,000. What’s more, we’re seeing borrowers drawing down consistently at $37,000 on average, which is a healthy and profitable utilization rate. Lastly, greater than 90% of HELOC borrowers have a prime or super prime credit score. Our data shows HELOC borrowers have higher credit scores than new purchase borrowers. Additionally, conventional wisdom says that HELOCs are for seasoned homeowners, but according to the data, the younger generation of homeowners has tripled their HELOC originations. I’ve been in this industry for a long time, and to be honest, this shocked me. This makes it clear that it’s always important (especially for industry veterans) to constantly update our understanding of current market dynamics. Q: Wow, it sounds like expansion into home equity solutions is a no-brainer. What am I missing? A: HELOCs are a strong and growing market segment. But it’s not sufficient to look only at opportunity. We must also use the best data at our disposal to evaluate risk. With HELOC performance impacted by property values, recent concern over the stability of home prices is causing some lenders to pause. Clients tell us they would like to expand their HELOC offerings but aren’t sure when or where to start. Q: So, what’s the answer here?A: Data is key to taking the guesswork out of decisions. When it comes to HELOC expansion, lenders voice concern specifically about home price forecasts. Although it is notoriously hard to forecast home prices, you can use actual, current data to inform decisions about where and when to expand a home equity portfolio. For example, lenders can use listing data to gauge markets shifting from a “seller’s market” to a “buyer’s market.”Q: Susan, this has been a great discussion. Any final thoughts? A: As I’ve shared, great opportunities exist. With best-in-class data and analytics, lenders can find these opportunities and propel their businesses forward. Be sure to read the other blog posts in this series:Getting Ahead with a Proactive Mortgage Outreach and Engagement StrategyLead Conversion Through Tailored Messaging and a Multichannel Mortgage Marketing Strategy To learn about Experian Mortgage solution offerings, click here.

It's one thing to make a corporate commitment to financial inclusion, but quite another to set specific goals and measure outcomes. What goals should lenders set to make financial inclusion a reality? How can success be quantified? What actionable steps must be taken to put policy into practice? The road to financial inclusion may feel long, but this step-by-step checklist can help you measure diversity and achieve goals to become more inclusive as an organization. Step 1: Set quantifiable goals with realistic outcomes Start by defining what you plan to achieve with a financial inclusion strategy. When setting goals, Alpa Lally, Experian's Vice President of Data Business at Consumer Information Services, recommends organizations "assess the strategic opportunity at the enterprise level." "It is important that KPIs are aligned across each business unit and functional groups in order to understand the investment opportunity and what the business must achieve together," said Lally. "The key focus here is 'together', the path to financial inclusion is a journey for all groups and everyone must participate, be committed and be aligned to be successful." Figuring out your short- and long-term goals should be the first step to kickstarting a financial inclusion strategy. But equally important is driving towards outcomes. For instance, if the goal is to increase the number of loans made to previously overlooked or excluded consumers, you may want to start by examining your declination population to better understand who is being left out. Or if financial inclusion is tied to a wider strategy or vision on corporate social responsibility, your goals may include an education component, community outreach, and a re-examination of your hiring practices. No matter what KPIs you're using, here are relevant questions to ask in four key areas – which will help draw out your organizational goals and priorities: Organizational awareness: What action is your organization taking to enhance Diversity, Equity and Inclusion and embrace Corporate Social Responsibility (CSR) around financial inclusion? If you already have financial inclusion programs in place, what are the primary goals? Barriers: What barriers prevent the organization from pursuing equity, diversity and inclusion programs? Education: How do you create awareness and education around financial inclusion? Which community or third-party organizations can help you reach consumers who aren't aware of ways to access financial services? Markers of success: What benchmarks will your organization use to measure and analyze success? Step 2: Do a financial inclusion audit Before developing and implementing a robust financial inclusion program, Lally recommends conducting a financial inclusion audit – which is a "detailed assessment of where you are today, relative to the goals and results you've outlined". In a nutshell, it allows you to assess your current systems and results within your financial institution. According to Lally, a financial inclusion audit should address the following key areas: Roadmap: What are your strategic priorities and how will financial inclusion fit within them? Tracking: Track the actual volume and distribution of different underserved populations (e.g., young adults, low-income communities, immigrants, etc.) within your book of business. Look at the applications and the approval rates by segment. In addition, assess the interest rates these consumers are offered by credit score bands for each group: “Benchmarking is critical. Understanding how they compare to national averages? How do they compare to the rest of your portfolio?" said Lally. Hiring practices: Is diversity, equity and inclusion (DEI) central to your talent management strategy? Is there a link between a lack of DEI in hiring practices and the level of financial inclusion within an organization? Affordability and access: Determine if the products and services you offer are easily accessible, can be understood by a reasonable consumer and are affordable to a broad base. Internal practices: What policies exist that influence the culture and behavior of employees around financial inclusion? Partnerships: Identify outside organizations that can help you develop financial literacy programs to promote financial inclusion. Advertising: Does your advertising promote equal and diverse representation across a wide range of consumer groups? Tools to measure: Are you financially inclusive as a company? How can you improve? The Bayesian Improved Surname Geocoding (BISG) method used by the Consumer Financial Protection Bureau (CFPB) predicts the probability of an individual's race and ethnicity based on demographic information associated with the consumer's surname. Lenders can use this type of information to conduct internal audits or set benchmarks to help ensure accountability in their diversity goals. Step 3: Tap into technology New technology is emerging that gives lenders powerful tools to evaluate a wider pool of prospective borrowers while also mitigating risk. For instance, scoring models that incorporate expanded FCRA-regulated data provide greater insight into 'credit invisible' or 'unscorable' consumers because they look at a wider set of data assets (or 'alternative data'), which allows lenders to assess a larger pool of applicants. It also improves the accuracy of those scores and better assesses the creditworthiness of consumers. Consider these resources, among others: Lift Premium™: Experian estimates that lenders using Lift Premium™ can score 96 percent of U.S. adults, a vast improvement over the 81 percent that are scorable today with conventional scores relying on mainstream data. Such enhanced scores would enable six million consumers who are considered subprime today to qualify for “mainstream" (prime or near-prime) credit. Experian® RentBureau®: RentBureau collects rent payment data from landlords and management companies, which allows consumers to leverage positive rent payment history similarly to how consumers leverage consistent mortgage payments. Clarity Credit Data: Clarity Credit Data allows lenders to see how consumers use alternative financial products and examine payment behaviors that might exist outside of the traditional credit report. Clarity's expanded FCRA -regulated data provides a deeper view of the consumer, allowing lenders to identify those who may not have previously been classified as "at risk" and approve consumers that may have previously been denied using a traditional credit score. Income Verification: Consumers can grant access to their bank accounts so lenders can assess their ability to pay based on verified income and cash flow. In addition, artificial intelligence (AI) and greater automation can reduce operational costs for lenders, while increasing the affordability of financial products and services for customers. AI and machine learning (ML) can also improve risk profiling and credit decisioning by filling in some of the gaps where credit history is not available. These are just a few examples of a wide range of cutting-edge solutions and technologies that enable lenders to promote greater financial inclusion through their decisioning processes. As new solutions are introduced to the market, it is imperative that lenders look into these technologies to help grow their business. Step 4: Monitor and measure Measuring your progress on financial inclusion isn't a one-and-done proposition. After you've set your goals and created a roadmap, it's important to continue monitoring and measuring your progress. That means your performance to gauge the impact of financial inclusion at both the community and business levels. Lally recommends the following examples: Compare your lending pool to the latest population data from the United States census. Is your portfolio representative of the U.S. population or are there segments that should have greater access? How does it compare against other lenders competing in the same space? Keep in mind that it has been widely reported that certain populations were undercounted, so you may want to factor this reality into your assessments. Work to understand how traditionally underserved consumers are performing in terms of their payment behaviors, purchase patterns and delinquencies. Measure the impact of financial inclusion on your company's overall revenue growth, ROI and brand reputation. Conduct an analysis to better understand your company's brand reputation, how it's perceived across different groups and what your customers are saying. Last word Financial inclusion represents a big step towards closing the wealth gap and helping marginalized communities build generational wealth. Given the prevalence of socioeconomic and racial inequality in our country today, it's a complex issue that disproportionately impacts marginalized groups, such as consumers of color, low-income communities and immigrants. Adopting more financially inclusive practices can help improve access to credit for these groups. For financial institutions and lenders, the first step is to identify realistic, quantifiable goals. A successful financial inclusion initiative also hinges on completing a financial inclusion audit, tapping into the right technology and continually monitoring and measuring progress. "It is paramount that financial institutions hold themselves accountable and demonstrate their commitment to make these practices a part of their DNA." - Alpa Lally. Learn more

Lenders are under pressure to improve access to financial services, but can it also be a vehicle for driving growth? With the global pandemic and social justice movements exposing societal issues of equity, financial institutions are being called upon to do their part to address these problems, too. Lenders are increasingly under pressure to improve access to the financial system and help close the wealth gap in America.  Specifically, there are calls to improve financial inclusion – the process of ensuring financial products and services are accessible and affordable to everyone. Financial inclusion seeks to remove barriers to accessing credit, which can ultimately help individuals and businesses create wealth and elevate communities. Activists and regulators have singled out the current credit scoring system as a significant obstacle for a large portion of U.S. consumers.  From an equity standpoint, tackling financial inclusion is a no-brainer: better access to credit allows more consumers to secure safer housing and better schools, which could lead to higher-paying jobs, as well as the ability to start businesses and get insurance. Being able to access credit in a regulated and transparent way underpins financial stability and prosperity for communities and is key to creating a stronger economic system. Beyond “doing the right thing," research shows that financial inclusion can also fuel business growth for lenders.  Get ahead of the game  There is mounting regulatory pressure to embrace financial inclusion, and financial institutions may soon need to comply with new mandates. Current lending practices overlook many marginalized communities and low-income consumers, and government agencies are seeking to change that.  Government agencies and organizations, such as the Consumer Financial Protection Bureau (CFPB) and Office of the Comptroller of the Currency (OCC), are requiring greater scrutiny and accountability of financial institutions, working to overhaul the credit reporting system to ensure fairness and equality.  As a lender, it makes good business sense to tackle this problem now. For starters, as more institutions embrace Corporate Social Responsibility (CSR) mandates—something that's increasingly demanded by shareholders and customers alike—financial inclusion is a natural place to start. It demonstrates a commitment to CSR principles and creates a positive brand built on equity.  Further, financial institutions that embrace these changes gain an early adopter advantage and can build a loyal customer base. As these consumers begin to build wealth and expand their use of financial products, lenders will be able to forge lifelong relationships with these customers.  Why not get a head start on making positive organizational change before the law compels it?  Grow your business (and profits)  To be sure, financial inclusion is a pressing moral imperative that financial institutions must address. But financial inclusion doesn't come at the expense of profit. It represents an enormous opportunity to do business with a large, untapped market without taking on additional risk. In many instances, unscorable and credit invisible consumers exhibit promising credit characteristics, which the conventional credit scoring system does not yet recognize.  Consider consumers coming to the U.S. from other countries. They may have good credit histories in their home countries but have not yet established a credit history here. Likewise, many young, emerging consumers haven't generated enough history to be categorized as creditworthy. And some consumers may simply not utilize traditional credit instruments, like credit cards or loans. Instead, they may be using non-bank credit instruments (like payday loans or buy-now-pay-later arrangements) but regularly make payments.  Ultimately, because of the way the credit system works, research shows that lenders are ignoring almost 20 percent of the U.S. population that don't have conventional credit scores as potential customers. These consumers may not be inherently riskier than scored consumers, but they often get labelled as such by the current credit scoring system. That's a major, missed opportunity!  Modern credit scoring tools can help fill the information gap and rectify this. They draw on wider data sources that include consumer activities (like rent, utility and non-bank loan payments) and provide holistic information to assist with more accurate decisioning. For example, Lift Premium™ can score 96 percent of Americans with this additional information—a vast improvement over the 81 percent who are currently scored with conventional credit data.1 By tapping into these tools, financial institutions can extend credit to underserved populations, foster consumer loyalty and grow their portfolio of profitable customers.  Do good for the economy  Research suggests that financial inclusion can provide better outcomes for both individuals and economies. Specifically, it can lead to greater investment in education and businesses, better health, lower inequality, and greater entrepreneurship.  For example, an entrepreneur who can access a small business loan due to an expanded credit scoring model is subsequently able to create jobs and generate taxable revenue. Small business owners spend money in their communities and add to the tax base – money that can be used to improve services and attract even more investment.  Of course, not every start-up is a success. But if even a portion of new businesses thrive, a system that allows more consumers to access opportunities to launch businesses will increase that possibility.  The last word  Financial inclusion promotes a stronger economy and thriving communities by opening the world of financial services to more people, which benefits everyone. It enables underserved populations to leverage credit to become homeowners, start businesses and use credit responsibly—all markers of financial health. That in turn creates generational wealth that goes a long way toward closing the wealth gap.  And widening the credit net also enables lenders to uncover new revenue sources by tapping new creditworthy consumers. Expanded data and advanced analytics allow lenders to get a fuller picture of credit invisible and unscorable consumers. Opening the door of credit will go a long way to establishing customer loyalty and creating opportunities for both consumers and lenders.  Learn more

Nearly 28 million American consumers are credit invisible, and another 21 million are unscorable.1 Without a credit report, lenders can’t verify their identity, making it hard for them to obtain mortgages, credit cards and other financial products and services. To top it off, these consumers are sometimes caught in cycles of predatory lending; they have trouble covering emergency expenses, are stuck with higher interest rates and must put down larger deposits. To further our mission of helping consumers gain access to fair and affordable credit, Experian recently launched Experian GOTM, a first-of-its-kind program aimed at helping credit invisibles take charge of their financial health. Supporting the underserved Experian Go makes it easy for credit invisibles and those with limited credit histories to establish, use and grow credit responsibly. After authenticating their identity, users will have their Experian credit report created and will receive educational guidance on improving their financial health, including adding bill payments (phone, utilities and streaming services) through Experian BoostTM. As of January 2022, U.S. consumers have raised their scores by over 87M total points with Boost.2 From there, they’ll receive personalized recommendations and can accept instant card offers. By leveraging Experian Go, disadvantaged consumers can quickly build credit and become scorable. Expanding your lending portfolio So, what does this mean for lenders? With the ability to increase their credit score (and access to financial literacy resources), thin-file consumers can more easily meet lending eligibility requirements. Applicants on the cusp of approval can move to higher score bands and qualify for better loan terms and conditions. The addition of expanded data can help you make a more accurate assessment of marginal consumers whose ability and willingness to pay aren’t wholly recognized by traditional data and scores. With a more holistic customer view, you can gain greater visibility and transparency around inquiry and payment behaviors to mitigate risk and improve profitability. Learn more Download white paper 1Data based on Oliver Wyman analysis using a random sample of consumers with Experian credit bureau records as of September 2020. Consumers are considered ‘credit invisible’ when they have no mainstream credit file at the credit bureaus and ‘unscorable’ when they have partial information in their mainstream credit file, but not enough to generate a conventional credit score. 2https://www.experian.com/consumer-products/score-boost.html

Forrester recently named Experian to their Programs of the Year awards, which recognize outstanding achievements in a particular area in sales, marketing and product functions. Forrester gives this award to companies who achieve the successful implementation of Forrester’s research, frameworks and best practices to improve functional performance. At Experian, innovation is at the heart of what we do. We strive for continuous improvement, and look for ways to progress our products and services to better serve businesses and consumers. Over the last year, Experian’s Decision Analytics Portfolio Marketing team engaged with Forrester’s SiriusDecisions group to refine the programs they employ to assess and respond to market needs while meeting their stated growth and performance goals. Experian’s Keir Breitenfeld, Vice President, Portfolio Marketing, Experian Decision Analytics, who presented the team’s results at the recent Forrester B2B summit said, “I’m proud of the Decision Analytics Portfolio Marketing team for what they accomplished while working alongside Forrester SiriusDecisions. We were able to reframe how we assess market opportunities for increased impact as we highlight Experian’s areas of expertise to better serve businesses and the consumers that rely on them.” To learn more about the Programs of the Year award and how Experian innovation helps businesses achieve their goals, visit us or request a call. Contact us

To grow in today’s economic climate and beat the competition, financial institutions need to update their acquisition and cross-sell strategies. By doing so, they are able to drive up conversions, minimize risk, and ultimately connect consumers with the right offers at the right time. Businesses and consumers are spending more time online than ever before, with 40% of consumers increasing the number of businesses they visit online. They’ve also made it clear that they expect easy, frictionless transactions with their providers. This includes new accounts and offers of credit – creating the need for better delivery systems. Effective targeting and conversion come down to more than just direct mail and email subject lines, especially now in a volatile economy where consumers are seeking appropriate products for their current situation. Be the first to meet consumers’ needs by leveraging the freshest data, advanced analytics, and automated decision systems. For example, when a consumer tries to open a checking account, the system can initiate a “behind-the-scenes” real-time prescreen request while assessing information needed to open the deposit account. The financial institution can then see if the consumer qualifies for overdraft protection, refinancing offers, loans, credit cards, and more. By performing the pre-approval process in seconds, financial institutions can be sure that they're making the right offers to the right customer, and doing it at the right time. All of this helps to increase the offer acceptance rate, improving customer retention, and maximizing customer account life-time value. The pandemic upended a lot of the ways that your businesses run day-to-day – from where you work to how you (better) engage with customers. Arguably, some of the changes have been long overdue, particularly the acceleration to digital and better customer acquisition strategies. Ahead lies the opportunity to grow – strategies enacted now will determine the extent of that opportunity. To learn more about how Experian can help you assess your prescreen strategy and grow, contact us today. Request a call

Credit cards are the most widely available credit products offered to millions of consumers today. For many consumers, owning a credit card is a relatively simple step toward establishing credit history and obtaining access to other lending products later in life. For credit unions, offering a credit card to members expands and enriches the credit relationship. In today’s environment, some credit unions don’t view credit cards as an integral part of their member service. I propose that the benefits of credit cards in a credit union portfolio are impactful, meaningful and fully align to member outreach and community service. A high-level review of risk-adjusted yields across three of the most common retail products offered by credit unions show that credit cards can be very profitable. The average APR of credit cards as of Q3 2020 is just slightly below personal loans. While charge-offs as a percentage of balances are more than double of personal loans, the estimated risk-adjusted yield is still elevated and is 1.8 times higher than auto loan and leases. See Table 1. Table 1. Estimated average risk-adjusted yield for auto loan and lease, personal loan, and credit card for credit unions Auto loan and lease Personal loan Credit card Average APR 5.21% 12.05% 11.26% Charge-offs as % of balances (annualized) 0.28% 0.89% 1.98% Risk-adjusted yield 4.93% 11.16% 9.28% Notes: Average APR of auto loans and leases, personal loans, and charge-off information as of Q3 2020 was extracted from Experian-Oliver Wyman IntelliViewSM Market Intelligence Reports. IntelliView Market Intelligence Reports, Dec. 22, 2020, experian.com/decision-analytics/market-intelligence/intelliview. Average APR of credit card as of Q3 2020 was extracted from National Credit Union Administration website. Credit Union and Bank Rates 2020 Q3, Dec. 22, 2020, https://www.ncua.gov/analysis/cuso-economic-data/credit-union-bank-rates/credit-union-and-bank-rates-2020-q3. Estimated risk-adjusted yield is calculated as the difference between average APR and charge-offs. A profitable retail product allows a credit union to share those profits back with members consistent with its mission of promoting and supporting the financial health and well-being of its members. Credit cards provide diversification of income streams. Income diversification provides a level of stability across cyclical economic conditions when some types of credit exposures may perform poorly, while others may be more stable. When combined with sound and effective risk governance, credit diversification allows lenders to mitigate levels of concentration risks in their aggregate portfolio. Offering credit cards to members is one avenue to grow loan volume and achieve scale that’s sufficiently manageable for credit unions. Scale is particularly important today as it’s needed to fund technology investments. The pandemic accelerated the massive movement toward digital engagement, and scale makes technology investments more cost-effective.  When lenders become more productive and efficient, they further lower the cost of credit products to members. (Stovall, Nathan. Dec. 14, 2020. Desire to compete with megabanks driving more U.S. regional bank M&A — KBW CE blog. https://platform.mi.spglobal.com/web/client?auth=inherit#news/.) The barriers to offering credit cards have moderately declined. Technology partners, payment processors and specialized industry companies are available in the marketplace. The biggest challenge for credit unions and lenders is credit risk management. To be profitable and to stay relevant, credit cards require a relatively sophisticated risk management framework of underwriting criteria, pricing, credit line management, operations and marketing. Industry and specialized support for launching and managing credit cards is widely available and accessible. Analytics play an essential role in managing credit cards. With an average active life of approximately five years, credit card portfolios need regular and periodic performance reviews to manage inherent risk and to identify opportunities for growth and profitability. Account management for credit cards is equally as important as underwriting. Credit line management, authorization, activation and retention have significant impact to the performance of existing accounts. Continuous engagement with members is critical and has taken on a new meaning lately. Credit cards provide an opportunity to engage members, to grow lending relationships and to support financial well-being. Marketing and meaningful card offers drive card usage and relevance. They’re critical components in customer communication and service. The benefits of credit cards contribute positively to a credit union portfolio. With sound and effective risk management practices, credit cards are profitable, help diversify income streams, grow loan volume and support member credit needs.

Despite the constant narrative around “unprecedented times” and the “new normal,” if the current market volatility tells us anything, it’s to go back to basics. As financial institutions navigate COVID-19’s economic impact, and challenges that are likely to be different or more extreme than in the past, the best credit portfolio management practices are fundamental. The global pandemic impacts today’s data as existing data and analytics may not accurately reflect what is happening now, resulting in inaccurate portfolio assessment. In order to successfully navigate loss forecasting, predicting borrower behavior and controlling loss ratios, lenders must engage new data, analytics and economic scenarios suited for today’s changing times. In Experian’s latest white paper, “Credit Portfolio Management After the COVID-19 Recession,” we’ll explore best practices to combat the following challenges: Forecasting credit losses despite increased economic volatility Businesses have long used a variety of data, analytics and models to anticipate and project the future direction of their organization based on a number of data points; however, with the onset of the global pandemic, long-standing scenarios became suddenly irrelevant.   Predicting borrower behavior given increased financial disparities The post-pandemic and pre-pandemic worlds are very different places for some borrowers. Pandemic-related job losses and other economic effects will not be spread evenly and this variability may be reflected in lenders’ portfolios.   Controlling loss ratios In the post-COVID world, it will be mission critical for lenders to use high-quality and up-to-date data to balance priorities and identify which areas of their portfolio need attention now.   Whether your portfolio is doing better than expected, as expected, or worse than expected, now is the time to refresh portfolio management strategy. Lenders should be watching for early indicators in loan portfolios to better navigate a fluctuating economy and that requires new resources and better tools. Take control of your business’ trajectory. Download now

While an overdue economic downturn has been long discussed, arguably no one could have foreseen the economic disruption from COVID-19 to the extent that’s been witnessed thus far. But now that we’re here, is there a line of sight to financial institutions’ next move? With the current situation marked by a history-making rise in unemployment, massive amounts of uncertainty within the market as well as for consumers and small businesses and consumer spending changes, loss forecasting is more important now than ever before. After the longest period of economic growth in history, financial institutions are caught off guard. While large banks are more prepared as they have stress testing capabilities in place and are estimating the potential large impact on their loss allowances, the since-delayed CECL requirements emphasized forecasting for the masses, and yet many are still under-equipped. Loss forecasting has evolved from a need for a small few to now a necessary strategy for all. While some financial institutions will look to loss forecasting to potentially reduce the severity of impact for the path ahead during these times (or even how they might come out stronger than their competition), for many, loss forecasting is the key to survival. Bare necessities. Understanding the possible outcomes of the pandemic’s impact is necessary to make critical business decisions. Lenders are likely receiving numerous questions about their portfolios and possible outcomes. These questions include, but are not limited to: What could the range of outcomes to my portfolio based on expert forecasts of macroeconomic conditions? How will I make lending decisions in the short term? Do my models need to change? How bad could charge offs be for my portfolio? If I have reduced marketing and application flows, at what point do I need to begin opening new accounts or consider portfolio acquisitions? How can lenders get answers? Loss forecasting. As Mohammed Chaudhri, Experian Chief Economist, said, “Loss forecasting is more pivotal than ever…existing models are not going to be up to the task of accurately predicting losses.” Whatever questions you’re receiving, you need certain necessary pieces of information to navigate this new era of loss forecasting. Those pieces are frequently updated client and industry data; ongoing access to expert macroeconomic forecasts; and sophisticated and evolved forecasting models. Client and Industry Data Loan-level data, bankruptcy scores and customer-level attributes are key insights to fueling loss forecasting models. By combining several data sets and scores (and a comprehensive history of both) your organization can see greater benefits. Macroeconomic Forecasts As has been mentioned numerous times, the economic impact resulting from COVID-19 is not at all like the Great Recession. As such, leveraging macroeconomic forecasts, and specifically COVID-19 forecasts, is critical to analyzing the potential impacts to your organization. Sophisticated Models Whether building models on your own or leveraging an expert, the key ingredients include the innerworkings of the model, leveraging historical data and making sure that both the models and the data are updated regularly to ensure you have the most accurate, thorough forecasts available. Also, leveraging machine learning tools is imperative for model specification and evaluation. Fortunately, while model building and loss forecasting used to be synonymous with countless resources and dollar signs, innovation and digital transformation have made these strategies within reach for financial institutions of all sizes. Incorporating the right data (and ensuring that data is regularly updated), with the right tools and macroeconomic scenarios (including COVID-19, upside, baseline, adverse and severely adverse scenarios) enables you to get a line of sight into the actions you need to take now. Empowered with insights to compare and benchmark results, discover the cause of changes in results, explore result scenarios in advance, and access recommended optimizations, loss forecasting enables you to focus on the critical decisions your business depends on. Experian helps you with loss forecasting for now and the future. For more information, including an on-demand webinar Experian presented with Oliver Wyman as well as the opportunity to engage Experian experts into your loss forecasting strategy, please click the button below. Learn More

Do you have 20/20 vision when it comes to the readiness of your organization? How financially healthy are your customers today? They are likely facing some challenges and difficult choices. Based on a study by the Center for Financial Services Innovation (CFSI), almost half of the US adult population - that’s 112.5 million - say they do not have enough savings to cover at least three months of living expenses. With debt rising and a possible recession on the horizon, it’s crucial to have a solid strategy in place for your organization. Here are three easy steps to help you prepare: Anticipate the recession before it arrives Gathering a complete view of your customers can be difficult if you have multiple systems, which can result in subjective, costly and inefficient processes. If you don’t have a full picture of your customers, it’s hard to understand their risk, behavior and ability to pay and to determine the most effective treatment decisions. Having the right data is only the first step. Using analytics to make sense of the data helps you better understand your customers at an individual level, which will increase recovery rates and improve the customer experience. Analytics can provide early-warning indicators that identify customers most likely to miss payments, predict future behavior, and deliver the best treatment option based on a customer’s specific situation or behavior. With a deeper understanding of at-risk customers, you can apply more targeted interventions that are specific to each customer, so you can be confident your collections process is individualized, efficient and fair. The result? A cost-effective, compliant process focused on retaining valuable customers and reducing losses.   What to look for: ✔ Know when customers are experiencing negative credit events ✔ View consumer credit trends that may not yet be visible on your own account base ✔ Watch for payment stress – understand the actual payment consumers are making. Is it changing? ✔ See individual trends and take action – are your customers sliding down to a lower score band? ✔ Understand how your client-base is performing within your own portfolio and with other organizations   Take immediate and impactful actions around risk mitigation and staffing Every interaction with consumers needs optimizing, from target marketing through to collections and recovery. Organizations that proactively modernize their business to scale and increase effectiveness before the next economic downturn may avoid struggling to address rising delinquencies when the economy corrects itself. This may improve portfolio performance and collection capabilities — significantly increasing recoveries, containing costs and sustaining returns. Identify underperforming products and inefficient processes by staff. Consider reassessing the data used and the manual processes required for making decisions. Optimize product pricing and areas where organizations or staff could automate the decision processes.   Areas to focus: ✔ Identity theft protection and account takeover awareness ✔ Improve underwriting strategy and automation ✔ Maximize profitability — drive spend, optimize approvals, line assignment and pricing ✔ Evaluate collection risk strategies and operational efficiencies   Design and deploy a strategy to be organizationally and technologically ready for change Communication is key in debt recovery. Failing to contact customers via their preferred channel can cause frustration and reduce the likelihood of recovery. Your customers are looking for a convenient and discreet way to negotiate or repay debt, and if you aren’t providing one, you’re incurring higher collections costs and lower recovery rates. With developments in the digital world, consumer interactions have changed. Most people prefer to communicate via mobile or online, with little to no human interaction. Behavioral analytics help to automate and decide the next best action, so you contact the right customer at the right time through the right channel. In addition, offering a convenient, discreet way to negotiate or repay debt can result in customers who are more engaged and more likely to pay. Online and self-service portals along with AI-powered chatbots use the latest technology to provide a safe and customer-centric experience, creating less time-consuming interactions and higher customer satisfaction. Your digital collections process is more convenient and less stressful for consumers and more profitable and compliant for you. Visualize the future... ✔ Superior customer service is embraced at the end of the customer life cycle as it is in the beginning ✔ Leverage data, analytics, software, and industry expertise to drive an automated collections process with fewer manual interventions ✔ Meet the growing expectation for digital consumer self-service by providing the ability to proactively negotiate and manage debt through preferred contact channels ✔ When economy and market conditions change for the worst, have the right data, analytics, software in place and be prepared to implement relevant collections strategies to remain competitive in the market   Don’t wait until the next recession hits. Our collaborative approach to problem solving ensures you have the right solution in place to solve your most complex problems and are ready for market changes. The combination of our data, analytics, fraud tools, decisioning software and consulting services will help you proactively manage your portfolio to minimize the flow of accounts into collections and modernize your collections and recovery processes. Learn More

What is CECL? CECL (Current Expected Credit Loss) is a new credit loss model, to be leveraged by financial institutions, that estimates the expected loss over the life of a loan by using historical information, current conditions and reasonable forecasts. According to AccountingToday, CECL is considered one of the most significant accounting changes in decades to affect entities that borrow and lend money. To comply with CECL by the assigned deadline, financial institutions will need to access much more data than they’re currently using to calculate their reserves under the incurred loss model, Allowance for Loan and Lease Losses (ALLL). How does it impact your business? CECL introduces uncertainty into accounting and growth calculations, as it represents a significant change in the way credit losses are currently estimated. The new standard allows financial institutions to calculate allowances in a variety of ways, including discounted cash flow, loss rates, roll-rates and probability of default analyses. “Large banks with historically good loss performance are projecting increased reserve requirements in the billions of dollars,” says Experian Advisory Services Senior Business Consultant, Gavin Harding. Here are a few changes that you should expect: Larger allowances will be required for most products As allowances will increase, pricing of the products will change to reflect higher capital cost Losses modeling will change, impacting both data collection and modeling methodology There will be a lower return on equity, especially in products with a longer life expectancy How can you prepare? “CECL compliance is a journey, rather than a destination,” says Gavin. “The key is to develop a thoughtful, data-driven approach that is tested and refined over time.” Financial institutions who start preparing for CECL now will ultimately set their organizations up for success. Here are a few ways to begin to assess your readiness: Create a roadmap and initiative prioritization plan Calculate the impact of CECL on your bottom line Run altered scenarios based on new lending policy and credit decision rules Understand the impact CECL will have on your profitability Evaluate current portfolios based on CECL methodology Run different loss methods and compare results Additionally, there is required data to capture, including quarterly or monthly loan-level account performance metrics, multiple year data based on loan product type and historical data for the life of the loan. How much time do you have? Like most accounting standards, CECL has different effective dates based on the type of reporting entity. Public business entities that file financial statements with the Security and Exchange Commission will have to comply by 2020, non-public entity banks must comply by 2022 and non-SEC registered companies have until 2023 to adopt the new standard. How can we help: Complying with CECL may require you to gather, store and calculate more data than before. Experian can help you comply with CECL guidelines including data needs, consulting and loan loss calculation. Experian industry experts will help update your current strategies and establish an appropriate timeline to meet compliance dates. Leveraging our best-in-class industry data, we will help you gain CECL compliance quickly and effectively, understand the impacts to your business and use these findings to improve overall profitability. Learn more

With Hispanic Heritage Awareness Month underway and strategic planning season in full swing, the topic of growing membership continues to take front stage for credit unions. Miriam De Dios Woodward (CEO of Coopera Consulting) is an expert on the Hispanic opportunity, working with credit unions to help them grow by expanding the communities they serve. I asked Miriam if she could provide her considerations for credit unions looking to further differentiate their offerings and service levels in 2019 and beyond.   There’s never been a better time for credit unions to start (or grow) Hispanic engagement as a differentiation strategy. Lending deeper to this community is one key way to do just that. Financial institutions that don’t will find it increasingly difficult to grow their membership, deposits and loan balances. As you begin your 2019 strategic planning discussions, consider how your credit union could make serving the Hispanic market a differentiation strategy. Below are nine ways to start. 1.  Understand your current membership and market through segmentation and analytics. The first step in reaching Hispanics in your community is understanding who they are and what they need. Segment your existing membership and market to determine how many are Hispanic, as well as their language preferences. Use this segmentation to set a baseline for growth of your Hispanic growth strategy, measure ongoing progress and develop new marketing and product strategies. If you don’t have the bandwidth and resources to conduct this segmentation in-house, seek partners to help. 2.  Determine the product gaps that exist and where you can deepen relationships. After you understand your current Hispanic membership and market, you will want to identify opportunities to improve the member experience, including your lending program. For example, if you notice Hispanics are not obtaining mortgages at the same rate as non-Hispanics, look at ways to bridge the gaps and address the root causes (i.e., more first-time homebuyer education and more collaboration with culturally relevant providers across the homebuying experience). Also, consider how you might adapt personal loans to meet the needs of consumers, such as paying for immigration expenses or emergencies with family in Latin America. 3.  Explore alternative credit scoring models. Many credit products accessible to underserved consumers feature one-size-fits-all rates and fees, which means they aren’t priced according to risk. Just because a consumer is unscoreable by most traditional credit scoring models doesn’t mean he or she won’t be able to pay back a loan or does not have a payment history. Several alternative models available today can help  lenders better evaluate a consumer’s ability to repay. Alternative sources of consumer data, such as utility records, cell phone payments, medical payments, insurance payments, remittance receipts, direct deposit histories and more, can be used to build better risk models. Armed with this information – and with the proper programs in place to ensure compliance with regulatory requirements and privacy laws – credit unions can continue making responsible lending decisions and grow their portfolio while better serving the underserved. 4.  Consider how you can help more Hispanic members realize their desire to become homeowners. In 2017, more than 167,000 Hispanics purchased a first home, taking the total number of Hispanic homeowners to nearly 7.5 million (46.2 percent of Hispanic households). Hispanics are the only demographic to have increased their rate of homeownership for the last three consecutive years. What’s more, 9 percent of Hispanics are planning to buy a house in the next 12 months, compared to 6 percent of non-Hispanics. This means Hispanics, who represent about 18 percent of the U.S. population, may represent 22 percent of all new home buyers in the next year. By offering a variety of home loan options supported by culturally relevant education, credit unions can help more Hispanics realize the dream of homeownership.   5.  Go beyond indirect lending for auto loans. The number of cars purchased by Hispanics in the U.S. is projected to double in the period between 2010 and 2020. It’s estimated that new car sales to Hispanics will grow by 8 percent over the next five years, compared to a 2 percent decline among the total market. Consider connecting with local car dealers that serve the Hispanic market. Build a pre-car buying relationship with members rather than waiting until after they’ve made their decision. Connect with them after they’ve made the purchase, as well.   6.  Consider how you can help Hispanic entrepreneurs and small business owners. Hispanics are nine times more likely than whites to take out a small business loan in the next five years. Invest in products and resources to help Hispanic entrepreneurs, such as small business-friendly loans, microloans, Individual Taxpayer Identification Number (ITIN) loans, credit-building loans and small-business financial education. Also, consider partnering with organizations that offer small business assistance, such as local Hispanic chambers of commerce and small business incubators.   7.  Rethink your credit card offerings. Credit card spending among underserved consumers has grown rapidly for several consecutive years. The Center for Financial Services Innovation (CFSI) estimates underserved consumers will spend $37.6 billion on retail credit cards, $8.3 billion on subprime credit cards and $0.4 billion on secured credit cards in 2018. Consider mapping out a strategy to evolve your credit card offerings in a way most likely to benefit the unique underserved populations in your market. Finding success with a credit-builder product like a secured card isn’t a quick fix. Issuers must take the necessary steps to comply with several regulations, including Ability to Repay rules. Cards and marketing teams will need to collaborate closely to execute sales, communication and, importantly, cardmember education plans. There must also be a good program in place for graduating cardmembers into appropriate products as their improving credit profiles warrant. If offering rewards-based products, ensure the rewards include culturally relevant offerings. Work with your credit card providers.­   8.  Don’t forget about lines of credit. Traditional credit lines are often overlooked as product offerings for Hispanic consumers. These products can provide flexible funding opportunities for a variety of uses such as making home improvements, helping family abroad with emergencies, preparing families for kids entering college and other expenses. Members who are homeowners and have equity in their homes have a potential untapped source to borrow cash.   9.  Get innovative. Hispanic consumers are twice as likely to research financial products and services using mobile apps. Many fintech companies have developed apps to help Hispanics meet immediate financial needs, such as paying off debt and saving for short-term goals. Others encourage long-term financial planning. Still other startups have developed new plans that are basically mini-loans shoppers can take out for specific purchases when checking out at stores and online sites that participate. Consider how your credit union might partner with innovative fintech companies like these to offer relevant, digital financial services to Hispanics in your community.   Next Steps Although there’s more to a robust Hispanic outreach program than we can fit in one article, credit unions that bring the nine topics highlighted above to their 2019 strategic planning sessions will be in an outstanding position to differentiate themselves through Hispanic engagement.   Experian is proud to be the only credit bureau with a team 100% dedicated to the Credit Union movement and sharing industry best practices from experts like Miriam De Dios Woodward. Our continued focus is providing solutions that enable credit unions to continue to grow, protect and serve their field of membership. We can provide a more complete view of members and potential members credit behavior with alternative credit data. By pulling in new data sources that include alternative financing, utility and rental payments, Experian provides credit unions a more holistic picture, helping to improve credit access and decisioning for millions of consumers who may otherwise be overlooked.   About Miriam De Dios Woodward Miriam De Dios Woodward is the CEO of Coopera, a strategy consulting firm that helps credit unions and other organizations reach and serve the Hispanic market as an opportunity for growth and financial inclusion. She was named a 2016 Woman to Watch by Credit Union Times and 2015 Latino Business Person of the Year by the League of United Latin American Citizens of Iowa. Miriam earned her bachelor’s degree from Iowa State University, her MBA from the University of Iowa and is a graduate of Harvard Business School’s Leading Change and Organizational Renewal executive program.

The desire to return to portfolio growth is a clear trend in mature credit markets, such as the US and Canada. Historically, credit unions and banks have driven portfolio growth with aggressive out-bound marketing offers designed to attract new customers and members through loan acquisitions. These offers were typically aligned to a particular product with no strategy alignment between multiple divisions within the organization.  Further, when existing customers submitted a new request for credit, they were treated the same as incoming new customers with no reference to the overall value of the existing relationship. Today, however, financial institutions are looking to create more value from existing customer relationships to drive sustained portfolio growth by increasing customer retention, loyalty and wallet share. Let’s consider this idea further. By identifying the needs of existing customers and matching them to individual credit risk and affordability, effective cross-sell strategies that link the needs of the individual to risk and affordability can ensure that portfolio growth can be achieved while simultaneously increasing customer satisfaction and promoting loyalty. The need to optimize customer touch-points and provide the best possible customer experience is paramount to future performance, as measured by market share and long-term customer profitability. By also responding rapidly to changing customer credit needs, you can further build trust, increase wallet share and profitably grow your loan portfolios.  In the simplest sense, the more of your products a customer uses, the less likely the customer is to leave you for the competition. With these objectives in mind, financial organizations are turning towards the practice of setting holistic, customer-level credit lending parameters. These parameters often referred to as umbrella, or customer lending, limits. The challenges Although the benefits for enhancing existing relationships are clear, there are a number of challenges that bear to mind some important questions to consider: ·     How do you balance the competing objectives of portfolio loan growth while managing future losses? ·     How do you know how much your customer can afford? ·     How do you ensure that customers have access to the products they need when they need them ·     What is the appropriate communication method to position the offer? Few credit unions or banks have lending strategies that differentiate between new and existing customers.  In the most cases, new credit requests are processed identically for both customer groups. The problem with this approach is that it fails to capture and use the power of existing customer data, which will inevitably lead  to suboptimal decisions. Similarly, financial institutions frequently provide inconsistent lending messages to their clients. The following scenarios can potentially arise when institutions fail to look across all relationships to support their core lending and collections processes: 1.     Customer is refused for additional credit on the facility of their choice, whilst simultaneously offered an increase in their credit line on another. 2.     Customer is extended credit on a new facility whilst being seriously delinquent on another. 3.     Customer receives marketing solicitation for three different products from the same institution, in the same week, through three different channels. Essentials for customer lending limits and successful cross-selling By evaluating existing customers on a periodic (monthly) basis, financial institutions can assess holistically the customer’s existing exposure, risk and affordability. By setting customer level lending limits in accordance with these parameters, core lending processes can be rendered more efficient, with superior results and enhanced customer satisfaction. This approach can be extended to consider a fast-track application process for existing relationships with high value, low risk customers. Traditionally, business processes have not identified loan applications from such individuals to provide preferential treatment. The core fundamentals of the approach necessary for the setting of holistic customer lending (umbrella) limits include: ·     The accurate evaluation of credit and default risk ·     The calculation of additional lending capacity and affordability ·     Appropriate product offerings for cross-sell ·     Operational deployment Follow my blog series over the next few months as we explore the essentials for customer lending limits and successful cross-selling.