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Soaring in the solar energy utility market By: Mike Horrocks and Rod Everson The summer is a great time of the year - it kicks off summer and the time to enjoy the sunshine and explore! It is also for me the recognition that days now are only getting shorter and makes me think about my year goals and am I going to hit them. In this spirit of kicking off summer, I thought I would talk about three opportunities that the utility vertical could and should take advantage of. 1. The future of Solar Photovoltaics (PV) is just getting brighter A recent study called out an expected 25 percent jump in Solar PV installs over the previous year. This is jump is just another in a long line of solar install records. While the overall cost of these installs has dropped, one must ask whether the accessibility is there for everyone. The answer is not yet. A potential opportunity may come in the form of community solar as an advantage over rooftop solar. This scenario involves a utility installing an array of PV cells and then carving out a specific cell for an individual residential customer for lease, crediting his or her bill at a percentage of the cost. 2. Generations are bringing change Just as spring gives way to summer, summer will give way to fall. The same is true in the utility markets on many fronts. At a larger infrastructure scale, utilities have to think about the kind of plants and capital investments they want to make. Another report indicated that 60,000 megawatts of coal energy is going to be retired over the next four years. This obviously will change the capital decision making functions in the industry. At a more personal level, however, there are changes in the consumers and their behaviors as well. Are those changes being accounted for in your organization? Is the next generation of consumers and the products and services it will demand being formulated in your strategy? How will you identify those consumers and secure them as customers? For example, while electrical energy consumption has been decreasing, what would be the impact if there was a revolution in battery technology? What if charging an electric automobile battery became as fast as filling a tank of gas? What if the battery gave you the same mileage range as a tank of gas and did it at a lower cost per mile? Would electric usage spike? 3. Blackouts happen; be prepared The best-laid plans sometimes still cannot account for those acts of God that cause disruptions to the grid. Blackouts happen, and if you don’t have flashlights with new batteries, you will be left in the dark. The same uncertainty is inevitable in the utility vertical. In the 2015 PwC Power and Utility Survey, 3 percent of the respondents said that there would be minor disruptions in business models, with the rest saying the disruptions would range from moderate to very disruptive. In fact, more than 47 percent of respondents said the changes would be very disruptive. What kind of flashlight-and-fresh-batteries strategy will you employ when the lights go out? Are your decision strategies and risk-management practices based on outdated solutions or approaches? Consider whether your business can take advantage of these situations. If you’re not sure, let’s set aside some time to discuss it, and I can share with you how Experian has helped others. There are still many sunny days ahead, but act now before the seasons change and you and your strategies are left out in the cold.
Identity fraud and the utility industry In the utility industry today, gaining enterprise-wide systemic control over credit risk assessment, identity verification and compliance oversight are causing many leading organizations major headaches. The ability for IT departments to modify their core legacy systems to effectively implement and support these critical functions is ever-challenging. And for the business, the inability to gain real-time access and control to these functions means slower speed to market with automated risk controls, costing the organization (and therefore rate-paying customers) tens of millions in losses annually and lost productivity in manual reviews and call center costs. In addition to the obvious financial impact, customer experience invariably suffers, negatively impacting those good paying, low-risk customers and leading to downstream issues with complaints to regulators. The ideal solution provides organizations the ability to quickly identify customers and compliance requirements, while maintaining a strong and transparent security posture for user authentication and strategic control over the complete customer life-cycle. To minimize barriers to implementation, such a solution requires a flexible, user-friendly hosted platform incorporating all the various credit and alternate data sources with reporting and industry best practice strategies available “out of the box”. While there are several types of fraud perpetrated on utilities, one common form involves the opening of an account in a legitimate consumer’s or business’s name by a fraudulent party with the service address belonging to the fraudulent party (aka the “name game”). Utility fraud may take a long time to discover, as the fraudster may have a history of making some payment, but often times leaves the organization with a significant, unpaid balance. Even after an account goes to collections for nonpayment, it can take a very long time before the fraud is confirmed. Even if consumers and businesses periodically check their credit reports, they may not be aware that accounts had been opened in their name because the accounts usually aren’t reported until they reach collections. This means utility fraud through identity theft can lead to eroding customer relationships and losses. Best Practices for Customer Identity Verification An overall compliance or identity checking program will prevent fraud losses and increase customer satisfaction. The same basic principles that apply to customer centric decisions apply here. gain knowledge of the customer through data, gain insight through specifically developed models and analytics, and make identity decisions using expert strategies. A best practice identity service will employ a customer acquisition platform like PowerCurve OnDemand to automatically acquire critical consumer and business identity authentication data, scores and analytics. Models such as Precise ID and BizID allow clients to make decisions that are tailored to these specifications. These results can be incorporated into automated accept or referral decisioning. Clients can customize these decision strategies for results based on the presence and absence of both positive and high-risk conditions. Specifically, the service helps clients to: Positively identify legitimate consumers Preserve positive consumer experiences by limiting or eliminating the need for more manual and arduous authentication processes that require more customer engagement and time Direct more intensive authentication procedures, such as knowledge-based authentication questions, only to the riskiest applicants or transactions Preserve positive customer experiences by preventing fraudulent accounts being opened in their name Detect potential fraud and reduce charge-offs FACTA and Red Flag Compliance Another advantage of using an acquisition platform like PowerCurve OnDemand is if the utility is obtaining consumer credit reports for other purposes, such as to determine a deposit amount, the platform can also perform many of the FACT Act and Red Flag checks that are required under the Fair Credit Reporting Act to limit identity theft as well. So, at the same time, the platform can help meet compliance due-diligence requirements during application and account management processes. Matching Finally, the software platform may be able to perform a “matching process” on the applicant against existing or former customers. If there is a match, this may also bring insight into whether or not an identity theft may be occurring. In Conclusion Consider a comprehensive platform that assists in identity verification process for both consumer and business accounts. Ensure it can bring in world class data, models and analytics to gain insight on the identity of the consumer or business. If applicable, leverage the platform for compliance related checks as well. The rewards in lower write offs and increased customer satisfaction should yield great results.
By: Mike Horrocks The other day in the American Banker, there was an article titled “Is Loan Growth a Bad Idea Right Now?”, which brings up some great questions on how banks should be looking at their C&I portfolios (or frankly any section of the overall portfolio). I have to admit I was a little down on the industry, for thinking the only way we can grow is by cutting rates or maybe making bad loans. This downer moment required that I hit my playlist shuffle and like an oracle from the past, The Clash and their hit song “Should I stay or should I go”, gave me Sage-like insights that need to be shared. First, who are you listening to for advice? While I would not recommend having all the members of The Clash on your board of directors, could you have maybe one. Ask yourself are your boards, executive management teams, loan committees, etc., all composed of the same people, with maybe the only difference being iPhone versus Android?? Get some alternative thinking in the mix. There is tons of research to show this works. Second, set you standards and stick to them. In the song, there is a part where we have a bit of a discussion that goes like this. “This indecision\'s buggin\' me, If you don\'t want me, set me free. Exactly whom I\'m supposed to be, Don\'t you know which clothes even fit me?” Set your standards and just go after them. There should be no doubt if you are going to do a certain kind of loan or not based on the pricing. Know your pricing, know your limits, and dominate that market. Lastly, remember business cycles. I am hopeful and optimistic that we will have some good growth here for a while, but there is always a down turn…always. Again from the lyrics – “If I go there will be trouble, An\' if I stay it will be double” In the American Banker article, M&T Bank CFO Rene Jones called out that an unnamed competitor made a 10-year fixed $30 million dollar loan at a rate that they (M&T) just could not match. So congrats to M&T for recognizing the pricing limits and maybe congrats to the unnamed bank for maybe having some competitive advantage that allowed them to make the loan. However if there is not something like that supporting the other bank…the short term pain of explaining slower growth today may seem like nothing compared to the questioning they will get if that portfolio goes south. So in the end, I say grow – soundly. Shake things up so you open new markets or create advantages in your current market and rock the Casbah!
The age of social media and data regulations Last week I presented at the 27th Annual Card Forum and Expo and the conference highlighted several issues of progress from new payment solutions. Lots of discussion was regarding Apple Pay and the merchant and consumer perspectives on adoption were widely reviewed. Of course, the implications are of the increasing variety of payment alternatives available to consumers that must be considered by merchants and lenders \"The nature of the predictive data has changed – it used to be an institutions internal data and your CRA’s. Now – it is everywhere.\" The same technology, delivery platforms and the consumer adoption issues also speak to the increasing use of new sources of consumer behavior data available to businesses. One of the high profile consequences is the proliferation of new data sources available and the business user responsibility for effective and Regulatory compliant management of that data. My session explored the issues around data governance in the age of social media to understand the regulatory background, the trends of consumer usage and the possible insights able to be gleaned from these disparate data sources. With these opportunities comes the attention of regulatory bodies and the disciplined documentation, monitoring and use of these new data sources is necessary to derive the value from the data. All of these issues feed into the need to insure that businesses have established an effective Data Governance ecosystem serving many goals but delivering significant business value. Please view my presentation below and to receive help with data governance visit Experian’s global consulting practice site to help your business. Data Governance in the age of Social Media from Experian Decision Analytics
Source: IntelliViewsm powered by Experian Sales of existing homes dropped 50% from the peak in August 2005 to the low point in July 2010. The spike in home sales in late 2009 and early 2010 was due to the large number of foreclosure sales as well as very low prices. Since 2010, sales have increased to almost to the level they were in 2000, before the financial crisis. However, the homeownership rate has steadily gone down. How could sales have picked up while the homeownership rate declined? Investors have entered the market snapping up single family homes and renting them. Therefore, the recent good news in the existing home market has been driven by investors, not homeowners. But as I point out below, this is changing. Looking at the homeownership rate by age, shown in the table below, it is clear that since the crisis the rate has declined most for people under 45. The potential for marketing is greatest in this cohort as the numbers indicate a likely demand for housing. Homeownership Rate by Age Source: U.S. Census Bureau and Haver Analytics as reported on the Federal Reserve Bank of St. Louis Fred database The factors that have impeded growth, described above, are beginning to reverse which, along with pent-up demand, will present an opportunity for mortgage originators in 2015. Home prices have risen in 246 of the 277 cities tracked by Clear Capital.With prices going up, investors have begun to back away from the market, resulting in prices increasing at a slower rate in some cities but they are still increasing.Therefore the perception that homeownership is risky will likely change.In fact, in some areas, such as California’s coastal cities, sales are strong and prices are going up rapidly. Lenders and regulators are recognizing that the stringent guidelines put in place in reaction to the crisis have overly constrained the market.Fannie Mae and Freddie Mac are reducing down payment requirements to as low as 3%.FHA is lowering their guarantee fee, reducing the amount of cash buyers need to close transactions.Private securitizations, which dried up completely, are beginning to reappear, especially in the jumbo market. As unemployment continues to go down, consumer confidence will rise and household formation will return to more normal levels which result in more sales to first time homebuyers, who drive the market.According to Lawrence Yun, chief economist for the National Association of Realtors, “…it’s all about consistent job growth for a prolonged period, and we’re entering that stage.” The number of houses in foreclosure, according to RealtyTrac, has fallen to pre-crisis levels.This drag on the market has, for the most part, cleared and as prices continue to inflate, potential buyers will be motivated to buy before homes become unaffordable.Despite the recent increases, home prices are still, on average, 23% lower than they were at the peak. Focusing marketing dollars on those people with the highest propensity to buy has always been a challenge but in this market there are identifiable targets. “Boomerangs” are people who owned real estate in the past but are currently renting and likely to come back into the market.Marketing to qualified former homeowners would provide a solid return on investment. People renting single family houses are indicating a lifestyle preference that can be marketed to. Newly-formed households are also profitable targets. The housing market, at long last, appears to be finally turning the corner and normalizing. Experian’s expertise in identifying the right consumers can help lenders to pinpoint the right people on whom marketing dollars should be invested to realize the highest level of return. Click here to learn more.
By: Kyle Enger, Executive Vice President of Finagraph Small business remains one of the largest and most profitable client segments for banks. They provide low cost deposits, high-quality loans and offer numerous cross-selling opportunities. However, recent reports indicate that a majority of business owners are dissatisfied with their banking relationship. In fact, more than 33 percent are actively shopping for a new relationship. With limited access to credit after the worst of the financial crisis, plus a lack of service and attention, many business owners have lost confidence in banks and their bankers. Before the financial crisis, business owners ranked their banker number three on the list of top trusted advisors. Today bankers have fallen to number seven – below the medical system, the president and religious organizations, as reported in a recent Gallup poll, “Confidence in Institutions.” In order to gain a foothold with existing clients and prospects, here is a roadmap banks can use to build trust and effectively meet the needs to today’s small business client. Put feet on the street. To rebuild trust, banks need to get in front of their clients face to face and begin engaging with them on a deeper level. Even in the digital age, business customers still want to have face-to-face contact with their bank. The only way to effectively do that is to put feet on the street and begin having conversations with clients. Whether it be via Skype, phone calls, text, e-mail or Twitter – having knowledgeable bankers accessible is the first step in creating a trusting relationship. Develop business acumen. Business owners need someone who is aware of their pain points, can offer the correct products according to their financial need, and can provide a long-term plan for growth. In order to do so, banks need to invest in developing the business and relationship acumen of their sales forces to empower them to be trusted advisors. One of the best ways to launch a new class of relationship bankers is to start investing in educational events for both the bankers and the borrowers. This creates an environment of learning, transparency and growth. Leverage technology to enhance client relationships. Commercial and industrial lending is an expensive delivery strategy because it means bankers are constantly working with business owners on a regular basis. This approach can be time-consuming and costly as bankers must monitor inventory, understand financials, and make recommendations to improve the financial health of a business. However, if banks leverage technology to provide bankers with the tools needed to be more effective in their interactions with clients, they can create a winning combination. Some examples of this include providing online chat, an educational forum, and a financial intelligence tool to quickly review financials, provide recommendations and make loan decisions. Authenticate your value proposition. Business owners have choices when it comes to selecting a financial service provider, which is why it is important that every banker has a clearly defined value proposition. A value proposition is more than a generic list of attributes developed from a routine sales training program. It is a way of interacting, responding and collaborating that validates those words and makes a value proposition come to life. Simply claiming to provide the best service means nothing if it takes 48 hours to return phone calls. Words are meaningless without action, and business owners are particularly jaded when it comes to false elevator speeches delivered by bankers. Never stop reaching out. Throughout the lifecycle of a business, its owner uses between 12 and 15 bank products and services, yet the national product per customer ratio averages around 2.5. Simply put, companies are spreading their banking needs across multiple organizations. The primary cause? The banker likely never asked them if they had any additional businesses or needs. As a relationship banker to small businesses, it is your duty to bring the power of the bank to the individual client. By focusing on adding value through superior customer experience and technology, financial institutions will be better positioned to attract new small business banking clients and expand wallet share with existing clients. By implementing these five strategies, you will create closer relationships, stronger loan portfolios and a new generation of relationship bankers. To view the original blog posting, click here. To read more about the collaboration between Experian and Finagraph, click here.
By: Linda Haran Complying with complex and evolving capital adequacy regulatory requirements is the new reality for financial service organizations, and it doesn’t seem to be getting any easier to comply in the years since CCAR was introduced under the Dodd Frank Act. Many banks that have submitted capital plans to the Fed have seen them approved in one year and then rejected in the following year’s review, making compliance with the regulation feel very much like a moving target. As a result, several banks have recently pulled together a think tank of sorts to collaborate on what the Fed is looking for in capital plan submissions. Complying with CCAR is a very complex, data intensive exercise which requires specialized staffing. An approach or methodology to preparing these annual submissions has not been formally outlined by the regulators and banks are on their own to interpret the complex requirements into a comprehensive plan that will ensure their capital plans are accepted by the Fed. As banks work to perfect the methodology used in this exercise, the Fed continues to fine tune the requirements by changing submission dates, Tier 1 capital definitions, etc. As the regulation continues to evolve, banks will need to keep pace with the changing nature of the requirements and continually evaluate current processes to assess where they can be enhanced. The capital planning exercise remains complex and employing various methodologies to produce the most complete view of loss projections prior to submitting a final plan to the Fed is a crucial component in having the plan approved. Banks should utilize all available resources and consider partnering with third party organizations who are experienced in both loss forecasting model development and regulatory consulting in order to stay ahead of the regulations and avoid a scenario where capital plan submissions may not be accepted. Learn how Experian can help you meet the latest regulatory requirements with our Loss Forecasting Model Services.
Do you really know where your commercial and small business clients stand financially? I bet if you ask your commercial lending relationship managers they will say they do - but do they really? The bigger question is how you could be more tied into to your business clients so that you could give them real advice that may save their businesses. More questions?? Nope, just one answer. Finagraph with Experian’s Advisor for relationship lending is a perfect setup to gather data that you currently are using within your financial institution that can then be matched that up with real financial spreads from the accounting systems that your business client use in their everyday process. By comparing the two sources of records you can get a true perspective on where your business clients stands and empower your relationship managers like ever before.
The follow blog is by Kyle Enger, Executive Vice President of Finagraph With the surge of alternative lenders, competition among banks is stronger than ever. But what exactly does that mean for the everyday banker? It means business owners want more. If you’re only meeting your clients once a year on a renewal, it’s not good enough. In order to take your customer service to the next level, you need to become a trusted advisor. Someone who understands where your clients are going and how to help them get there. If you’re not investing in your clients’ business by taking the following actions, they may have one foot out the door. 1. Understand your clients’ business One of the biggest complaints from business owners is that bankers simply don’t understand their business. A good commercial banker should be well-versed in their borrower’s company, competitors and the industry. They should be willing to get to know their business, commit to them, stop by to check-in and provide a proactive plan to avoid future risks. 2. Utilize technology for your benefit The majority of recent bank innovations have been used to make the customer experience more convenient, but not necessarily the more helpful. We’ve seen everything from mobile remote deposit capture to online banking to mobile payments – all of which are keeping customers from interacting with the bank. Contrary to what many think, technology can be used to create strong relationships by giving bankers information about their customers to help serve them better. Using new software programs, bankers can see information like the current ratio, quick ratio, debt-to-equity, gross margin, net margin and ROI within seconds. 3. Heighten financial acumen Banks have access to a vast amount of customer financial data, but sometimes fail to use this information to its full potential. With insight into consumer purchasing behavior and business’ financial history, banks should be able to cater products and services to clients in a personalized manner. However, many lenders walk into prospect meetings without knowing much about the business. Their mode of operation is solely focused on trying to secure new clients by building rapport – they are what we call surface bankers. A good banker will educate clients on what they need to know such as equity, inventory, cash flow, retirement planning and sweep accounting. They should also know about new technology and consult borrowers on intermediate financing, terming out loans that are not revolving, or locking in with low interest rates. Following, they will bring in the right specialist to match the product according to their clients’ needs. 4. Go beyond the price Many business owners make the mistake of comparing banks based on cost, but the value of a healthy banking relationship and a financial guide is priceless. So many bankers these days are application gatherers working on a transactional basis, but that’s not what business owners need. They need to stop looking at the short-term convenience of brands, price and location, and start considering the long-term effects a trusted financial advisor can make on their business. 5. A partner in your business, not a banker “Sixty percent of businesses are misfinanced using short-term money for long-term use,” according to the CEB Business Banking Board. In other words, there are many qualified candidates in need of a trusting banker to help them succeed. Unbeknownst to many business owners, bankers actually want to make loans and help their clients’ business grow. Making this known is the baseline in building a strong foundation for the future of your career. Just remember to ask yourself – am I being business-centric or bank-centric? To view the original blog posting, click here. To read more about the collaboration between Experian and Finagraph, click here.
By: Mike Horrocks Experian has announced a new agreement with Finagraph, a best-in-class automated financial intelligence tool provider, to provide the banking industry with software to evaluate small business financials faster. Loan automation is key in pulling together data in a meaningful manner and this bank offering will provide consistent formatted financials for easier lending assessment. Finagraph’s automated financial intelligence tool delivers advanced analytics and data verification that presents small business financial information in a consistent format, making it easier for lenders to understand the commercial customer’s business. Experian’s portfolio risk management platform addresses the overall risks and opportunities within a loan portfolio. The company’s relationship lending platform provides a framework to automate, integrate and streamline commercial lending processes, including small and medium-sized enterprise and commercial lending. Both data-driven systems are designed to accommodate and integrate existing bank processes saving time which results in improved client engagement “Finagraph connects bankers and businesses in a data-driven way that leads to better insights that strengthens customer relationships,” said John Watts, Experian Decision Analytics director of product management. “Together we are helping our banking clients deliver the trusted advisor experience their business customers desire in a new industry-leading way.” “The lending landscape is rapidly changing. With new competitors entering the space, banks need innovative tools that allow them to maintain an advantage,” said James Walter, CEO and President of Finagraph. “We are excited about the way that our collaboration with Experian’s Baker Hill Advisor gives banks an edge by enabling them to connect with their clients in a meaningful way. Together we are hoping to empower a new generation of trusted advisors.” Learn more about our portfolio risk management and lending solutions and for more information on Finagraph please visit www.finagraph.com.
Deposit accounts for everyone Over the last several years, the Consumer Financial Protection Bureau (CFPB) has, not so quietly, been actively pushing for changes in how banks decision applicants for new checking accounts. Recent activity by the CFPB is accelerating the pace of this change for those managing deposits-gathering activities within regulated financial institutions. It is imperative banks begin adopting modern technology and product strategies that are designed for a digital age instead of an age before the internet even existed. In October 2014, the CFPB hosted the Forum On Access To Checking Accounts to push for more transparent account opening procedures, suggesting that bank’s use of “blacklists” that effectively “exclude” applicants from opening a transaction account are too opaque. Current regulatory trends are increasingly signaling the need for banks to bring checking account originations strategies into the 21st century as I indicated in Banking in the 21st Century. The operations and technology implications for banks must include modernizing the approach to account opening that goes beyond using different decision data to do “the same old thing” that only partially addresses broader concerns from consumers and regulators. Product features attached to check accounts, such as overdraft shadow limits, can be offered to consumers where this liquidity feature matches what the customer can afford. Banking innovation calls for deposit gatherers to find more ways to approve a basic transaction account, such as a checking account, that considers the consumer’s ability to repay and limit approving overdraft features for some checking accounts even if the consumer opts in. This doesn’t mean banks cannot use risk management principles in assessing which customers get that added liquidity management functionality attached to a checking account. It just means that overdraft should be one part of the total customer level exposure the bank considers in the risk assessment process. The looming regulatory impacts to overdraft fees, seemingly predictable, will further reduce bank revenue in an industry that has been hit hard over the last decade. Prudent financial institutions should begin managing the impact of additional lost fee revenue now and do it in a way that customers and regulators will appreciate. The CFPB has been signaling other looming changes for check account regulations, likely to accelerate throughout 2015, and portend further large impacts to bank overdraft revenue. Foreshadowing this change are the 2013 overdraft study by the CFPB and the proposed rules for prepaid cards published for commentary in December 2014 where prepaid account overdraft is “subject to rules governing credit cards under TILA, EFTA, and their implementing regulations”. That’s right, the CFPB has concluded overdraft for prepaid cards are the same as a loan falling under Reg Z. If the interpretation is applied to checking account debit card overdraft rules, it would effectively turn overdraft fees into finance charges and eliminate a huge portion of remaining profitability for banks from those fees. The good news for banks is that the solution for the new deposits paradigm is accomplished by bringing retail banking platforms into the 21st century that leverage the ability to set exposure for customers at the client level and apportioned to products or features such as overdraft. Proactively managing regulatory change, that is predictable and sure to come, includes banks considering the affordability of consumers and offering products that match the consumer’s needs and ability to repay. The risk decision is not different for unsecured lending in credit cards or for overdraft limits attached to a checking account. Banks becoming more innovative by offering checking accounts enabling consumers more flexible and transparent liquidity management functionality at a reasonable price will differentiate themselves in the market place and with regulatory bodies such as the CFPB. Conducting a capabilities assessment, or business review, to assess product innovation options like combining digital lines of credit with check accounts, will inform your business what you should do to maintain customer profitability. I recommend three steps to begin the change process and proactively manage through the deposit industry regulatory changes that lay ahead: First, assess the impacts of potential lost fees if current overdraft fees are further limited or eliminated and quantify what that means to your product profitability. Second, begin designing alternative pricing strategies, product offerings and underwriting strategies that allow you to set total exposure at a client level and apportion this exposure across lending products that includes overdraft lines and is done in a way that it is transparent to your customers and aligns to what they can afford. Third, but can be done in parallel with steps one and two, begin capability assessments of your financial institution’s core bank decision platform that is used to open and manage customer accounts to ensure your technology is prepared to handle future mandatory regulatory requirements without driving all your customers to your competitors. It is a given that change is inevitable. Deposit organizations are well served to manage this current shift in regulatory policy related to checking account acquisitions in a way consistent with guaranteeing your bank’s competitive advantage. Banks can stay out front of competitors by offering transparent and relevant financial products consumers will be drawn to buy and can’t afford to live without! Thank you for following my blog and insights in DDA best practices. Please accept my invitation to participate in a short market study. Click here to participate. Participants in this 5 minute survey will receive a copy of the results as a token of appreciation.
By: Scott Rhode This is the third and last of a three-part blog series focused on the residential solar market looking at; 1) the history of solar technology, 2) current trends and financing mechanisms, and finally 3) overcoming market and regulatory challenges with Experian’s help. As we’ve discussed in the two previous blogs, the residential solar industry in the US has experienced tremendous growth and much of that growth is attributed to financing. As the financing offers continue to evolve and mature, there are challenges that the industry faces. The first, and most obvious challenge, is that the Solar Investment Tax Credit is set to expire on December 31st, 2016. (To be clear, the credit is not eliminated on Dec. 31, 2016, it is simply planned to be reduced to 10%) Given the state of affairs in Washington, it is unlikely that the tax credit will get extended. This is unfortunate since this tax credit has been a catalyst for investment in this industry, greatly increasing affordability and adoption from the public. Once this incentive expires, the solar companies will need to acquire capital from more traditional sources (Debt markets, securitization, or other third party financing) to fund their growth since the Tax Equity community may no longer be willing to invest. In addition, the expiration of the credit means that panel manufactures must find ways to reduce the cost of production and that finance and installation companies must lower their customer acquisition cost since they are unsustainable in a post-ITC world. A benefit of moving towards other means of funding is that the sophistication level of pre-screening, scoring, and portfolio management should improve dramatically. Today, the Tax Equity community drives all of the credit strategies and those strategies are actually holding solar companies back because of their simplicity. For example, most of the TE investors require that the customer have a 680 FICO score or better in order to get approval. They do not require a debt to income threshold to be met, nor do they look at other attributes or data points. This overly simplistic approach is meant to keep the TE investor out of difficult conversations of being in the “sub-prime” space; however, it greatly limits growth and it turns away good customers. Additionally, this approach does not consider the “essential use” nature of the product. When a customer becomes seriously delinquent, their panels get disconnected and their costs for energy go up more than the cost of their monthly lease payment. This ensures that, unlike an unsecured loan or credit card, the customer is more likely to pay this obligation since it is actually saving them money. This does not mean that the industry can approve everyone; however, it does mean that, with the right decisioning logic and scorecards, they can go much deeper into the credit pool without taking on huge risks. Another challenge for the industry is the shear rate of growth. There are new players in the market every day and even established firms have a hard time keeping up with the growth. This leaves the individual organization and industry at risk for missing critical compliance steps in their operations. Given that these financial instruments are long term in nature and more consumers are adopting this as a means to get solar, it is only a matter of time before the regulators start to look into the practices and operating processes to ensure that all of the applicable regulations are being followed. The industry, as a whole, needs to ensure that they spend a little money now shoring up their compliance instead of paying a hefty fine later. Finally, what happens at the end of the lease? Many of the large players have taken a conservative approach as to how they price the residual amount at the end of term; however, no one really knows what these assets will be worth in 20 years. While many of the panel manufacturers warrant performance for 25, many panels have a shelf-life of 40 years, so how will consumers and the industry behave? What happens if there is a technological breakthrough in 10 years and those old panels are obsolete? At the moment, the industry’s answer to these questions is to set a very low residual which carries risk. Being too conservative here means that your customer’s payment is higher than it needs to be, pricing yourself out of certain markets where the cost of power is less than 20 cents / kwh. As the lease product continues to mature, more focus and emphasis on residual pricing will need to take place to find the right balance for the Consumer and the finance company. It should be said that while there are risks associated with this industry, all markets and new financing products carry risks. The goal of this particular blog is to highlight some of the larger risks that this industry faces. As these are identified, it is incumbent on the industry and partners of the industry to mitigate these risks so that consumers can continue to realize the power of solar. To close this series, I would be remiss if I didn’t offer up Experian’s Global Consultancy solutions to help address the challenges that the industry faces. Our knowledge of best practices in the financial services industry allows us to help those companies in the solar market grow originations responsibly, meet their regulatory requirements, and manage their long term risks with customers. While we cannot solve the funding issues, we can work with organizations and the tax equity community to educate them on the power of decisioning beyond a simple “one-size fits all” score. In addition, our products and data allow for flexibility and certainty, giving the industry an edge in acquiring new customers in a more efficient and less expensive manner. Finally, we can help provide advice and best practices in decisioning, risk management, and regulatory compliance so that the industry can continue to grow and thrive. All in all, we are advocates for the industry and can bring tremendous expertise and experience to help ensure continued success. Solar Financing – The current and future catalyst behind the booming residential solar market (Part II) Solar Financing — The current and future catalyst behind the booming residential solar market (Part I)
By: Mike Horrocks I was raised in an underbanked home! I have known this for a long time, but it feels great to say it and be proud of it. I was raised in Neola, Utah, a small cattle ranching community of at the time 500 or so people. I don’t recall as a kid ever feeling poor or on the edge financially, in fact it was quite the opposite. When I was a freshman in college I got my own banking accounts and my first major credit card that gave cash back, it all just seemed normal. I recall showing my dad my new found financial life. The concept of getting cash back for purchases was something he wanted in on. He made the call to get his own card and within minutes the representative on the other end of the call asked if I was willing to co-sign for my dad because he did not have a thick enough credit file. At this point of my dad’s life, he had developed and sold a couple of businesses, bought and managed a successful angus cattle ranch - but he had done most of it in cash and so he was “off the grid”. When I co – signed for my dad, it hit me, in terms of the banking system that I was studying at the university, we were an underbanked family! So what are the lessons learned here for a banker today: Underbanked does not equal poor. I never felt poor, the family business was going great, and my dad was always able to meet any obligation or need for the ranch and us kids. Bankers need to know their customers. When my dad did need access to more capital, there was a great banker at Zions Bank that knew my dad and stood by him even though the traditional file was thin. So know your customers by all means (traditional credit, alternative data, etc.) Don’t forget the family. By this I mean the associated products and what they can mean to the overall customer picture and relationship. Know what risks and opportunities are there as you try to optimize the relationship. If you want to read some more, American Banker just published a great set of articles on including consumers and how to retain them - it is worth a quick review. Don’t let great customers like my dad go through your business development net. Attract them, nurture them and build great relationships with them.
By: Barbara Rivera Every day, 2.5 quintillion bytes of data are created – in fact, 90% of the world’s data was created in only the last few years. With the staggering amount of data available, we have an unprecedented opportunity to uncover new insights and improve the way our world functions. The implications of these new capabilities are perhaps nowhere else as crucial as within our government. Public sector officials carry the great responsibility of conducting complex missions that directly affect our communities, our economy, and our nation’s future. The ability to make more informed, insightful choices and better decisions is paramount. Especially at a time of broader global unrest and uncertainty, Americans rely on our government to be transparent, fair, ready and to make the right decisions – our trust is in the hands of our elected officials and public servants. Data alone is not enough to inform and affect change. However, with integrated information assets, insightful analysts and collaborative processes, data can be transformed into something meaningful and actionable. Our government has already begun leveraging data for good across agencies and varied missions, with more potential unlocked each day. Local governments like Orange County, California are utilizing data through address verification services to keep their voting lists accurate – ensuring the integrity of elections and saving the taxpayers thousands of dollars otherwise wasted on mailings to outdated lists. The Orange County Registrar of Voters – the fifth largest voting jurisdiction in the county – has been able to cancel 40,000 voting records, with an estimated savings of $94,000 expected from 2012 through 2016. The examples are numerous and growing: A suite of optimization tools helps states find non-custodial parents, determine their capacity and likelihood to pay child support, and trigger alerts with new critical information, maximizing the likelihood of payment and recovery, ultimately improving the welfare of children and reducing poverty More than 150 state, county and local law enforcement agencies leverage data to help identify persons of interest, conduct background screening for employees and contractors and provide financial backgrounds for criminal investigations, ensuring our continued safety By using the power of data to manage user authentication, credentials and access controls, the government is working harder – and smarter – to protect our security The government is leveraging verified commercial data to help agencies validate the fiscal responsibility of potential contractors and monitor existing contractors, which helps provide transparency and reduce risk By using data and analytics to authenticate applicants and validate financial data, the government is ensuring access to benefits for those who meet eligibility requirements, while at the same time reducing fraud Private sector partners are supporting municipal efforts to improve financial stability in households by providing the current credit standing of consumers and monitoring overall changes in financial behaviors over time, to help counsel and educate citizens And that’s only the beginning. The possibilities are endless – from healthcare to finance to energy – data can be leveraged for the advancement of our society. It even happens behind the scenes, working to protect information in ways most citizens never realize. Data insights are used to ensure citizens have secure online access to their information – ever see those randomized, personal questions? That’s data at work. The same technology is the de facto ID Proofing standard for the VA and CMS. How does it all work? By combing through the data carefully, putting it in context, looking at it in new ways, and thinking about what all this information really means. Much of this is made possible through public-private partnerships between the government and companies like Experian. So the next time someone complains about the slow pace of government, let them know the truth is government is moving quickly, leveraging data and private sector partnerships to uncover new insights that impact the greater good.
The news of the latest breach last week reported that tens of millions of customer and employee records were stolen by a sophisticated hacker incursion. The data lost is reported to include names, birth dates, Social Security numbers, and addresses. The nature of the stolen data has the potential to create long-term headaches for the organization and tens of millions of individuals. Unlike a retailer or financial breach, where stolen payment cards can be deactivated and new ones issued, the theft of permanent identity information is, well, not easily corrected. You can’t simply reissue Social Security numbers, birth dates, names and addresses. What’s more, the data likely includes identity data on millions of dependent minors, who are prime targets for identity thieves and whose credit goes frequently unmonitored. According to the Identity Theft Resource Center’s 2014 Data Breach Report, a record 783 breaches, representing 85 million records, occurred from January through September 2014 alone. The breaches have ranged across virtually every industry segment and data type. So where does all this breached data go? It goes into the massive, global underground marketplace for stolen data, where it’s bought and sold, and then used by cybercriminals and fraudsters to defraud organizations and individuals. Like any market, supply and demand determines price, and the massive quantity of recent breaches has made stolen identities more affordable to more fraudsters, exacerbating the overall problem. In fact, stolen health credentials can go for $10 each, about 10 or 20 times the value of a U.S. credit card number, according to Don Jackson, director of threat intelligence at PhishLabs, a cyber crime protection company. The big question: So what now? The answer: Assume that all data has been breached, and act accordingly. Such a statement sounds a bit trivial, but it’s a significant paradigm shift. It’s a clear-headed recognition of the implications of the ongoing, escalating covert war between cybercriminals and fraudsters, on one side, and organizations and consumers on the other. For individuals, we need to internalize this fact: our data has likely been breached, and we need to become vigilant and defend ourselves. Sign up for a credit monitoring service that covers all three credit bureaus to be alerted if your data or ID is being used in ways that indicate fraud. Include your children, as well. A child’s identity is far more valuable to a fraudster as they know it can be several years before their stolen identity is detected. Many parents do not check their child’s credit regularly, if at all. For organizations, it’s a war on two fronts: data protection and fraud prevention. And the stakes are huge, bigger than many of us recognize. We’re not just fighting to prevent financial theft, we’re fighting to preserve trust — trust between organizations and consumers, at the first level, and ultimately widespread consumer trust in the institutions of finance, commerce, and government. We must collectively strive to win the war on data protection, no doubt, and prevent future data breaches. But what breaches illustrate is that, when fundamental identity data is breached, a terrible burden is placed on the second line of defense — fraud prevention. Simply put, organizations must continually evolve their fraud prevention control and skills, and minimize the damage caused by stolen identity data. And we must do it in ways that reinforce the trust between consumers and organizations, enhance the customer experience, and frustrate the criminals. At 41st Parameter, we are at the front lines of fraud prevention every day, and what we see are risks throughout the ecosystem. Account opening is a particular vulnerability, as consumer identity data obtained in the underground will undoubtedly be used to open lines of credit, submit fraudulent tax returns, etc. unbeknownst to the consumer. Since so much data has been breached, many of these new accounts will look “clean,” presenting a major challenge for traditional identity-based fraud and compliance solutions. But it’s more than new accounts — account takeover, transactions, loyalty, every stage is in jeopardy now that so much identity data is on the loose. Even the call center is vulnerable, as the very basis for caller authentication often relies on components of identity. At 41st Parameter and Experian Fraud & Identity solutions, we advocate a comprehensive layered approach that leverages multiple solutions such as FraudNet, Precise ID, KIQ, and credit data to protect all aspects of the customer journey while ensuring a seamless, positive user experience across channels and lines of business. Read our fraud perspective paper to learn more. Now is the time to take action. http://www.reuters.com/article/2014/09/24/us-cybersecurity-hospitals-idUSKCN0HJ21I20140924
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