Financial Services
By: John Robertson I began this blog series asking the question “How can banks offer such low rates?” Exploring the relationship of pricing in an environment where we have a normalized. I outlined a simplistic view of loan pricing as: + Interest Income + Non-Interest Income Cost of Funds Non-Interest Expense Risk Expense = Income before Tax Along those lines, I outlined how perplexing it is to think at some of these current levels, banks could possibly make any money. I suggested these offerings must be lost leaders with the anticipation of more business in the future or possibly, additional deposits to maintain a hold on the relationship over time. Or, I shudder to think, banks could be short funding the loans with the excess cash on their balance sheets. I did stumble across another possibility while proving out an old theory which was very revealing. The old theory stated by a professor many years ago was “Margins will continue to narrow…. Forever”. We’ve certainly seen that in the consumer world. In pursuit of proof to this theory I went to the trusty UBPR and looked at the net interest margin results from 2011 until today for two peer groups (insured commercial banks from $300 million to $1 billion and insured commercial banks greater the $3 billion). What I found was, in fact, margins have narrowed anywhere from 10 to 20 basis points for those two groups during that span even though non-interest expense stayed relatively flat. Not wanting to stop there, I started looking at one of the biggest players individually and found an interesting difference in their C&I portfolio. Their non-interest expense number was comparable to the others as well as their cost of funds but the swing component was non-interest income. One line item on the UPBR’s income statement is Overhead (i.e. non-interest expense) minus non-interest income (NII). This bank had a strategic advantage when pricing there loans due to their fee income generation capabilities. They are not just looking at spread but contribution as well to ensure they meet their stated goals. So why do banks hesitate to ask for a fee if a customer wants a certain rate? Someone seems to have figured it out. Your thoughts?
Experian–Oliver Wyman data reports $120 billion in new home-equity credit loans in past year; Q2 2014 saw new mortgage originations totaling $292 billion Mortgage origination volumes saw an increase of 15 percent in Q2 2014. Home-equity line of credit (HELOC) lending saw the biggest gains, according to Experian, the leading global information services company, as reported in its quarterly Experian–Oliver Wyman Market Intelligence report. Is the home refinancing boom over? “Home lending had an incredible two-year period from Q2 2011 to Q2 2013, with $4 trillion in mortgage origination volume; 71 percent of that, or $2.9 trillion, came from home refinancing,” said Linda Haran, senior director of product management and strategy for Experian Decision Analytics. “A look behind those numbers tells us that the total dollars originated over the past four quarters are about $1.3 trillion versus $1.8 trillion, showing a 30 percent decrease in annual origination volumes from the refinancing boom.” “However, those last four quarters show us that the mix of purchase-to-refinance volume has shifted to a fifty-fifty split between refinance and purchase volume activity. This equates to new purchase activity increasing by 22 percent in Q2 2014 from last year, signaling that consumers are getting back into the market. In the long term, this appears to set up the market for continued purchases into spring and summer of 2015.” $35 billion in new HELOC lending from Q2 2014 Home-equity lending increased 25 percent in Q2 2014 totaling $35 billion in new HELOC originations compared with Q2 2013. Looking at the past 12 months, HELOCs totaled $120 billion in new originations, representing a 27 percent increase compared with the previous 12 months. Experian–Oliver Wyman Market Intelligence Report - Q2 2014 from Experian Decision Analytics HELOC lending growth seen across all regions Double digit growth was seen in all regions compared to the numbers reported one year ago. The two regions that led the trend in increasing HELOC origination volumes were the West Coast and the Northeast — with 27 percent and 15 percent year-over-year growth, respectively.California accounted for the highest volume of HELOC dollars originated in Q2 with $5.9 billion, followed by New York with $2.2 billion and Pennsylvania with $2.0 billion. Make sure to join us for the Q3 2014 Experian–Oliver Wyman Market Intelligence Report webinar. For even more HELOC analysis, please read the "Impact of the revived HELOC trend" post. About the data The data for this insight and analysis was provided by Experian’s IntelliViewSM product. IntelliView data is sourced from the information that supports the Experian–Oliver Wyman Market Intelligence Reports and is accessed easily through an intuitive, online graphical user interface, which enables financial professionals to extract key findings from the data and integrate them into their business strategies. This unique data asset does this by delivering market intelligence on consumer credit behavior within specific lending categories and geographic regions.
This is the first of a two part blog about the state of auto lending in the U.S. In 2014, auto lending has received increased media attention. Unlike other forms of consumer lending, auto lending has been booming. This lending has powered spending and has been an important driver of the economic recovery. However, as auto lending has increased, subprime lending has advanced as well. Many analysts now are predicting as a result of the increased volumes, auto delinquencies will eventually rise. Some have even drawn a corollary to the increase in subprime mortgage lending and its resulting impact on the Great Recession. Regulators and rating agencies have weighed in on the subject too. The principal banking regulator, Office of the Comptroller of the Currency (OCC) noted recently, “The OCC sees signs that credit risk is now building after a period of improving credit quality and problem loan clean-up.” In particular, the OCC pointed out how its examiners have observed a “loosening of standards and increased layering of risk in the indirect auto market.” (Semiannual Risk Perspective, Spring 2014) The OCC’s primary points regarding auto lending risk are: Longer loan terms, Increasing advance rates with resulting higher LTVs, Originating loans to borrowers with lower credit scores, A larger average loss per vehicle. Nevertheless, the OCC notes, “The results have yet to show large-scale deterioration at the portfolio level, but signs of increasing risk are evident.” Standard and Poor issued a report regarding Finance companies (and bonds created by securitized auto lending) called Subprime Auto Loan Performance: The Best is Behind Us. In that, S&P states that, “In our opinion, we’re at a turning point with respect to subprime auto loan performance, similar to where we were in 2006.” In order to examine auto lease and loan trends, Experian IntelliView data was reviewed which provides a quarterly update of U.S. lending trends based on credit bureau data including originations, outstanding loans and lines, credit performance trends, segmented by product and other characteristics. Auto Loans and Lease Originations Auto lending originations versus other consumer credit products were studied to highlight trends, before and after the recession, by looking at metrics beginning with the first quarter of 2006. The Experian IntelliView data on slide 2 shows quarterly acquisition volumes for auto, bankcards, mortgages, home equity loans, HELOCs and personal loans using an index based on originations during this time. (Student loans were not examined because much of this lending is made by government backed organizations.) Auto lending volume reached its low point much earlier than the other products (at the end of 2008-Q4) and returned to pre-recession levels by the second quarter of 2011. In the 2nd quarter of 2014, auto originations continued to grow, and are now more than 60% over 2006 levels. Home lending volume has dipped. First mortgages have a volatile origination pattern based on periods of refinance activity, but volume in the most recent quarters has been down at least 40% off the 2006 volumes. Meanwhile, second mortgage (home equity loans and HELOCs) have practically collapsed since 2009, although HELOCs have shown some rebound in the last year. Of the other credit product originations, only bankcards have reached its pre-recession quantity. Auto lending naysayers are neglecting key facts from Experian Decision Analytics The end of 2008 was a critical juncture because auto originations were at their lowest level as seen in slide 3 showing the growth in auto loan and lease acquisition volumes by type of financial institution. All loans and lease volumes have now increased by 140%. Additionally, the end of 2008 saw GMAC- a large Captive Auto finance company form Ally Bank. The data shows that only at Q1 2009 can this shift be reflected confidently. Furthermore, examinations of developments from this time period ensure a consistent position when considering type of financial institution. Finance companies actually have seen the largest increase in volume at 289% since this time, while Banks (135%), Credit Unions (121%) and Captive Auto finance (99%) volumes have also at least doubled. Near-prime and subprime lending have witnessed substantial origination growth since 2006 as reflected in slide 5 shows the volume trends by credit grade. However, prime and super-prime lending has grown faster. Deep-subprime lending is still at about the same level as 2006. Therefore, originations today have a lower proportion of non-Prime commitments than the period prior to the recession. Examining volumes since the trough of the recession presents a different (but logical) perspective. For example, subprime lending volumes have increased almost 193% since the end of 2008, and near-prime volumes have grown 175%, a rate higher than the total overall growth (140%). In the recession, auto lending volume slowed, specifically for non-prime credit grades. Lenders restricted access to riskier customers (but not super-prime, which actually held steady). It is logical that the volume of riskier credit grades would grow faster as the economy recovers, and lending returns to normal conditions. The proportion of volume by lending type for each financial institution in the second quarter of 2014 is represented in slide 6 and finance companies are now writing about 58% of the deep- subprime paper and 37% of near-prime (up from 33% and 23% respectively in 2006-2008). However, at the other end of the credit spectrum, advances were also made. Finance companies now account for 9.5% of super-prime and 8.6% of prime volume whereas they typically accounted for about 3% of either grade prior to the recession. From 2006 to today, average size of an auto loan or lease is up 8.7%, less than half of the compound rate of inflation. The Captive Auto finance companies had long held the highest average loan amount as seen on slide 7, but Bank averages have grown recently to match them at approximately $21,674 per origination. Finance company origination size is the lowest of all financial institution types ($17,820). Meanwhile, the average size has progressed 18% since 2006. Since 2006, average loan/line commitments for all types of lending except deep-subprime have grown between 6% and 9%. Deep-subprime paper saw a large decline in average size during the recession and is still about 3% below the 2006 level. Average terms for new loans and leases also have recently returned to pre-recession levels. Banks have the highest current average term at 62 months. Finance companies and Captive Auto finance companies have the lowest average term (56 and 55 months respectively). The interest rate trends by type of lending as seen on slide 8 show that rates on super-prime (now 2.89%), prime (now 3.91%) and near-prime (6.92%) have declined significantly since 2009. Subprime (now 12.88%) and particularly deep-subprime (16.74%) have declined less. Consequently, spreads between super-prime and deep-subprime are currently 13.85%. This is because of a long-term widening of spreads between near-prime and subprime paper, and especially subprime and deep-subprime. Banks generally have higher interest rates, even across similar credit grades. Still, the differences in rates in these categories between Banks and Captive Auto have declined significantly. Where this spread may have been 150 bp or higher in rates five years ago, Bank APRs are currently 35 bp for super-prime and 62 bp for prime over rates for Captive Auto finance companies. Finance companies show much higher rates (at least 600 bp over) than other financial institutions for subprime and deep-subprime paper. On slide 9 we examine the acquisition volumes by state and you can see that in 2011, Texas bypassed California in quarterly auto volume and is now the leading state in the nation. Together, Texas and California account for 23% of national volume. Florida and New York make up almost 12%. Ten other states account for between 2% (Maryland) and 3.8% (Pennsylvania). The remaining states (and D.C.) account for 36% of volume. Volume has grown fastest in North Dakota (up 319% since 2008) and slowest in Connecticut and New Jersey (110% and 100% respectively). In the second part of this blog, we will look at trends in auto lending outstandings and performance. Learn more about what Experian Intelliview can do for you.
By: Mike Horrocks A recent industry survey was published that called out the number one reason that lenders were dissatisfied or willing to go to another financial institution (and take their book of business with them) was not compensation. While, compensation is often thought of as the number one driver for this kind of change in your bench of lenders, it had much more to do with being able to serve customers efficiently. One of the key reasons that lenders were unhappy was that they were in a workflow and decisioning process where the lender could not close loans on time, putting stress on the loan officer\'s relationships and destroying borrower confidence. Thinking of my own experiences as a commercial lender, my interactions with the private bankers, branch managers, and lenders that served every kind of customer, I would absolutely have to agree with this study. Nothing is more disheartening then working on bringing in a client, and then having the process not give me a response in the time that my clients are expecting or that the completion is achieving. Automation in the process is the key. While lenders still will need to be engaged in the process and paying attention to the relationship, it can be significantly refocused to other parts of the business. This leads to benefits such as: Protecting the back office and the consistence of booking and servicing loans. Ensuring that the risk appetite is consistent for the institution for every deal. Growing a portfolio of loans that can and will adhere to sound portfolio management techniques. So how is your process supporting lenders? Are you automating to help in areas that give you a competitive advantage with robust credit scores, decision strategies or risk management solutions that are helping close deals quickly or are you requiring a process that is keeping them from bringing more customers (and profits) in the door? Henry Ford is credited to say, “Coming together is a beginning. Keeping together is progress. Working together is success.” Take a closer look at your lending process. Do you have the tools that help bring your lenders, your customers, and your organization together? If you don’t you may be losing some of your best talent for loan production at a time when you can least afford it.
Cherian Abraham, our mobile commerce and payments consultant, recently wrote about the future of mobile banking in regards to the Apple Pay news out this week. The below article originally appeared in American Banker and is an edited version of his blog post. Editor's note: A version of this post originally appeared on Drop Labs. Depending on who you ask, the launch of Apple Pay was either exciting or uninspiring. The truth is far more complicated — particularly in terms of how it will impact the dynamics of Apple's relationship with banks. I would venture that most of the financial institutions on stage at the launch of Apple Pay earlier this week have mixed feelings about their partnership. They have had to sacrifice a lot of the room for negotiation that banks have retained with other wallet players such as Google Wallet and Softcard (the company formerly known as Isis). If you are an Apple Pay launch partner, having your credential or token on Apple Pay does not mean that you get to extend that credential into your own mobile banking app or wallet. For example, Bank A, with its credentials stored on Apple Pay, cannot leverage those credentials so that its own mobile banking app can use them to enable direct payments. Banks will have to accept that their credentials will be indefinitely locked to Apple Pay till deletion. No bank wants its brand to be overshadowed by Apple, nor do banks want smartphone users to close their app and open up a different wallet to make a payment. But this was not up for debate with Apple, which wants to tightly control the payment experience. This should be a cause of concern for Apple Pay partner banks, for whom enabling payments outside of Apple Pay in iOS is now off the table. Banks' only hope of having an integrated payment experience is to focus on Android, which supports host card emulation technology. HCE uses software to emulate a contactless smart card and communicate with near-field communication readers. I would expect a lot of banks to revisit Android and HCE in upcoming months. That goes double for the institutions that were not chosen to partner with Apple, along with retailers who have not rejected contactless payments as a modality in stores. Given that Apple will reportedly collect fees from its partner banks when customers execute transactions on the mobile wallet, all banks should be thinking about ways that they can make their presence on other Apple offerings more lucrative. If I were them, I would begin segmenting customers who hold one of iTunes' 500 million active accounts to see which ones are affluent spenders and which cards have higher interest rates, then implement targeted customer incentive strategies to move Apple users to higher-rate cards. I would use the same tactic to convince customers to replace debit cards on file with iTunes with credit cards. But the big takeaway is that from here on out, banks can only gain incremental value from iOS. If they want to create a unified payment system that customers can use as part of their existing banking relationships, they'll have to focus on Android. Should that happen, I doubt that Apple could prevent such moves from diluting its merchant value proposition. But such moves on the part of issuers are hardly long-term strategies to incentivize frequent usage, merchant participation and overall customer value. Learn more about how Experian can help you with your mobile banking needs please visit: http://ex.pn/1t3zCSJ?INTCMP=DA_Blog_Post091214
By: Mike Horrocks Note: As we wrap our 3-part blog coverage of the American Banker webinar, “What’s next for mobile banking?”, we focus on the comments from Cherian Abraham and a great question on wearable devices. Experian - What\'s Next for Mobile Banking from Experian Decision Analytics It is amazing to me as you look at the world, science, families, etc., how often there are polar opposites that just never seem to come together. Cats and dogs and little brothers and sisters are just a few that I see on a daily basis it seems like. But I have hope for unity at last and that comes from mobile banking. Let me explain… Thanks to mobile devices, banks are in a golden era where they can have access 24/7 to their clients and prospects. Sitting on a couch, watching the latest hit show, a consumer can now have a banking experience - couch potatoes that need banking rejoice! And by partnering with the right team you can ensure that in every transaction: The offer is relevant and that the onboarding is frictionless, while maintain the risk appetite of the bank. The consumer and the device are authenticated and that all KYC issues are addressed. That the relationship and the value proposition of the bank are tied together meaningfully to help influence the future of additional transactions. Also thanks to mobile, wearable and fitness devices have a place in this process as well. While really appealing to the tech leader, we do need pause to find the use case – with payments often coming to the top. So how long will it be until we are at the point that while out jogging you can also pick up your morning coffee with a bump and pay from the fitness device? So while we are still looking for the use case to make sure value is right, I can see where the fitness device wearer gets their banking needs fulfilled as well in the near future. So back to my first point: of hope for unity and cats living with dogs. Thanks to mobile we have an ecosystem that allows us to have the person on the couch and the person on the run all being serviced – unity via mobile banking.
By: Mike Horrocks Last week I had a friend of mine (who would be a self-declared geek) go to GenCon in Indianapolis. For those that don’t know anything about GenCon, it is one of the largest gaming conventions in the world and it is the only time that you can expect to see everyday folks dressed up as superheroes or gaming icons walking the streets. I noticed however as he was sharing his photos that among the hundreds of Batmen, Supermen, and Wonder Women there were not many sidekicks. Now imagine what would Batman be like without Alfred, his trusty butler, friend, and guy who keeps the Bat-mobile running? So hold that thought and now think about your customers. They are your superhero. They help you hit your goals…but are you more than just a bank to them? So as part 2 of our follow up on the American Banker webinar, “What’s next for mobile banking”, I want to talk about some of the key points that Dominic Venturo, the chief innovation officer for US Bank covered, specifically about the role your financial institution can have in the life of your bank customers. Your customers are consumers. In the normal process of all things consumer they are constantly: Becoming aware of products in the market place Searching and evaluating offers Deciding and purchasing Experiencing moments that will create loyalty (or not) Triggering or receiving offers to start the process again So ask yourself, are you more than just a banker? Have you helped your customers in the process of picking the best value for them up to the point of spending that savings or needing credit? Or once the transaction is complete, have you been able to create a memorable experience or help that kind of transaction happen again? US Bank is doing a great job, as Dominic showed with its Peri app in being a part of that process and extending the role of the bank with the consumer. Just like Alfred was always tinkering or helping with the next Bat-gadget, great bankers will be working with, adapting to, and creating the next mobile experience. There are great organizations out there already that are helping remove the friction of the mobile space in actions like account acquisition, with Mitek and their driver license scanning to account opening apps. Is there an opportunity for you to add that function (or maybe something else) to the utility belt for your bank? So again consider what your role is for your customers. Can you be more than a banker to them? Where can you help them in the consumer process to add more value to their life? What kind of sidekick are you to your customer/your superhero? Or maybe even more important, does your customer feel like you are their superhero?? Next week we wrap up the mobile webinar series…until then.
by John P. Robertson, Senior Business Process Specialist As a Senior Business Process Specialist for the Experian Decision Analytics, John provides guidance to clients in the areas of profitability strategies for risk based pricing and relationship profitability. He assists banks in developing and implementing successful transitions for commercial lending that improve both the financial efficiency of the lending process and the productivity of the lending officers. John has 26 years of experience in the banking industry, with prior background in cash, treasury, and asset /liability management. For quite some time now, the banking industry has experienced a flat funding curve. Very small spreads have existed between the short and long term rates. Slowly, we have begun to see the onset of a normalized curve. At this writing, the five year FHLB Advance rate is about 2.00%. A simplistic view of loan pricing looks something like this: + Interest Income + Non-Interest Income - Cost of Funds - Non-Interest Expense - Risk Expense = Income before Tax The example is pretty simple and straight forward, “back of the napkin” kind of stuff. We back into a spread needed to reach breakeven on a five year fixed rate loan by using the UBPR (Uniform Bank Performance Report) national peer average for Non-Interest Expense of approximately 3.00%. You would need a pre-tax rate requirement of 5.00% before you consider the risk and before you make any money. If you tack on 1.00% for risk and some kind of return expectation, the rate requirement would put you around a 6.00% offering level. From a lender’s perspective, a 6.00% rate on a minimal risk five year fixed rate loan doesn’t exist. They might as well go home. CFO’s have been asking themselves, “What do we do with this excess cash? We get such a paltry spread. How can we put higher yielding loans on our books at today’s competitive rates? We’ve got plenty of capital even with the new regulation requirements so can we repo the securities and use the net spread for our cost of funds?” Leveraging the excess cash and securities in order to meet the pressing rate demands may be a way banks have been funding selective loans at such low rates on highly competitive, quality loan originations of size. But you have to wonder, what about that old adage, “You don’t short fund long term loans.” Won’t you eventually have to deal with compression and “margin squeeze”? Oh and by the way, aren’t you creating a mismatch in the balance sheet which requires explanation. Are they buying a swap to extend the maturity? If so, are they really making their targeted return? If this is what they are doing, why not just accept a lower return but one that is better than the securities? Share your thoughts with me.
By: Mike Horrocks Last week, I spoke to you about an American Banker webinar that Experian hosted on “What is next for mobile banking”. Hopefully you were able to attend, but for those that could not, I promised we would cover a few of the key points. So here we go. I just sent my youngest off to Kindergarten this week and along with the excitement about a new teacher, new friends, and of course recess comes the anxiety of a new building, a new routine and all that comes with change. As I saw my little guy getting nervous, his big 4th grade brother came over and reminded him that he would be his buddy and help him around the school that first day. This made me think about the mobile space. I am sure that there are a lot of readers that are excited to have an app on a smartphone that they can show their friends over drinks, but along with that excitement comes the fear of maybe not knowing all they don’t know in the mobile space and the risks that could come from that. They need a buddy. They need a trusted business partner. In the American Banker webinar, Gordon Baird of nD bancgroup called out just how important the right collaboration and partnership is for a financial institution looking to go into or expand their mobile banking footprint. Mutually beneficial partnerships that provide value beyond the typical mobile experience is what will retain mobile banking clients. Baird said it best as he explained, \"Cooperation is a competitive advantage.\" So when you are looking at your mobile banking strategies ask yourself: Is my approach an individual effort? If it is a solo effort, who can I bring to the table? What are the points in my customer’s mobile experience that I cannot optimize? Who can I partner with that can optimize the customer’s mobile experience? Do I have the right partners on my team or do I need to make some changes? It is a great time to be working on mobile banking strategies. There is so much innovation that the excitement and engagement has never been better - so take advantage of collaboration and partner up for success.
Many times prescreen filtering stops after risk selection but that’s just one small piece of the puzzle. Experian has new tools that can help you pick out the most profitable consumers based on your business objectives. Think about it - if you’re looking for consumers who will be profitable bankcard customers, wouldn’t you like to know what their total annual plastic spend is? Bankcard users come in all shape and sizes each with their own behavior patterns and preferences…so knowing if your prospects are revolvers or transactors, likely to balance transfer, or if they are rate sensitive, is all vital information to choosing who you want as your next customer. At Experian, we have a suite of the most advanced analytical tools such as TAPS (Total Annual Plastic Spend), Trend View Solutions, Balance Transfer Index, Estimated Interest Rate calculators, and others. We can help you sift through your list to find the most profitable consumers.t. In my next installment I’ll look at next generation prospecting models - beyond response.
Online crooks are getting more sophisticated by the second. Nowadays, fraudsters have the ability to conduct “clean fraud,” obtaining legitimate identities of users from the black market or data breaches to compromise a victim’s card account. Malware, too, is becoming more sophisticated both in the mobile and non-mobile space. But how can organizations fight such high-level tactics in such a broad, complex space? John Sarreal, Senior Director of Product Management at 41st Parameter, an online fraud prevention player, sat down with PYMNTS after the recent release of the white paper “Surveillance, Staging, and the Fraud Lifecycle” to reveal the inner workings of a cyber criminal’s mind, what should be done before and after data is snatched, and which aspects of account takeover are the most overlooked and dangerous. Interview excerpts Take us through the mind of a cyber-criminal. What are the most sophisticated tactics used today to capture account information from corporate systems? JS: The amount of clean fraud that we see with our customers is unprecedented. By focusing on obtaining legitimate credentials and identities, fraudsters are more easily able to bypass traditional controls. This means that fraud tools need to adapt and gather additional attributes to augment their fraud screening. Although the techniques they’re using now to obtain these credentials are increasingly sophisticated, the MOs are still rooted in basic phishing and social engineering attacks. Fraudsters will use identity information obtained from the black market or data breaches to conduct very convincing phishing attacks to reveal everything that is needed to compromise a victim’s card account. There’s also increasing sophistication in the use of malware to steal sensitive credentials in both the mobile and non-mobile arena. In Android, for example, Google recently passed a vulnerability that allows sophisticated malware to impersonate digital certificate signing authorities. This vulnerability allowed the malware to install itself on a mobile device without any user notification or intervention – obviously, a very dangerous attack. Link to the podcast and transcript here.
Every prospecting list needs to be filtered by your organizations specific credit risk threshold. Whether you’re developing a campaign targeting super-prime, sub-prime, or consumers who fall somewhere in between, an effective credit risk model needs to do two things: 1) accurately represent a consumer’s risk level and 2) expand the scoreable population. The newly redeveloped VantageScore 3.0 does both. With VantageScore 3.0 you get a scoring model that’s calibrated to post-recession consumer behavior, as well the ability to score nearly 35 million additional consumers - consumers who are typically excluded from most marketing lists because they are invisible to older legacy models. Nearly a third of those newly-scoreable consumers are near-prime and prime. However, if your market is emerging to sub-prime consumers - you’ve found the mother-load! Delinquency isn’t the only risk to contend with. Bankruptcies can mean high losses for your organization at any risk level. Traditional credit risk models are not calibrated to specifically look for behavior that predicts future bankruptcies. Experian's Bankruptcy PLUS filters out high bankruptcy risk from your list. Using Bankruptcy PLUS you’re able to bring down your overall risk while removing as few people as possible. My next post looks into ways to identify profitable consumers in your list. For more see: Four steps to creating the ideal prospecting list.
At Experian, we frequently get asked by clients how they can get bigger mailing list that open new markets and reach more people. But bigger isn’t necessarily better, and it doesn’t always translate to a higher return on your marketing investment. Instead of just increasing volume, let’s consider a different, more focused approach - using the latest in analytic tools and scores. This approach relies on effective pre-screening to create the ideal prospecting lists based on your business objective. We’ve identified four key steps to building a prescreen list of your ideal prospects: Optimize risk selection Find the most profitable consumers Target customers who need or want your products Design the right offer In the next post, Optimal Risk Selection, I’ll dig deeper into each step and present some tools and scores that can help meet the objective of each.
By: Teri Tassara “Do more with less” is a pervasive and familiar mantra nowadays as lenders seek to make smarter and more precise lending decisions while expertly balancing growth objectives and tightened budgets. And lest we forget, banks must also consider the latest regulations and increased regulatory scrutiny from the industry’s governing bodies - such as OCC and CFPB. Nowadays, with the extensive application of predictive analytics in everyday lending practices, it makes sense to look to analytics to fine tune decision-making and achieve a greater return on investment in three common growth objectives for bankcard acquisitions: Profitable growth - How do I find the most profitable acquisition targets? How do I know the borrowing characteristic of each consumer? Are they high spend or high income? Do they carry a balance but always make timely payments? Universe expansion - How many more consumers are there that meet my lending criteria? How can I effectively reach them? Customer experience - How do I offer the right product to the right customer? How do I communicate to my customers that I understand their lending needs? To that end, growth objectives vary by lender; as such, so should their bankcard acquisitions analytical toolkit. The analytical toolkit arsenal should enable lenders to develop refined bankcard campaign strategies based on their specific objectives. Look for upcoming posts on the essential components of the bankcard acquisitions analytical toolkit.
By: Mike Horrocks The Wall Street Journal just recently posted an article that mentioned the cost of the financial regulations for some of the largest banks. Within the article it is staggering to see the cost of the financial crisis and also to see how so much of this could have been minimized by sound banking practices, adoption to technology, etc. As a former commercial banker and as I talk with associates in the banking industry, I know that there are more causes to point at for the crisis then there are fingers…but that is not the purpose of my blog today. My point is the same thing I ask my teenage boys when they get in trouble, “Now, what are you going to do to fix it?” Here are a couple of ideas that I want to share with the banking industry. Each bank and market you are going after is a bit unique; however think about these this week and what you could do. It is about the customer – the channel is just how you touch that customer. Every day you hear the branch office is dead and that mobile is the next wave. And yes, if I was a betting man, I would clearly say mobile is the way to go. But if you don’t do it right, you will drive customers away just as fast (check out the stats from a Google mobile banking study). At the end of the day, make sure you are where your customers want to be (and yes for some that could even be a branch). Trust is king. The Beatles may have said that “All You Need Is Love”, but in banking it is all about trust. Will my transaction go thru? Will my account be safe? Will I be able to do all that I need to do on this mobile phone and still be safe since it also has Angry Birds on it? If your customer cannot trust you to do what they feel are simple things, then they will walk. You have to protect your customers, as they try to do business with you and others. Regulations are here to stay. It pains me to say it, but this is going to be a truth for a long while. Banks need to make sure they check the box, stay safe, and then get on to doing what they do best – identify and manage risk. No bank will win the war for shareholder attention because they internally can answer the regulators better than the competition. When you are dealing with complicated issues like CCAR, Basel II or III, or any other item, working with professionals can help you stay on track. This last point represents a huge challenge for banks as the number of regulations imposed on financial institutions has grown significantly over the past five years. On top that the level of complexity behind each regulation is high, requiring in-depth knowledge to implement and comply. Lenders have to understand all the complexity of these regulations so they can find the balance to meet compliance obligations. At the same time they need to identify profitable business opportunities. Make sure to read our Comply whitepaper to gain more insight on regulations affecting financial institutions and how you can prepare your business. A little brainstorming and a single action toward each of these in the next 90 days will make a difference. So now, what are you going to do to fix it?
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