Credit Lending
Financial services companies have long struggled to make inclusive decisions for small businesses and for low- and moderate-income consumers. One key reason: to make accurate predictions of the financial risks associated with those customers’ accounts requires lenders to rely on a wider variety of data than a credit score alone. To accurately assess risk, expanded Fair Credit Reporting Act regulated data is helpful – including rental data, trended data, enhanced public records, alternative financial services data and more. This expanded FCRA data is one key to financial inclusion. Without that data, lenders risk rejecting potentially profitable customers, including so-called credit invisibles and thin file consumers. In fact, The Federal Reserve, along with four important financial services regulators, highlighted the consumer benefits of alternative data in their December 2019 interagency statement. That statement also highlighted the increased importance of managing compliance when firms use alternative data in credit underwriting. With hundreds of data sources available to help with important tasks such as verifying identity, checking credit, and assessing the value of automotive and real-estate collateral, why have some lenders been slow to use the most appropriate data attributes when making credit decisions? One reason is a matter of IT Architecture; another is priorities. Changing a business process to take advantage of new data requirements can be prohibitively lengthy and costly – in terms of both analytical and IT resources. This is especially true for older systems—which were seldom adapted to use Application Programming Interfaces (APIs) supporting modern data structures such as JSON. Furthermore, data access to older systems can require specific types of system connectivity such as VPNs or leased lines. Latency is important in this type of application: some of these tasks have to be done instantly in a digital-first or digital-only lending environment. So is time to market: lenders deploying analytics processes cannot wait for overtaxed IT teams to complete lengthy projects. Lenders’ analytics and IT teams have long known they need to be more agile and efficient, faster to market, and increasingly secure. Their answer, largely, has been a slow but steady migration of their systems to the cloud. A 2019 McKinsey survey revealed that CIOs were modernizing their infrastructures primarily to achieve four goals: agility and time to market, quality and reliability, cost, and security. There are other benefits as well. But if the business case for a cloud strategy was somewhat clear to IT and analytics leaders, it became crystal clear to the rest of the business in 2020. As companies shifted to at-home work using cloud-based collaboration tools, especially videoconferencing services, most companies conquered what was perhaps the final barrier to entry—the fear that the issues of data privacy and security were somehow more insurmountable with virtual machines, containers, and microservices than with on-premise infrastructure. Last quarter, the leading cloud providers Amazon Web Services, Google Cloud Platform, and Microsoft Azure reported incredible annual revenue growth: 29%, 45%, and 48% respectively. COVID-19 has proven to be the catalyst that greatly sped up the transition to cloud technologies. The jump to the cloud means that lenders are suddenly more capable than ever at making analytically sound – and therefore more financially inclusive decisions. The key to analytical decision-making is to use the right data and to make the most appropriate calculations (called attributes) as part of a business strategy or a mathematical model. With Experian programs such as Attribute Toolbox now available in the cloud, calculating those all-important attributes is as simple for the IT department as coding an API call. Lenders will soon be able just as easily to retrieve and process raw data from over 100 data sources, to recognize their native formats and to extract the desired information quickly enough for real-time and batch decisioning. The pandemic has brought economic distress to millions of Americans—it is unlike anything in our lifetimes. The growth of cloud computing promises to enable these consumers to obtain additional products as well as more favorable pricing and terms. It’s ironic that COVID has accelerated the adoption of the very technologies that will expand access to credit for many people who cannot currently access it from mainstream financial firms. To learn more about our Attribute Toolbox, click here. Learn More
The shift created by the COVID-19 pandemic is still being realized. One thing that we know for sure is that North American consumers’ expectations continue to rise, with a focus on online security and their digital experience. In mid-September of this year, Experian surveyed 3,000 consumers and 900 businesses worldwide—with 300 consumers and 90 businesses in the U.S.—to explore the shifts in consumer behavior and business strategy pre- and post-COVID-19. More than half of consumers surveyed continue to expect more security steps when online, including more visible security measures in place on websites and more knowledge about how their data is being protected and stored. However, those same consumers aren’t willing to wait more than 60 seconds to complete an online transaction making it more important than ever to align your security and experience strategies. While U.S. consumers are optimistic about the economy’s recovery, they are still dealing with financial challenges and their behaviors have changed. Future business plans should take into account consumers’: High expectations of their online experience Increases in online spending Difficulty paying bills Reduction in discretionary spending Moving forward, businesses are focusing on use of AI, online security, and digital engagement. They are emphasizing revenue generation while looking into the future of online security. Nearly 70% of businesses also plan to increase their fraud management budgets in the next 6 months. Download the full North America Insights Report to get all of the insights into North American business and consumer needs and priorities and keep visiting the Insights blog in the coming weeks for a look at how trends have changed from early in the pandemic. North America Insights Report Global Insights Report
In what has been an unprecedented year, marked by a global pandemic and a number of economic and personal challenges for both businesses and consumers, Americans are maintaining healthy credit profiles during the COVID-19 pandemic. Experian released the 11th annual State of Credit report, which provides a comprehensive look at the credit performance of consumers across America by highlighting consumer credit scores and borrowing behaviors. This year’s report provided an extended view into how consumers are managing and repaying their debts; showing most Americans are practicing responsible credit management by reducing utilization rates, credit card balances and late payments. Even in light of the pandemic, data on American consumers across all generations shows responsible credit management including reduced utilization rates, credit card balances and late payments. “While it’s difficult to predict when the economy will return to pre-pandemic levels, we are seeing promising signs of responsible credit management, especially among younger consumers,” said Alex Lintner, group president Experian Consumer Information Services. Highlights of Experian’s State of Credit report: 2020 State of Credit Report 2019 2020 Average VantageScore[1,2] 682 688 Average number of credit cards 3.07 3.0 Average credit card balance $6,629 $5,897 Average revolving utilization rate 30% 26% Average number of retail credit cards 2.51 2.42 Average retail credit card balance $1,942 $2,044 Average nonmortgage debt [3] $25,386 $25,483 Average mortgage debt $213,599 $215,655 Average 30 - 59 days past due delinquency rates 3.9% 2.4% Average 60 - 89 days past due delinquency rates 1.9% 1.3% Average 90 - 180 days past due delinquency rates 6.8% 3.8% Though not the same, some consumers are experiencing a second economic downturn. The economic fallout stemming from COVID-19 coming after the Great Recession of 2009, which took place in the not too distant past. Silent, Boomer, Gen X and Gen Z Americans are managing responsible credit utilization rates and holding credit cards below the recommended maximum. Are the older generations more credit responsible? Average VantageScore follows rank order from oldest to youngest – though contributed to by length of time possessing credit, number of lines of credit, and other factors that drive credit score – with the Silent Generation having the highest score (729), then Boomers (716), followed by Gen X (676), Gen Y (658) and Gen Z (654). Gen X consumers have the highest average credit card balance at $7,718 and utilization at 32%, while Gen Z has the lowest average credit card balance at $2,197 and the Silent Generation has the lowest utilization at 13%. Year over year data shows positive results driven by younger borrowers. While average utilization rates dropped for every generation, the most significant decreases were seen in Gen Z borrowers who saw a 6 percent reduction in their use of available credit, followed by Millennials who saw a 5% decrease year-over-year. While Gen Z and Gen Y are carrying more credit cards than they were in 2020, their credit card balances decreased year-over-year. These factors fueled a 13-point increase in average credit scores for Gen Z and an 11-point increase for Millennials. When spliced by state, the data Minnesota had the highest credit score, while Mississippi had the lowest credit score. While the future is still uncertain, perhaps consumers can find comfort in knowing there is much they can do to improve their financial health – including their credit scores – and that there are numerous resources for them to access during these unprecedented times. “As the consumer’s bureau, we are committed to informing, guiding, and protecting consumers. Educating Americans about the factors included in their credit profile and how to manage these responsibly is of critical importance, especially on the road to economic recovery from the COVID-19 pandemic,” said Lintner. In an effort to encourage consumers to regularly monitor and understand the information in their credit reports, Experian joined forces with the other U.S. credit reporting agencies, to offer free weekly credit reports to all Americans through April 2021 via AnnualCreditReport.com. In addition to the free weekly credit report at AnnualCreditReport.com, Experian also offers consumers free access to their credit report and ongoing credit monitoring at Experian.com. Additional credit education resources and tools Experian’s #CreditChat: Hosted by @Experian on Twitter with financial experts every Wednesday at 3 p.m. Eastern time The Ask Experian blog: Find answers to common questions, advice and education about credit Experian Boost: Add positive telecom and utility payments to your Experian credit report for an opportunity to improve your credit scores experian.com/consumer-education-content/ experian.com/coronavirus 1VantageScore is a registered trademark of VantageScore Solutions, LLC. 2VantageScore range is 300 to 850.
The CU Times recently reported on a nationwide synthetic identity fraud ring impacting several major credit unions and banks. Investigators for the Federal and New York governments charged 13 people and three businesses in connection to the nationwide scheme. The members of the crime ring were able to fraudulently obtain more than $1 million in loans and credit cards from 10 credit unions and nine banks. Synthetic Identity Fraud Can’t Be Ignored Fraud was on an upward trend before the pandemic and does not show signs of slowing. Opportunistic criminals have taken advantage of the shift to digital interactions, loosening of some controls in online transactions, and the desire of financial institutions to maintain their portfolios – seeking new ways to perpetrate fraud. At the onset of the COVID-19 pandemic, many financial institutions shifted their attention from existing plans for the year. In some cases they deprioritized plans to review and revise their fraud prevention strategy. Over the last several months, the focus swung to moving processes online, maintaining portfolios, easing customer friction, and dealing with IT resource constraints. While these shifts made sense due to rapidly changing conditions, they may have created a more enticing environment for fraudsters. This recent synthetic identity fraud ring was in place long before COVID-19. That said, it still highlights the need to have a prevention and detection plan in place. Financial institutions want to maintain their portfolios and their customer or member experience. However, they can’t afford to table fraud plans in the meantime. “72% of FI executives surveyed believe synthetic identity fraud to be more challenging than identity theft. This is due to the fact that it is harder to detect—either crime rings nurture accounts for months or years before busting out with six-figure losses, or they are misconstrued as credit losses, and valuable agent time is spent trying to collect from someone who doesn’t exist,” says Julie Conroy, Research Director at Aite Group. Prevention and Detection Putting the fraud strategy discussion on hold—even in the short term—could open up a financial institution to potential risk at time when cost control and portfolio maintenance are watch words. Canny fraudsters are on the lookout for financial institutions with fewer protections. Waiting to implement or update a fraud strategy could open a business up to increased fraud losses. Now is the time to review your synthetic identity fraud prevention and detection strategies, and Experian can help. Our innovative new tool in the fight against synthetic identity fraud helps financial institutions stop fraudsters at the door. Learn more
As industry experts are still unsure when the economy will fully recover, re-entry into marketing preapproved credit offers seems like a far-off proposal. However, several of the top credit card issuers are already mailing prescreen offers, with many other lenders following suit. When the time comes for organizations to resume, or even expand this type of targeting, odds are that the marketing budget will be tighter than in the past. To make the most of the limited available marketing spend, lenders will need to be more prescriptive with their selection process to increase response rates on fewer delivered offers. Choosing the best candidates to receive these offers, from a credit risk perspective, will be critical. With delinquencies being suppressed due to CARES Act reporting guidelines, identifying consumers with the ability to repay will require additional assessment of recent credit behavior metrics, such as actual payment amounts and balance migration. Along with the presence of explicit indicators of accommodated trades (trades affected by natural disaster, trades with a balance but no scheduled payment amount) on a prospect’s credit file, their recent trends in payments and balance shifts can be integral in determining whether a prospect has been adversely impacted by today’s economic environment. Once risk criteria have been developed using a mix of bureau scores (like VantageScore®), traditional credit attributes and trended attributes measuring recent activity, additional targeting will be critical for selecting a population that’s most likely to open the relevant trade type. For credit cards and personal installment loans, response performance can be greatly improved by aligning product offers with prospects based on their propensity to revolve, pay in full each month or consolidate balances. Additionally, the process to select final prospects should integrate a propensity to open/respond assessment for the specific offering. While many lenders have custom models developed on previous internal response performance, off-the-shelf propensity to open models are also available to provide an assessment of a prospect’s likelihood to open a particular type of trade in the coming months. These models can act as a fast-start for lenders that intend to develop internal custom models, but don’t have the response performance within a particular product/geography/risk profile. They are also commonly used as a long-term solution for lenders without an internal model development team or budget for an outsourced model. Prescreen selection best practices Identify geography and traditional credit risk assessment of the prospect universe. Overlay attributes measuring accommodated trades and recent payment/balance trends to identify prospects with indications of ability to pay. Segment the prospect universe by recent credit usage to determine products that would resonate. Make final selections using propensity to open model scores to increase response rates by only making offers to consumers who are likely looking for new credit offers. While the best practices listed above don’t represent a risk-free approach in these uncertain times, they do provide a framework for identifying prospects with mitigated repayment risk and insights into the appropriate credit offer to make and when to make it. Learn about in the market models Learn about trended attributes VantageScore is a registered trademark of VantageScore Solutions, LLC.
Big data is bringing changes to the way credit scores are reported and making it easier for lenders to find creditworthy consumers, and for consumers to qualify for the financing they need. Since last year’s annual report, alternative credit data1 has continued to gain in popularity. In Experian’s latest 2020 State of Alternative Credit Data report, we take a closer look at why alternative credit data is supplemental and essential to consumer lending and how it’s being adopted by both consumers and financial institutions. While the topic of alternative credit data has become more well known, its capabilities and benefits are still not widely discussed. For instance, did you know that … 89% of lenders agree that alternative credit data allows them to extend credit to more consumers. 96% of lenders agree that in times of economic stress, alternative credit data allows them to more closely evaluate consumer’s creditworthiness and reduce their credit risk exposure. 3 out of 4 consumers believe they are a better borrower than their credit score represents. Not only do consumers believe they’re more financially astute than their credit score depicts – but they’re happy to prove it, with 80% saying they would share various types of financial information with lenders if it meant increased chances for approval or improved interest rates. This year’s report provides a deeper look into lenders’ and consumers’ perceptions of alternative credit data, as well as an overview of the regulatory landscape and how alternative credit data is being used across the lending marketplace. Lenders who incorporate alternative credit data and machine learning techniques into their current processes can harness the data to unlock their portfolio’s growth potential, make smarter lending decisions and mitigate risk. Learn more in the 2020 State of Alternative Credit Data white paper. Download now
Changing consumer behaviors caused by the COVID-19 pandemic have made it difficult for businesses to make good lending decisions. Maintaining a consistent lending portfolio and differentiating good customers who are facing financial struggles from bad actors with criminal intent is getting more difficult, highlighting the need for effective decisioning tools. As part of our ongoing Q&A perspective series, Jim Bander, Experian’s Market Lead, Analytics and Optimization, discusses the importance of automated decisions in today’s uncertain lending environment. Check out what he had to say: Q: What trends and challenges have emerged in the decisioning space since March? JB: In the age of COVID-19, many businesses are facing several challenges simultaneously. First, customers have moved online, and there is a critical need to provide a seamless digital-first experience. Second, there are operational challenges as employees have moved to work from home; IT departments in particular have to place increase priority on agility, security, and cost-control. Note that all of these priorities are well-served by a cloud-first approach to decisioning. Third, the pandemic has led to changes in customer behavior and credit reporting practices. Q: Are automated decisioning tools still effective, given the changes in consumer behaviors and spending? JB: Many businesses are finding automated decisioning tools more important than ever. For example, there are up-sell and cross-sell opportunities when an at-home bank employee speaks with a customer over the phone that simply were not happening in the branch environment. Automated prequalification and instant credit decisions empower these employees to meet consumer needs. Some financial institutions are ready to attract new customers but they have tight marketing budgets. They can make the most of their budget by combining predictive models with automated prescreen decisioning to provide the right customers with the right offers. And, of course, decisioning is a key part of a debt management strategy. As consumers show signs of distress and become delinquent on some of their accounts, lenders need data-driven decisioning systems to treat those customers fairly and effectively. Q: How does automated decisioning differentiate customers who may have missed a payment due to COVID-19 from those with a history of missed payments? JB: Using a variety of credit attributes in an automated decision is the key to understanding a consumer’s financial situation. We have been helping businesses understand that during a downturn, it is important for a decisioning system to look at a consumer through several different lenses to identify financially stressed consumers with early-warning indicators, respond quickly to change, predict future customer behavior, and deliver the best treatment at the right time based on customer specific situations or behaviors. In addition to traditional credit attributes that reflect a consumer’s credit behavior at a single point in time, trended attributes can highlight changes in a consumer’s behavior. Furthermore, Experian was the first lender to release new attributes specifically created to address new challenges that have arisen since the onset of COVID. These attributes help lenders gain a broader view of each consumer in the current environment to better support them. For example, lenders can use decisioning to proactively identify consumers who may need assistance. Q: What should financial institutions do next? JB: Financial institutions have rarely faced so much uncertainty, but they are generally rising to the occasion. Some had already adopted the CECL accounting standard, and all financial institutions were planning for it. That regulation has encouraged them to set aside loss reserves so they will be in better financial shape during and after the COVID-19 Recession than they were during the Great Recession. The best lenders are making smart investments now—in cloud technology, automated decisioning, and even Ethical and Explainable Artificial Intelligence—that will allow them to survive the COVID Recession and to be even more competitive during an eventual recovery. Financial institutions should also look for tools like Experian’s In the Market Model and Trended 3D Attributes to maximize efficiency and decisioning tactics – helping good customers remain that way while protecting the bottom line. In the Market Models Trended 3D Attributes About our Expert: [avatar user=\"jim.bander\" /] Jim Bander, PhD, Market Lead, Analytics and Optimization, Experian Decision Analytics Jim joined Experian in April 2018 and is responsible for solutions and value propositions applying analytics for financial institutions and other Experian business-to-business clients throughout North America. He has over 20 years of analytics, software, engineering and risk management experience across a variety of industries and disciplines. Jim has applied decision science to many industries, including banking, transportation and the public sector.
As subprime originations decrease, some think that subprime consumers are being locked out of the automotive finance market, but that’s not the whole story.
This is the fourth in a series of blog posts highlighting optimization, artificial intelligence, predictive analytics, and decisioning for lending operations in times of extreme uncertainty. The first post dealt with optimization under uncertainty, the second with predicting consumer payment behavior, and the third with validating consumer credit scores. This post describes some specific Experian solutions that are especially timely for lenders strategizing their response to the COVID Recession. Will the US economy recover from the pandemic recession? Certainly yes. When will the economy recover? There is a lot more uncertainty around that question. Many people are encouraged by positive indicators, such as the initial rebound of the stock market, a return of many of the jobs lost at the beginning of the pandemic, and a significant increase in housing starts. August’s retail spending and homebuilder confidence are very encouraging economic indicators. Other experts doubt that the “V-shaped” recovery can survive flare-ups of the virus in various parts of the US and the world, and are calling for a “W-shaped” recovery. Employment indicators are alarming: many people remain out of work, some job losses are permanent, and there are more initial jobless claims each week now than at the height of the Great Recession. Serious hurdles to economic recovery may remain until a vaccine is widely available: childcare, urban transportation, and global trade, for example. I’m encouraged by the resilience of many of our country’s consumer lenders. They are generally responding well to these challenges. If past recessions are a guide, some lenders will not survive these turbulent times. This time, many lenders—whether or not they have already adopted the CECL accounting standards—have been increasing allowances for their anticipated credit losses. At least one rating agency believes major banks are prepared to absorb those losses from earnings. The lenders who are most prepared for the eventual recovery will be those that make good decisions during these volatile times and take action to put themselves in the best position in anticipation of the recovery that will certainly follow. The best lenders are making smart investments now to be prepared to capitalize on future opportunities. Experian’s analytics and consulting experts are continuously improving our suite of solutions that help consumer lenders and others assess consumer behavior and respond quickly to the rapidly fluctuating market conditions as well as changing regulations and credit reporting practices. Our newly announced Economic Response and Recovery Suite includes the ABCD’s that lenders need to be resilient and competitive now and to prepare to thrive during the eventual recovery: A – Analytics. As I’ve written about in prior blog posts, data is a prerequisite to making good business decisions, but data alone is not enough. To make wise, insightful decisions, lenders need to use the most appropriate analytical techniques, whether that means more meaningful attributes, more predictive and compliant credit scores, more accurate and defensible loss forecasting solutions, or optimization systems that help develop strategies in a world where budgets, regulations, and other constraints are changing. For example, Experian has released a set of Spotlight 2020 Attributes that help consumer lenders create a positive experience for customers who have received an accommodation during the pandemic. In many cases motivated by the new race to improve customer experience online, and in other cases as a reaction to new and creative fraud schemes, some clients are using this period as an opportunity to explore or deploy ethical and explainable Artificial Intelligence. B – Business Intelligence. Credit bureaus like Experian are uniquely situated to understand the impact of the COVID recession on America’s consumers. With impact reports, dashboards, and custom business intelligence solutions, lenders are working during the recession to gain an even better understanding of their current and prospective customers. We’re helping many of them to proactively help consumers when they need it most. For example, lenders have turned to us to understand their customer’s payment hierarchy—which bills they pay first when times are tough. Our free COVID-19 US Business Risk Index helps make lending options available to the businesses who need them most. And we’ve armed lenders with recommendations for which of our pre-existing attributes and scores are most helpful during trying times. Additional reporting tools such as the Auto Market Tracker, Ascend Market Insights Dashboard, and the weekly economic update video provide businesses with information on new market trends—information that helps them respond during the recession and promises to help them grow during the eventual recovery. C – Consulting. It’s good to turn data into information and information into insight, but how do these lenders incorporate these insights in their business strategies? Lenders and other businesses have been turning to Experian’s analytics and Advisory services consultants to unlock the information hidden in credit and other data sources—finding ways to make their business processes more efficient and more effective while developing quick response plans and more long-term recovery strategies. D – Delivery. Decision science is the practice of using advanced analytics, artificial intelligence, and other techniques to determine the best decision based on available data and resources. But putting those decisions into action can be a challenge. (Organizations like IBM and Gartner estimate that a great majority of data science projects are never put into production.) Experian technologies—from our analytics platform to our attribute integration and decision management solutions ensure that data-driven decisions can be quickly implemented to make a real difference. Treating each customer optimally has a number of benefits—whether you are trying to responsibly grow your portfolio, reduce credit losses and allowances, control servicing costs, or simply staying in compliance during dynamic times. In the age of COVID, IT departments have placed increased priority on agility, security, customer experience, and cost control, and appreciate cloud-first approach to deploying analytics. It’s too early to know how long this period of extreme uncertainty will last. But one thing is certain: it will come to an end, and the economy will recover someday. I predict that many of the companies that make the best use of data now will be the ones who do the best during the recovery. To hear more ways your organization can navigate this downturn and the recovery to follow, please watch our on-demand webinar and check out our Economic Response and Recovery Suite. Watch the Webinar
Since the start of the COVID-19 health crisis, gross domestic product (GDP) has continued to fall in the U.S. In fact, the GDP collapsed at a 32.9% annualized rate last quarter, which is the deepest decline since 1947. But as some states throughout the U.S. begin to relax their stay-at-home orders and start to reopen businesses, economists are taking note of how this will affect the nation’s recovery as a whole. When it comes to tracking the nation’s economic recovery, economists and policymakers need to account for all of the factors that will influence the outcome. This includes tracking the performance of individual states and understanding each state’s trajectory and recovery prospects. There are many factors that will impact each state’s trajectory for recovery. One example, in particular, can be seen in a state’s preparedness level and rainy day fund that’s set aside for emergencies. At the onset of the pandemic, many states were unprepared for the financial crisis. The Government Finance Officers Association recommends that states set aside at least two months of operating expenses in their rainy day funds – or roughly 16% of their general fund. However, although some states had set aside some budget to prepare for a recession, it was simply not enough. Only a few states were able to fulfill this requirement. Other factors that will impact each state’s recovery include: the efficiency of its unemployment program, state lockdown measures, and the concentration of jobs in vulnerable industries. Our new white paper, featuring key insights from Joseph Mayans, Principal Economist with Advantage Economics, provides a deep dive on: The economic landscape at the onset of the pandemic Statewide discrepancies for unemployment programs, lockdown measures, and labor markets Underlying factors that determine a state’s recovery prospects Why tracking state-level economies is critical for national recovery Listen in as he describes the importance of having a different perspective when tracking the national economy and download the white paper for greater insights. Download White Paper Now
In 2015, U.S. card issuers raced to start issuing EMV (Europay, Mastercard, and Visa) payment cards to take advantage of the new fraud prevention technology. Counterfeit credit card fraud rose by nearly 40% from 2014 to 2016, (Aite Group, 2017) fueled by bad actors trying to maximize their return on compromised payment card data. Today, we anticipate a similar tsunami of fraud ahead of the Social Security Administration (SSA) rollout of electronic Consent Based Social Security Number Verification (eCBSV). Synthetic identities, defined as fictitious identities existing only on paper, have been a continual challenge for financial institutions. These identities slip past traditional account opening identity checks and can sit silently in portfolios performing exceptionally well, maximizing credit exposure over time. As synthetic identities mature, they may be used to farm new synthetics through authorized user additions, increasing the overall exposure and potential for financial gain. This cycle continues until the bad actor decides to cash out, often aggressively using entire credit lines and overdrawing deposit accounts, before disappearing without a trace. The ongoing challenges faced by financial institutions have been recognized and the SSA has created an electronic Consent Based Social Security Number Verification process to protect vulnerable populations. This process allows financial institutions to verify that the Social Security number (SSN) being used by an applicant or customer matches the name. This emerging capability to verify SSN issuance will drastically improve the ability to detect synthetic identities. In response, it is expected that bad actors who have spent months, if not years, creating and maturing synthetic identities will look to monetize these efforts in the upcoming months, before eCBSV is more widely adopted. Compounding the anticipated synthetic identity fraud spike resulting from eCBSV, financial institutions’ consumer-friendly responses to COVID-19 may prove to be a lucrative incentive for bad actors to cash out on their existing synthetic identities. A combination of expanded allowances for exceeding credit limits, more generous overdraft policies, loosened payment strategies, and relaxed collection efforts provide the opportunity for more financial gain. Deteriorating performance may be disguised by the anticipation of increased credit risk, allowing these accounts to remain undetected on their path to bust out. While responding to consumers’ requests for assistance and implementing new, consumer-friendly policies and practices to aid in impacts from COVID-19, financial institutions should not overlook opportunities to layer in fraud risk detection and mitigation efforts. Practicing synthetic identity detection and risk mitigation begins in account opening. But it doesn’t stop there. A strong synthetic identity protection plan continues throughout the account life cycle. Portfolio management efforts that include synthetic identity risk evaluation at key control points are critical for detecting accounts that are on the verge of going bad. Financial institutions can protect themselves by incorporating a balance of detection efforts with appropriate risk actions and authentication measures. Understanding their portfolio is a critical first step, allowing them to find patterns of identity evolution, usage, and connections to other consumers that can indicate potential risk of fraud. Once risk tiers are established within the portfolio, existing controls can help catch bad accounts and minimize the resulting losses. For example, including scores designed to determine the risk of synthetic identity, and bust out scores, can identify seemingly good customers who are beginning to display risky tendencies or attempting to farm new synthetic identities. While we continue to see financial institutions focus on customer experience, especially in times of uncertainty, it is paramount that these efforts are not undermined by bad actors looking to exploit assistance programs. Layering in contextual risk assessments throughout the lifecycle of financial accounts will allow organizations to continue to provide excellent service to good customers while reducing the increasing risk of synthetic identity fraud loss. Prevent SID
The COVID-19 pandemic created a global shift in the volume of online activity and experiences over the past several months. Not only are consumers increasing their usage of mobile and digital channels to bank, shop, work and socialize — and anticipating more of the same in the coming months — they’re closely watching how businesses respond to their needs. Between late June and early July of this year, Experian surveyed 3,000 consumers and 900 businesses to explore the shifts in consumer behavior and business strategy pre- and post-COVID-19. More than half of businesses surveyed believe their operational processes have mostly or completely recovered since COVID-19 began. However, many consumers fear that a second wave of COVID-19 will further deplete their already strained finances. They are looking to businesses for reassurance as they shift their behaviors by: Reducing discretionary spending Building up emergency savings Tapping into financial reserves Increasing online spending Moving forward, businesses are focusing on short-term investments in security, managing credit risk with artificial intelligence, and increasing online customer engagement. Download the full report to get all of the insights into global business and consumer needs and priorities and keep visiting the Insights blog in the coming weeks for a deeper dive into US-specific findings. Download the report
In today’s uncertain economic environment, the question of how to reduce portfolio volatility while still meeting consumers’ needs is on every lender’s mind. With more than 100 million consumers already restricted by traditional scoring methods used today, lenders need to look beyond traditional credit information to make more informed decisions. By leveraging alternative credit data, you can continue to support your borrowers and expand your lending universe. In our most recent podcast, Experian’s Shawn Rife, Director of Risk Scoring and Alpa Lally, Vice President of Data Business, discuss how to enhance your portfolio analysis after an economic downturn, respond to the changing lending marketplace and drive greater access to credit for financially distressed consumers. Topics discussed, include: Making strategic, data-driven decisions across the credit lifecycle Better managing and responding to portfolio risk Predicting consumer behavior in times of extreme uncertainty Listen in on the discussion to learn more. Experian · Effective Lending in the Age of COVID-19
As the COVID-19 pandemic continues to create uncertainty for the U.S. economy, different states and industries have seen many changes with each passing month. In our July edition of the State of the Economy report, written by Principal Economist Joseph Mayans, we’ll be breaking down the data that financial institutions can use to navigate a recovery. Labor markets and state-level employment impact Prior to the pandemic, unemployment in the U.S. was at a 50-year low, at an astonishing rate of 3.5%. Following the start of the pandemic, research shows that unemployment rose from 6.2 million in February to 20.5 million in May 2020, and sent the unemployment rate soaring to 14.7%. However, the data from last month’s State of the Economy Report revealed that the unemployment rate began to decline, with 46 states seeing rises in new job opportunities. Although unemployment started to increase, many states (like Nevada) saw a 25.3% unemployment rate statewide. The numbers for June are much more promising, and reveal a continuous uptick in the number of jobs added. The unemployment rate in the U.S. also fell from 13.3% to 11.1%. The impact to industries COVID-19 had major impacts on every industry in the U.S., with the leisure and hospitality industry being the hardest-hit at 7.7 millions job lost. According to CNBC, “The large number of layoffs in this industry led the U.S. economy to its worst month of job losses in modern history.” However, job growth for the leisure and hospitality industry began to gain momentum in May, with 1.2 million jobs added. This can be attributed to a slow and gradual rollback of stay-at-home orders nationwide. As of June 2020, 4.8 million jobs have been added to this industry. The trade, transportation, and utilities, as well as education and health services, manufacturing, and business services industries also saw improvements in employment. The impact to retail sales Clothing stores, furniture, and sporting goods stores were only a few of the many retailers that saw heavy declines following lockdown orders. After two consecutive months of decline, retail sales finally rebounded by 17.7% in May, with the largest gains occurring in clothing stores (+188%). In June, retail sales continued to rise substantially, resulting in saw a v-shaped bounce. However, with unemployment benefits nearing the expiration date and the number of pandemic cases continuing to increase, recovery remains tentative. Our State of the Economy report also covers manufacturing, homebuilders, consumer sentiments, and more. To see the rest of the data, download our report for July 2020. We’ll be sharing a new report every month, so keep an eye out! Download Now
Experian’s Chris Ryan and Bobbie Paul recently re-joined David Mattei from Aite to discuss how emerging fraud trends and changes in consumer behavior will have long-term impacts on businesses. Chris, Bobbie, and David have combined experience of more than 60 years in the world of fraud prevention. In this discussion, they bring that experience to bear as they review how businesses should revise their long-term fraud strategy in response to COVID-19 and the subsequent economic shifts, including: The requirements to authenticate a digital customer Businesses’ technology challenges Differentiating between first party and third party fraud The importance of businesses’ technology investment How to build a roadmap for the next 90 days and beyond Experian · Make Your Fraud Plan Recession-Ready: Your 90 Day and Beyond Plan
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