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In the previous episode of “The Chrisman Commentary” podcast, Joy Mina, Director of Product Commercialization at Experian, talked about the benefits of a waterfall strategy for income and employment verification. In the latest episode, Joy explores common misconceptions around verifications, such as how a lender needs to put a provider with the most records first in their waterfall. "While that might feel like a sure-fire way to cut costs, it isn't necessarily the most effective," said Joy. "Instead of comparing records, I would really encourage lenders to focus on a provider's total cost to verify a consumer." Listen to the full episode to learn about more misconceptions associated with verifications and what you can do to enhance your strategies. Listen to podcast  Learn more

Financial literacy describes a person’s ability to understand the basic concepts of economic principles, including personal financial management, budgeting, saving, and investing money.[1] For consumers, having a firm grasp of these principles can mean the difference between making smart decisions that lead to more buying power, lower interest rates, and achieving financial goals, or making decisions that could negatively impact their ability to improve their financial standing. Many consumers make most of their financial transactions online; 7 out of every 10 US adults are enrolled in digital banking, and 95% bank online often or occasionally. However, only 31% of these consumers have a comfortable level of financial literacy.[2] Unfortunately, the convenience of banking online without the knowledge to do so safely can put consumers at risk of online threats like identity theft and fraud. Consumers need and want help from their financial institutions to build and maintain financial literacy. Increasing consumers’ knowledge of basic financial principles may help them make better decisions, improve their financial standing, and remain loyal, confident customers to your business. Only 1 out of every 7 consumers feel financially literate A recent survey from Goldman Sachs reported that only 13% of respondents correctly answered five questions designed to assess their basic financial literacy.[3] With only 1 out of every 7 people having a strong sense of important financial concepts, this illustrates the severity of the gap in financial knowledge among U.S. consumers. But this lack of understanding does not necessarily discourage them from using digital tools to manage their finances. Nearly a third of Americans still feel comfortable banking online, despite lacking financial literacy.[2] Consumers who use online tools to manage their personal finances without the appropriate understanding of how to use them effectively, may run the risk of making poor decisions that can negatively impact their financial well-being and confidence. A lack of knowledge about digital privacy in consumers may also put them at risk of digital threats such as identity theft and fraud. Having access to the necessary tools to monitor their accounts and activity can empower them to take quick corrective action if a fraud event occurs. Lacking financial literacy is causing Americans to save less and lose more Consumers can experience significant monetary losses when they don’t have a basic comprehension of financial concepts regarding budgeting, saving, investing, and managing personal financial accounts. A survey of Americans reported losing an average of $1,506 each in 2023 because of a lack of personal finance knowledge, resulting in an estimated total of $388 billion across the country.[4] A recent study also showed that nearly half of U.S. consumers only have $500 in savings,[5] which is far less than the recommended six months’ worth of expenses. While many consumers may feel that they can’t afford to spend the time or effort to become more financially literate, the reality is that most of them can’t afford not to. Consumers need financial help, and they’re seeking it from the financial institutions they do business with. Consumers want support from their financial institutions The uncertainty regarding personal finances can create stress among consumers, but it can also present an opportunity for financial institutions to provide guidance and resources to the people who need it. 25% of Americans say they don’t have anyone they can ask for trusted financial guidance.[7] By delivering valuable support to consumers on how to save, budget, invest, and manage their finances, businesses can serve as a much-needed resource to help them make better decisions and improve their financial standing. Partnering with Experian® to offer these useful products and services can help businesses empower their consumers to improve their financial standing in a variety of ways. For example, financial guidance can include credit education programs and resources designed to help consumers increase their credit scores and strengthen their credit standings. More than 65% of consumers enrolled in the Experian® credit education program saw an improvement on their credit scores.[8] In addition, businesses can also help protect their consumers from threats of theft and fraud with Experian® identity protection services. These solutions are expertly designed to monitor for potential online risks, identify incidents of theft, and help quickly resolve fraud events if they occur. This added layer of protection can further fortify consumers’ financial power and optimize their ability to make strong financial decisions. When businesses offer these services from Experian® to help consumers increase their financial literacy, those consumers may be in a better position to borrow more money and open new accounts. This can help brands foster stronger relationships with their consumers, encourage them to continue doing long-term business, and drive additional revenue. By helping improve consumers’ financial literacy, businesses can increase the financial power of their customer base and improve their bottom line. Click here to learn more about how to implement a financial wellness program to help your consumers improve their financial literacy and increase their financial power. [1] Masterclass, Financial Literacy Definition, Importance and Key Principles, 2023. [2] EMarketer, For US banking consumers, financial literacy is a bigger barrier than digital proficiency, 2024. [3] EMarketer, Despite a major gap in financial literacy, Americans are saving more for retirement than last year, 2023. [4] National Financial Educators Council, Financial Illiteracy Cost Americans $1,506 in 2023. [5] Yahoo Finance, Nearly Half Have Less Than $500 in Savings: How To Build Up Your Balance in 2024. [6] Bankrate, Average credit card debt in the U.S., 2023. [7] Annuity.org, 47+ Fascinating Financial Literacy Statistics in 2023. [8] Experian Internal Data, 2023 credit lift study for users tracked from Dec 2020 – Dec 2022.

For lenders, first payment default (FPD) is more than just financial jargon; it's a crucial metric in assessing credit risk. This blog post will walk you through the essentials of FPD,  from defining the term to exploring how you can prevent and mitigate its potential impact. Understanding first payment default FPD occurs when a consumer fails to make their initial payment on a loan or credit agreement, which is often perceived as an early signal of a potential cascade of risky behavior. Recognizing FPD is the starting point for lenders to address potential issues with new borrowers before they escalate. One important aspect to grasp is the timeline of FPD. It’s not just about missing the first payment; it's about "early" missing. The timing of defaults is often critical in assessing the overall risk profile of a borrower or group of borrowers. The earlier a borrower starts to miss payments, the riskier they tend to be. Examining the causes of FPD The roots of FPD are diverse and can be classified into two broad categories: External factors: These include sudden financial crises, changes in employment status, or unforeseen expenses. Such factors are often beyond the borrower's immediate control. Internal factors: This category covers more deliberate or chronic financial habits, such as overspending, lack of savings, or overleveraging on credit. It's often indicative of longer-term financial instability. Understanding the causes of early payment default is the first step in effective risk management and customer engagement strategies. Implications of FPD for lenders FPD doesn't just signal immediate financial loss for lenders in terms of the missed installment. It sets off a cascade of consequences that affect the bottom line and the reputation of the institution. Financial loss. Lenders incur direct financial losses when a payment is missed, but the implications go beyond the missed payment amount. There are immediate costs associated with servicing, collections, and customer support. In the longer term, repeated defaults can lead to write-offs, impacting the institution's profitability and regulatory standing. Regulatory scrutiny. Repeated instances of FPD can also draw the attention of regulators, leading to scrutiny and potentially increased compliance costs. Mitigating first payment default Mitigating FPD requires a multifaceted approach that blends data, advanced analytics, customer engagement, and agile risk management. Lenders need to adopt strategies that can detect early signs of potential FPD and intervene preemptively. Data-driven decision-making. Leveraging advanced analytics and credit risk modeling is crucial. By incorporating transactional and behavioral data, lenders can make more accurate assessments of a borrower's risk profile. Utilizing predictive models can help forecast which borrowers are likely to default on their first payment, allowing for early intervention. Proactive customer engagement. Initiatives that revolve around education, personalized financial planning advice, and flexible payment arrangements can help borrowers who might be at risk of FPD. Proactive outreach can engage customers before a default occurs, turning a potential negative event into a positive experience. Agile risk management. Risk management strategies should be dynamic and responsive to changing market and customer conditions. Regularly reviewing and updating underwriting criteria, credit policies, and risk assessment tools ensures that lenders are prepared to tackle FPD challenges as they arise. Using FPD as a customer management tool Lastly, and perhaps most importantly, lenders can use FPD as a tool to foster better customer management. Every FPD is a data point that can provide insights into customer behavior and financial trends. By studying the causes and outcomes of FPD, lenders can refine their risk mitigation tools and improve their customer service offerings. Building trust through handling defaults. How lenders handle defaults, specifically the first ones, can significantly impact customer trust. Transparent communication, fair and considerate policies, and supportive customer service can make a difference in retaining customers and improving the lender's brand image. Leveraging data for personalization. The increasing availability of data means lenders can offer more personalized services. By segmenting customers based on payment behavior and response to early interventions, lenders can tailor offerings that meet the specific financial needs and challenges of individual borrowers. How Experian® can help First payment default is a critical aspect of credit risk management that requires attention and proactive strategies. By understanding the causes, implications, and mitigation strategies associated with FPD, financial institutions can not only avoid potential losses but also build stronger, more enduring relationships with their customers. Learn more about Experian’s credit risk modeling solutions. Learn more This article includes content created by an AI language model and is intended to provide general information.