Acquiring customers profitably With Credit Bureau Scores
Uncover the true face of new customers before it s too late In the current climate, characterized by tough competition and economic slowdowns, identifying the most profitable customers is key to success. In a market that combines risky customers with thin lending margins, the sole use of internal information is no longer sufficient as lenders need a full market overview of credit applicants profiles for better assessing the profitability of new customers. The on-going squeeze on personal incomes also increases the risk of application fraud, and this is best demonstrated by the fact that the vast majority of frauds continue to be attempted by individuals. Clearly it is now more important than ever for all lenders to accurately assess the likelihood of fraud by verifying the identities of the people they interact with, while at the same time they ensure they safeguard and continue to cement trusted relationships with legitimate customers. Credit bureau data is extremely useful in credit and fraud risk assessment of new customers, however it requires significant time, resources and expertise to analyse and interpret it. Credit Bureau Scores allow a simpler interpretation of the information available and are easily incorporated into automated systems. Identify more risky customers through full credit market information Credit Bureau Scores help you easily identify any adverse information about your applicants, so they are a powerful tool for managing customer acquisition risk. Acquire more good customers, faster Credit Bureau Scores help you maximise new profitable growth by de-risking your underwriting while speeding up your credit decision processes. Perform fraud verification checks that are not intrusive to consumer Application Fraud Detection Credit Bureau Scores help you identify the lowest and highest likelihood of application fraud and fast-track the lowest risk cases through the account opening process, while the high risk cases can be automatically declined. Credit Bureau Scores places the full market information at your reach to help you instantly identify risky and fraudulent applicants and help you acquire more profitable consumers faster, at a lower cost. FACT BOX What are Experian Credit Bureau Scores? Credit Bureau Scores are scientifically developed measures of customers credit risk which summarise all the power of Experian databases into one number ( the score ). Because it takes into account all the information available across markets and industries, it is all you need to know about an applicant s risk. In order to maintain their high performance levels at all times Credit Bureau Scores are continuously being monitored and updated. Business Case 1 Acquiring new personal loans with Credit Bureau Scores A leading bank in Europe introduced Delphi for New Business for acquiring personal loans customers after experiencing losses higher than budgeted. Results: Reduced write offs by 24.4% while being able to increase acceptance of good credits Significantly faster credit decisions leading to lower customer drop-off Source: Experian analysis on client data 2 - Acquiring Customers Profitably with Experian Credit Bureau Scores
Improve your business with Credit Bureau Scores Credit Bureau Scores comprise the full market information on each applicant s risk. Their use in the credit risk management process allows growth in the market position without compromising the quality of the customer portfolio. Detect and avoid bad debt and fraud Bad debt reduction is a key driver of improved business profitability as one single bad debt destroys the profit of 20 or even 50 good customers. Credit Bureau Scores dramatically improve profitability by detecting risky applications upfront and enabling decline at origination point. Grow your credit book at a lower risk Credit Bureau Scores enable business growth by allowing the acceptance of more good (low risk) applicants. These customers are aware of their value and have little patience with slow application processes. Together with model accuracy, instant assessment leads to increased acceptance rates and higher volumes of performing debt. Reduce process costs Credit Bureau Scores enable the automation of the underwriting process, driving gains in efficiency and taking considerably less time and resources to evaluate. This increase in processing capacity comes at no cost in terms of acceptance and default rates. Control compliance risk Credit Bureau Scores help the underwriting process be compliant with legislation, by ensuring accurate, fair and consistent decisions. Because of the process optimisation achieved, the reasons for credit decisions can be clearly and easily communicated to the applicants or regulators where required, and has reduced risk of being challenged with allegations of arbitrariness or discrimination. Business Case 2 Acquiring business customers with Commercial Delphi A pan-european finance company introduced Commercial Delphi for acquiring business customers. Results: Significantly faster credit process and reduced work load for staff due to using Commercial Delphi for automation Up to 40% of cases approved < 1 minute, which led to more satisfied customers and staff Consistent measures of risk assigned to every application, improving process control, forecasting and regulatory documentation Source: Experian analysis on client data Acquiring Customers Profitably with Experian Credit Bureau Scores - 3
How Credit Bureau Scores improves accuracy of credit decision process Credit Bureau Scores dramatically reduce credit risk losses when used as standalone tools. In a similar way, they also significantly improve risk detection effectiveness when used as a component of an internal model. The reason is that Credit Bureau Scores comprise all available information of customer behaviours in the entire financial system. The business result due to increased discrimination power are: -4.5% of Good above cut-off: increasing number of good customers accepted +19.6% Bad payers below cut-off: rejecting a significant number of defaults leading to a better quality of the portfolio The graph in figure 1 shows the result of a benchmark conducted with realworld data, where the use of Credit Bureau Scores as components of internal models shows 12% increase of the Gini*. (*) Gini: index that measures scorecard predictiveness Source: Experian analysis on benchmark data Bad rate Internal model without Credit Bureau Scores Internal model with Credit Bureau Scores Cut off 225 467 721 971 1000 Score class Figure 1 Business Case 3 Acquiring telco customers with Delphi Acquisition Score and the Credit Indebtedness Index A major European telecom operator asked Experian to verify the ability of the Credit Bureau Scores to identify applications with a high risk of default. Analysis was conducted on a sample of historic application requests received in the past 12 months. The sample was enriched with Credit Bureau Data and Scores (Delphi for new Business and Consumer Indebtedness Index) and the output was compared with the actual performance of customer payments triggered. The result showed that thanks to the adoption of Credit Bureau Scores the operator would have been able to identify a large number of clients at high risk of default with a potential benefit measured in up to 3 million euro for the year. Source: Experian analysis on client data 4 - Acquiring Customers Profitably with Experian Credit Bureau Scores
Business improvements across different industries The key drivers of the customer acquisition process vary industry by industry. Nevertheless, the international practice demonstrates that integration of Credit Bureau Scores - in the risk assessment process - grants relevant business benefits to all operators, which need to assess the creditworthiness of new customers. MAGNITUDE OF BENEFITS High Low REDUCED RISK GROWTH POTENTIAL INDUSTRIES Key Drivers Business Benefiits Consumer lending and Retailers Small Business lending Mortgage TelEcoMS Utilities E-commerce Insurance Comprehensive assessment of applicants creditworthiness and indebtedness Fast, lean and cheap decision process Comprehensive assessment of both company and owners creditworthiness Much faster, leaner and cheaper decision process Comprehensive assessment of applicants creditworthiness and indebtedness Pre-screening of applications to avoid expensive manual process for unqualified applicants Increase activation rate Bad debt reduction Fraud prevention Identify high risk applicants Assessment using limited information Bad debt control Quick and lean decision process Verification of customer identity Fraud prevention Reduction of claims Use all available information to define the risk profile of the applicants Process automation and online delivery Increased accuracy of predictions Instant assessment Comprehensive view of applicant s total exposure Increased accuracy of predictions Complete view of the owners credit profile Process automation and time to market Increased accuracy of predictions Compressive view of applicant s total exposure Credit process cost reduction Insight of applicant s risk profile Reduction of risk exposure (high-end devices) Fraud check Insight of applicant s risk profile Accurate risk assessment Instant assessment of customers credit profile Authentication Fraud check Reduced claim rate Increased accuracy of predictions Time to market Note that not all national legislations allow telecommunication, utilities and insurance companies to query the Credit Bureau and its scores. Acquiring Customers Profitably with Experian Credit Bureau Scores - 5
How to make profitable decisions with the insight of Credit Bureau Scores Lending organisations and service operators need to reduce time spent on the evaluation of applications while increasing the quality of their portfolio. The apparent trade off between more accurate assessment of applicants and fast evaluation can be overcome by automating the process, adopting consistent policies, exploiting the right analytics and decisioning tools. The table below shows a standard credit decision process in origination and how Credit Bureau Scores benefit each stage of the process. APPLICATION RECEIVED Data capture systems Fraud check ID Authentication and Application Fraud Score Pre bureau screening of application data Pre bureau policy rules Credit Bureau search Credit Worthiness assessment Affordability CREDIT DECISION Credit history check Credit Risk Assessment using external (Credit Bureau Scores) and internal ratings Assessing affordability by combined use of Credit Bureau Scores and income information Cut off and policy rules Business Case 4 Benefits from adopting Credit Bureau Scores in insurance sector Experian performed a study in cooperation with a national insurance association. Home and vehicle insurers participated, representing more than 60% of the national market. Objective: predict insurance claims using payment behavior profiles integrated within Credit Bureau Scores. Results: it was demonstrated that Credit Bureau Scores significantly improves the ability to identify applicants prone to file claims. Benefits for the insurance companies are tariffs adjusted to reflect claims potential and improvements in profitability due to the decrease in costs associated to claims. 3 million euro for home insurance representing a 15% decrease in claim rate and increased profitability from 4% to 7% 11 million for vehicle insurance representing a 6% decrease in claim rate and increased profitability from 11% to 16% Source: Estudio Siniestralidad Inese and Experian Cómo mejorar la rentabilidad: el impacto del comportamiento de pago para predicir la siniestralidad, edited in Spain, 2013 6 - Acquiring Customers Profitably with Experian Credit Bureau Scores
At the point of final decision, whether to accept or decline an application, it is important to understand the applicant s potential as a customer. The better the insight, the more feasible is to implement a truly customer focused strategy. Which are the Credit Bureau Scores that can be used in the origination process? (1) Originations CB scores Geo Delphi Fraud Index Delphi for New Business Consumer INDEBTEDNESS Index Commercial Delphi Description Measures individuals creditworthiness based on the area in which they live helping organizations assess the risk profile of consumers where there is little or no personspecific information on the applicant (thin files). The use of socio-demographical and behavioural information enables the measurement of the propensity of people living in the same area to buy credit products and services. Measures the likelihood of application fraud. It helps investigation teams on identifying potentially fraudulent applications while reducing the time spent on reviewing nonfraudulent applications. It leads to a faster reponse time ultimately improving customers satisfaction. Predicts delinquency at the point of application for consumers. It is used for acquiring consumer debt faster, cheaper and more profitably. Enables higher growth, lower losses and more satisfied customers. Identify consumers showing no current payment difficulties, but that are likely to experience payment problems in the near future because of their level (and type) of credit commitments It can be used as a stand-alone tool (i.e. decline/ refer rules) but it provides most value when integrated with other Bureau Score. It also can be embedded into custom scorecards, used as a part of credit limit assignment tools for new customers, or used as an up-sell tool for existing customers with low to moderate risk. It plays an important role in the prevention of over-indebtedness and support of responsible lending which is increasingly is required by regulators. Predicts delinquency and bankruptcy at the point of application for business credit. It is used for acquiring business debt faster, cheaper and more profitably. Enables a faster decision process with lower risk from trading partners and clients. (1) Note: the above represent an example of Experian s innovations in the area of credit loss prevention for credit originations. Experian constantly assesses the opportunities to create new Credit Bureau Scores by using new data sources as well as existing data in new, innovative ways. Experian also provides Credit Bureau Scores for prospecting, customer management and collections which are described in other Experian documents. Please contact your Experian representative for more information. Acquiring Customers Profitably with Experian Credit Bureau Scores - 7
How Consumer Indebtedness Index improves accuracy of credit decision process when used together with Delphi New Business Consumer Indebtedness is a major issue in most developed countries. Traditional Credit Scores do not generally identify over-indebted consumers as highly indebted individuals show few signs of payment difficulties until they default. The integrated use of scoring models that identify high indebtedness together with Delphi New Business provide lenders with high value added information in the assessment of credit applicants with high balances, generating up to 33% uplift in predictive power over the standard approach. Figure 2 shows the result of a benchmark study conducted with real world data where keeping a constant reject rate of 10%, the integrated use of Consumer Indebtedness index with a Credit Bureau (Delphi) Scores allows the rejection of 40% of bad clients against the 30% rejected using only a Delphi score. 100 % Bads 90 80 70 60 50 40 Traditional Credit Bureau Scores Integrated use of Consumer Indebtedness Index and Delphi New Business 30 20 10 0 % Goods 0 10 20 30 40 50 60 70 80 90 100 Figure 2 Business Case 5 Acquiring consumers with Credit Bureau Scores A European leading home entertainment and communications provider was looking to enhance the screening process of new clients activation, reducing their risk while continuing to expand their customer base. They asked Experian to evaluate the benefit of introducing Credit Bureau Scores in their acquisition process to protect their profits by improving the quality of their customer portfolio. The evidence demonstrated that the use of Credit Bureau Scores (Delphi for acquisition and Consumer Indebtedness Index) allowed the operator to: Identify riskier and less profitable activation requests Tailor each offer to the specific risk level of the applicant (eg. different payment conditions) Increase the overall profitability of the customer base while maintaining a acceptance rate in line with the one required by the business As a result the operator was able to maintain the same rejection rate while significantly reducing losses for impaired loans with an estimated benefit of approximately 6 million euro per year. Source: Experian analysis on client data 8 - Acquiring Customers Profitably with Experian Credit Bureau Scores
Feeling safe with Experian Credit Bureau Scores Experian Credit Bureau Scores help you control Compliance and Operations risks. Using Experian Credit Bureau Scores alleviates compliance and operations risks because they are constantly maintained to be legally compliant and perform at a guaranteed high level. Experian can make this promise because of its policy of adhering to strict compliance and operations standards, that are enforced via regional and global monitoring units using a highly structured approach. Performance monitoring Credit Bureau Scores are kept permanently at a high performance level leading to more profitable decisions for your business. Consistent world class methodology Credit Bureau Scores deliver the business outcomes you expect, are free of design errors and are easily understood and used by your business users in a straightforward way across countries and departments. Experian compliance and operations standards Regulatory Compliance Credit Bureau Scores use compliant data and processes. This area is key for credit providers who want to be assured of complying with all regulations. FACT BOX Experian and Credit Bureau Scores highlight Over 30,000 major clients worldwide Over 4,000 companies using Commercial Delphi across EMEA Over 700 financial institutions using Experian consumer Credit Bureau Scores across UK and EMEA generating in excess of 80 million scores each year. Over 30 years experience in developing Credit Bureau Scores 400+ analytics experts at your services across EMEA Acquiring Customers Profitably with Experian Credit Bureau Scores - 9
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