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© 2014 Experian Information Solutions, Inc. All rights reserved. Experian and the marks used herein are service marks or registered trademarks of Experian Information Solutions, Inc.
Other product and company names mentioned herein are the trademarks of their respective owners. No part of this copyrighted work may be reproduced, modified, or distributed in
any form or manner without the prior written permission of Experian. Experian Public.
Reporting alternative data? Understand the positive benefits to you and your customer
Patrick Walker PERC
Alpa Jain Experian
#vision2014
2 © 2014 Experian Information Solutions, Inc. All rights reserved. Experian Public.
Regulatory
Research
Impact to you and your customers
What Experian can do?
Today’s agenda The three perspectives of full file reporting
3 © 2014 Experian Information Solutions, Inc. All rights reserved. Experian Public.
Regulatory
and research
Patrick Walker
PERC
4 © 2014 Experian Information Solutions, Inc. All rights reserved. Experian Public.
PERC advocates the inclusion of alternative data for use in credit granting
Alternative = regular bill payment data from telecoms, energy utilities, rental payments and other such non-financial services that are valuable inputs for credit decisions
PERC’s Alternative Data Initiative (ADI)
5 © 2014 Experian Information Solutions, Inc. All rights reserved. Experian Public.
Utilities, telecom providers, and other non-financial service providers typically only report negative data directly or via collections:
PERC wants these providers to also report positive data:
Story behind negative-only reporting Consumer being penalized?
Very late
payments Charge-offs Collections
Account
open status
On-time
payment
Age of
account
Mildly late
payments
6 © 2014 Experian Information Solutions, Inc. All rights reserved. Experian Public.
What have we found?
7 © 2014 Experian Information Solutions, Inc. All rights reserved. Experian Public.
Most recent study
A New Pathway to
Financial Inclusion: Alternative data, credit building,
and responsible lending in the
wake of the great recession June 2012
8 © 2014 Experian Information Solutions, Inc. All rights reserved. Experian Public.
2%
3%
3%
4%
48%
19%
5%
3%
2%
7%
2%
2%
3%
4%
6%
44%
19%
4%
3%
2%
11%
2%
0% 10% 20% 30% 40% 50%
Decline >= 50
Decline between 25 and 49
Decline between 10 and 24
Decline less than 10
No change
Increase less than 10
Increase between 10 and 24
Increase between 25 and 49
Increase >= 50
Can now be scored
Remain a no score 2005 'Utility Sample'
2009
VantageScore® change with alternative data, all consumers
Consistent credit score impacts Over time…
9 © 2014 Experian Information Solutions, Inc. All rights reserved. Experian Public.
VantageScore® tier changes with alternative data
Rise one
or more tiers No change
Fall one
or more tiers
Entire sample
Including unscoreables 9% 88% 3%
Excluding unscoreables 4% 93% 3%
Thin file
Including unscoreables 64% 35% 1%
Excluding unscoreables 25% 69% 6%
Uses the ‘ABC’ tiers:
900-990 = A
800-899 = B
700-799 = C
600-699 = D
501-599 = F
Unscoreable defined
as lowest tier
More tier rises than falls
10 © 2014 Experian Information Solutions, Inc. All rights reserved. Experian Public.
0%
5%
10%
15%
20%
25%
30%
< $20K $20-$29K $30-$49 $50-$99 $100K+
2009/2010 2005/2006
(At 3% portfolio target default rate)
Change in acceptance by household income
11 © 2014 Experian Information Solutions, Inc. All rights reserved. Experian Public.
Average firm benefits of fully reporting are several times the costs
► Benefits include fewer delinquencies, decline in accounts in arrears, and improved cash-flow
► Costs include IT upgrades, conducting new processes, compliance procedures and new customer service demands
10% of firms in survey currently fully report to a bureau
89% currently refer delinquencies to a collections agency
Firms: Impact of reporting Utility and telecom survey
12 © 2014 Experian Information Solutions, Inc. All rights reserved. Experian Public.
Firms: Impact of reporting Benefits / costs of reporting to a credit reporting agency
0
1
2
3
Benefit =Costs
Benefits 1 to 2x Costs
Benefits 2 to 5x Costs
Benefits 5 to10 x Costs
Benefits > 10x Costs
Utility and telecom survey: Benefits / costs of reporting to a credit bureau All firms reported benefits > costs, including compliance costs
13 © 2014 Experian Information Solutions, Inc. All rights reserved. Experian Public.
Firms that fully report see changed consumer payment behavior
Half of those surveyed indicated that if a non-financial obligation payment was reported to a credit bureau and would have an impact on their credit standing, they would be more likely to pay on time
14 © 2014 Experian Information Solutions, Inc. All rights reserved. Experian Public.
U.S. customer survey
About half of customers more likely to pay on time if payment reported was reported to a credit bureau and impact their credit files and credit scores
► Over a third would be much more likely
Customers: Response to reporting
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Firms that report are overwhelmingly satisfied with experience
Level of satisfaction Number of respondents
Very satisfied 2
Somewhat satisfied 5
Neutral / mixed 2
Somewhat unsatisfied 0
Very unsatisfied 0
Table D: Level of satisfaction from reporting experience PERC 2008 Data Furnisher’s Survey Responses
16 © 2014 Experian Information Solutions, Inc. All rights reserved. Experian Public.
Firms overestimate perceived costs of credit reporting
Response
Number of
respondents
Large cost
(> 30% of IT budget) 0
Medium cost
(15-30% of IT budget) 0
Small cost
(5-15% of IT budget)
2
Minimal / no cost
(<5% of IT budget) 3
Don’t know 2
Prefer not to answer 1
Direct non-IT
cost estimates
Number of
respondents
Large cost
(>30% CS budget) 0
Medium cost
(15-30% CS budget) 0
Small cost
(5-15% CS budget) 5
Minimal / no cost
(<5% CS budget) 1
Don’t know 1
Prefer not to answer 1
* CS Budget = Customer Service Budget PERC 2008 Data Furnisher’s Survey
IT costs related to reporting Non-IT costs related to reporting
17 © 2014 Experian Information Solutions, Inc. All rights reserved. Experian Public.
89% of companies did not need to restructure their billing systems to facilitate reporting
56% of companies sought regulatory approval to report
88% did not believe regulatory approval was necessary
Firms that fully report
18 © 2014 Experian Information Solutions, Inc. All rights reserved. Experian Public.
What it means to you
and your customer?
Alpa Jain
Experian
19 © 2014 Experian Information Solutions, Inc. All rights reserved. Experian Public.
Trade strength and content Today, tomorrow…
Reporting has been an effective tool in payment prioritization for 30+ years
It is important to bring alternative data into the credit ecosystem
Over 97% of
the national
consumer
loans are
reported to
Experian
Banks and
credit unions (All):
Accounts for
100%
of all financial
institution loans
100% of the
Top-100
mortgage
providers
report to
Experian
Mortgage:
Top-100 mortgage
providers
Accounts for 99%
of all mortgage
loans serviced
Over 95% of
loans issued
by the Top-50
issuers are
reported to
Experian
Card issuers:
Top-50 bank card
issuers
Accounts for 80%
of all loans issued
149 of the
Top-150 auto
lenders, or
99%, report
their data to
Experian
Auto Lenders:
Top-150 auto
lenders
Accounts for 70%
of all auto loans
financed
Represents
200–250M
additional
positive
tradelines
Energy and
Telecoms
High impact
and Important
alternative data
20 © 2014 Experian Information Solutions, Inc. All rights reserved. Experian Public.
Consumers benefit from (and expect) consistent and transparent data reporting
Energy and communication spend is a meaningful monthly household obligation
Ranks high in terms of recurring household spend
Full-file reporting to credit bureaus (i.e. inclusive of “positive data”) will benefit majority of consumers
Inconsistent reporting of consumer data is proven to drive consumer confusion and ultimately disputes
U.S. credit reporting is a shared “ecosystem” available to all data contributors Mortgage Auto Personal
loan
Energy
spend*
Student
loan *Estimated
21 © 2014 Experian Information Solutions, Inc. All rights reserved. Experian Public.
Case study #1 Improving arrears
01/0
3/0
5
03/2
8/0
5
06/2
0/0
5
09/1
2/0
5
12/1
9/0
5
03/1
3/0
6
06/0
5/0
6
09/1
1/0
6
12/0
4/0
6
02/2
6/0
7
05/2
1/0
7
08/2
7/0
7
11/1
9/0
7
02/1
1/0
7
650,000
630,000
610,000
590,000
570,000
550,000
Residential accounts in arrears – Rolling one-year average 670,000
An estimated
reduction of
78K in arrears
Estimated value of credit reporting = $33.6M
* Based on a $432 average balance
Location
Industry Type Utility
Midwest
Total Residential Customers 2M+
22 © 2014 Experian Information Solutions, Inc. All rights reserved. Experian Public.
Case study #2 Becoming the creditor of choice
Key findings:
Slow paying customers may not be paying other lenders late
► 39% had 0-1 derogs on file
► 17% had 2-3 derogs on file
Unscoreable customers can benefit
► 17% of previously unscoreable consumers would receive a score
● Almost 10% had no trades on file previously
● Another 7% had a thin file (less than three trades)
Experian provided a pre-
reporting analysis for this
utility to support the decision
to report full file
Location
Industry Type Utility
Northeast
Total Residential Customers 2M+
23 © 2014 Experian Information Solutions, Inc. All rights reserved. Experian Public.
Case study #3 Helping consumers
“Many consumers have thin or no credit files, making them unscoreable.”
Center for Financial Services Innovation
To
tal co
nsu
mers
5% to 6% of the
consumers became
scoreable with the
additional utility trade
4% of the portfolios were new consumers
Location
Industry Type Utility
Midwest
Total Residential Customers 1M+
24 © 2014 Experian Information Solutions, Inc. All rights reserved. Experian Public.
Case study #3 Helping consumers
60%
20% To
tal re
co
rds
81% scores had little or no change in score Key metric:
50+ pt
increase
in score
25-49 pt
increase
in score
10-24 pt
increase
in score
< 10 pt
increase
in score
No
change
< 10 pt
decrease
in score
10-24 pt
decrease
in score
25-49 pt
decrease
in score
50+ pt
decrease
in score
11% of all scores
increased significantly
with the additional trade
Over 70% consumers
who decreased in score
already had two or more
derogs on file
40%
0%
Location
Industry Type Utility
Midwest
Total Residential Customers 1M+
25 © 2014 Experian Information Solutions, Inc. All rights reserved. Experian Public.
Case study #3 Helping consumers – thin file
Generally positive
impact to thin file
consumers with
the additional
utility trade
Similar distribution
to all consumers
0%
100%
97%
90%
100%
0% 50% 100%
Super Prime (900-999)
Prime (800-899)
Non-Prime (700-799)
Sub Prime (600-699)
Sub Zero Prime ( < 600)
Consumers
Positive scoreband changes – Thin file consumers
Location
Industry Type Utility
Midwest
Total Residential Customers 1M+
26 © 2014 Experian Information Solutions, Inc. All rights reserved. Experian Public.
Impact from reporting 60 DPD rates by quarter
Location
Industry Type Utility
Midwest
Total Residential Customers 2M+
27 © 2014 Experian Information Solutions, Inc. All rights reserved. Experian Public.
What can Experian
do to help?
Alpa Jain
Experian
28 © 2014 Experian Information Solutions, Inc. All rights reserved. Experian Public.
Poll Question #1
What do you think would be the impact
to your inbound call volume if you
reported positive data?
a) No increase
b) Slight increase
c) Moderate increase
d) Heavy increase
29 © 2014 Experian Information Solutions, Inc. All rights reserved. Experian Public.
Impact to disputes rates and customer assistance calls
Client 2010
disputes 2011
disputes 2012
disputes 2013
disputes
Northeast utility 0.26% 0.25% 0.24% 0.23%
Midwest utility 0.11% 0.15% 0.16% 0.19%
FY10 FY11 FY12 FY13
Experian dispute volumes 100%
20%
40%
60%
80%
0%
30 © 2014 Experian Information Solutions, Inc. All rights reserved. Experian Public.
Poll Question #2
In what areas is Experian prepared
to help me? (check all that apply)
a) Financial analysis, benchmarking and trending
b) Data reporting – initial and ongoing
c) Help insure positive customer experience
d) PR / media relations support
31 © 2014 Experian Information Solutions, Inc. All rights reserved. Experian Public.
Experian support Your partner throughout the process
Experian recognizes the importance
of the energy and telecommunication industries
SME dedicated resources: Analysts, data specialists, IT support,
client services, and sales and marketing
Research Internal case studies
PERC supporter
Resources
Data reporting guidebook
NCAC – Dispute support
Pre-reporting analysis
Support IT support for file conversion, secure
data transfer, and data quality
32 © 2014 Experian Information Solutions, Inc. All rights reserved. Experian Public.
Brand enrichment RentBureau® press coverage experience
It’s clearly a good thing for credit scores to contain more thorough and accurate
information that truly reflects an individual’s willingness to pay their bills, and
for that reason other credit reporting agencies should follow Experian’s lead.
-Inching Forward on Credit Scores, The Huffington Post
“ ”
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Benefits of reporting Improve your bottom line while helping consumers
Increase cash flow Improve collections
Enhance customer
experience Assist consumers
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For additional information, please contact:
Hear the latest from Vision 2014
in the Daily Roundup:
www.experian.com/vision/blog
@ExperianVision | #vision2014
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