Higher Risk Strategies Need Alternative Data and Flexible Systems
In a previous article we discussed how banks can leverage alternative data to improve deposit account performance.
Now that the economic turbulence brought on by the housing crisis has subsided and employment levels have stabilized, lenders are clearly looking for profitable areas to grow their loan portfolios as well. Equifax’s June 2012 National Consumer Credit Trends report shows that lenders continue to ease underwriting policies, a trend that started in 2011. Auto Bank, Auto Finance, Bankcard, Consumer Finance and Retail Card Sub Prime loan originations are off recession lows and the highest they have been since 2008. At the same time, sub-prime origination amounts are still well below pre-recession levels so lenders are being understandably cautious as they look to see how loosening their policies will affect overall portfolio performance as these higher risk loans mature.
As lenders look to expand their portfolios in the higher risk, subprime segments, their underwriting policies should continue to evolve to expand the decisioning process beyond using only credit data. Leveraging alternative data sources and advanced analytics are some of the ways lenders are evolving their decision making process. This will extend beyond origination into regular account management practices as well. Policies will need to quickly evolve as markets change and these portfolios start to mature and the impact to these policy changes is better understood.
Lenders may have technology challenges in delivering this new information and should assess their current systems’ ability to deliver new and differentiated data into the enterprise systems as well as how flexible the current systems are in managing new policies. This “last mile execution” is something we discussed with our customers recently and is consistently the number one challenge inhibiting our customers from leveraging products and services available via new and differentiated data.
Organizations that have solved this last mile execution challenge will be able to leverage alternative data to deliver more powerful and predictive analytics within their lending policies. They will have flexible systems that can adjust to changing market conditions and portfolio performance.
Would you like to know more how Equifax can help your organization be more successful at integrating alternative data sources? Contact your Equifax sales representative or send us an e-mail.
This post was contributed by: Lee Grice.
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