2011 Financial Services Regional Seminar Getting Beyond the Portfolio … · 2015-12-04 · 2011...
Transcript of 2011 Financial Services Regional Seminar Getting Beyond the Portfolio … · 2015-12-04 · 2011...
2011 Financial Services Regional Seminar
Getting Beyond the Portfolio Review
Linda Moynihan VanceDirector, Product Development and Channel Managementp gFinancial ServicesTransUnion
© 2011 TransUnion LLC All Rights Reserved
Session overviewSession overview
• A discussion of our economic environment
• Some current practices and their associated challenges• Some current practices and their associated challenges
• A new approach for your consideration
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Getting Beyond the Portfolio Review
The environment
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Card originations appear to have bottomed out nationally and are beginning to rebound Delinquency has hit historic lowsare beginning to rebound. Delinquency has hit historic lows.
Total Quarter Credit Card OriginationsE d f Q t 90+ C I id t C dit C d D li R t
1.2%
1.4%
1.6%
20,000,000
25,000,000End of Quarter 90+ Consumer Incident Credit Card Delinquency Rate
quen
cy R
ate Total Q
uar
Response to mortgage delinquency
0.6%
0.8%
1.0%
10,000,000
15,000,000
ncid
ent D
elin
q rter Acquisitio
0.0%
0.2%
0.4%
05 05 05 05 06 06 06 06 07 07 07 07 08 08 08 08 09 09 09 09 10 10 10 10 11 11
0
5,000,000
90+
DPD
Inon Volum
e
CARD Act concerns
Q1
200
Q2
200
Q3
200
Q4
200
Q1
200
Q2
200
Q3
200
Q4
200
Q1
200
Q2
200
Q3
200
Q4
200
Q1
200
Q2
200
Q3
200
Q4
200
Q1
200
Q2
200
Q3
200
Q4
200
Q1
20
Q2
20
Q3
20
Q4
20Q
1 20
Q2
20
As we have demonstrated, consumers in part are protecting their available
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card credit—their primary source of liquidity in uncertain timesSources: TransUnion Trend Data and Credit Reporting Databases
Mortgage delinquency is slowly improving across the nationthe nation
Total Quarter Mortgage OriginationsE d f Q t 60 C I id t M t D li R t
6.0%
7.0%
8.0%
6,000,000
7,000,000
8,000,000End of Quarter 60+ Consumer Incident Mortgage Delinquency Rate
quen
cy R
ate Total Q
uarte
3.0%
4.0%
5.0%
3,000,000
4,000,000
5,000,000
ncid
ent D
elin
q er Acquisition
0.0%
1.0%
2.0%
05 05 05 05 06 06 06 06 07 07 07 07 08 08 08 08 09 09 09 09 10 10 10 10 11 11
0
1,000,000
2,000,000
60+
DPD
In Volume
Q1
200
Q2
200
Q3
200
Q4
200
Q1
200
Q2
200
Q3
200
Q4
200
Q1
200
Q2
200
Q3
200
Q4
200
Q1
200
Q2
200
Q3
200
Q4
200
Q1
200
Q2
200
Q3
200
Q4
200
Q1
20
Q2
20
Q3
20
Q4
20
Q1
20
Q2
20
Despite the success of certain stimulus programs, originations remain
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generally stagnant Sources: TransUnion Trend Data and Credit Reporting Databases
Auto lending is beginning to rebound. Auto delinquency is controlled across the U.S.is controlled across the U.S.
Total Quarter Auto Loan OriginationsE d f Q t 60 C I id t A t L D li R t
0.7%
0.8%
0.9%
1.0%
6 000 000
7,000,000
8,000,000
9,000,000End of Quarter 60+ Consumer Incident Auto Loan Delinquency Rate
quen
cy R
ate
Total Quarte
0.3%
0.4%
0.5%
0.6%
3,000,000
4,000,000
5,000,000
6,000,000
ncid
ent D
elin
qer A
cquisition V
0.0%
0.1%
0.2%
0.3%
05 05 05 05 06 06 06 06 07 07 07 07 08 08 08 08 09 09 09 09 10 10 10 10 11 11
0
1,000,000
2,000,000
60+
DPD
InVolum
e
Q1
200
Q2
200
Q3
200
Q4
200
Q1
200
Q2
200
Q3
200
Q4
200
Q1
200
Q2
200
Q3
200
Q4
200
Q1
200
Q2
200
Q3
200
Q4
200
Q1
200
Q2
200
Q3
200
Q4
200
Q1
20
Q2
20
Q3
20
Q4
20
Q1
20
Q2
20
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“Cash for Clunkers” worked well; the market has stabilizedSources: TransUnion Trend Data and Credit Reporting Databases
A brief digression: Do not use average credit scores to estimate average risk—you could get the wrong answer
ConsumerCreditScore P(90+ DPD)
estimate average risk you could get the wrong answer
ConsumerCreditScore P(90+ DPD)
Consumer #1 700 1.55%Consumer #2 700 1.55%Consumer #3 700 1 55%
Consumer #1 600 5.84%Consumer #2 600 5.84%Consumer #3 600 5 84% Consumer #3 700 1.55%
Consumer #4 500 13.69%Consumer #5 500 13.69%C #6 500 13 69%
Consumer #3 600 5.84%Consumer #4 600 5.84%Consumer #5 600 5.84%C #6 600 5 84% Consumer #6 500 13.69%
AVERAGE 600 7.62%
Consumer #6 600 5.84%AVERAGE 600 5.84%
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Here’s another illustration of what can go wrongHere s another illustration of what can go wrongTransRisk Account Management Score
40%
45%
TransUnion Account Management Score
25%
30%
35%
bilit
y of
Def
aultCredit scores are logarithmic, not linear
TRAM Score
Corresponding Probability of
Default415 38 48%C #1
5%
10%
15%
20%
Inte
rval
Pro
ba415 38.48%476 21.64%682 1.55%699 1.55%815 0.30%
Consumer #4Consumer #5
Consumer #1Consumer #2Consumer #3
0%
5%
> 850
840 -
850
824 -
839
810 -
823
796 -
809
779 -
795
760 -
778
740 -
759
720 -
739
701 -
719
681 -
700
661 -
680
640 -
660
618 -
639
595 -
617
568 -
594
536 -
567
493 -
535
422 -
492
150 -
421
Score Ranges
Average P(90+DPD) = 12.70%Score of 524!
Average credit score = 617P(90+DPD) = 5.01%
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Risk of default increased markedly both before and during the course of the recession, finally peaking in Q4 2009the course of the recession, finally peaking in Q4 2009
TransUnion Credit Risk IndexUSA NV IL PA ND
160
180
120
140
CR
I
80
100
60
Q1-
05
Q2-
05
Q3-
05
Q4-
05
Q1-
06
Q2-
06
Q3-
06
Q4-
06
Q1-
07
Q2-
07
Q3-
07
Q4-
07
Q1-
08
Q2-
08
Q3-
08
Q4-
08
Q1-
09
Q2-
09
Q3-
09
Q4-
09
Q1-
10
Q2-
10
Q3-
10
Q4-
10
Q1-
11
Q2-
11
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Source: TransUnion Trend Data Database
In this environment, financial institutions face three key challengeskey challenges
Challenge Causes
Continued risk due to external market
conditions
• A stubbornly volatile economy, a continued depressed real estate market and ongoing concerns around ARM resets
• Unable to measure risks unique to each customer• Concentration risk (geographic, demographic or otherwise)
Shifts in consumer performance
• Unable to accurately forecast delinquency and losses and set appropriate loan loss reserves
• Difficulty isolating high-risk accounts when economic conditions shift
Increased attrition
• Highly competitive marketplace, including traditional and non-traditional channels, leading to customer migration
• Unable to actively monitor accounts and execute up-sell or retention efforts –before customers consider competitors’ productsbefore customers consider competitors products
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The industry focus and concerns voiced by many of our customers can be broadly classified into five conceptscustomers can be broadly classified into five concepts
• Customer growth and retention
• Controlled growth
• Consistent portfolio management
• Expanding wallet share
• Increased efficiency in portfolio managementy p g
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Getting Beyond the Portfolio Review
Current practices
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Financial institutions seek account management tools that reliably differentiate good and bad accounts scalable to constrained budgetsdifferentiate good and bad accounts, scalable to constrained budgets
Challenges with traditional practices and technology
Unable to measure risks unique to each customer and portfolio
Executing on portfolio management strategy
Current tools do not identify potential delinquency early enoughCurrent tools do not identify potential delinquency early enough
Difficulty isolating high-risk accounts
Limited resources available to actively monitor accounts
Current tools do not scale down to resource or price requirements
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The need for a hybrid solutionThe need for a hybrid solution
Investment Size
LARGERAccount
ManagementTriggers
CustomPortfolio Review
Hybrid
Individual
ExpressPortfolio Review
SMALLER
IndividualMonitoring
Analytic ComplexityLOW HIGH
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Current process for portfolio reviewsCurrent process for portfolio reviews
For many financial institutions, the process has been labor intensive and
Work: Receive file back and append internal
750
process has been labor intensive and vulnerable to breakdown
append internal attributes
Work: IdentifyQuarterly Portfolio Review
W k S b i filWork: Compare to previous file
Work: Identify action to be taken
650Quarterly Portfolio Review
Work: Submit file for portfolio review
to previous file
Work: Action taken
1515
Q2 11 Q3 11AugustJuly
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More frequent portfolio reviews can help financial institutions take action sooner—balance complexity investment portfolio volatility etcaction sooner balance complexity, investment, portfolio volatility, etc.
Identify both negative and positive changes to your customer’s condition, and respond with more effective treatment strategies Internal: New
bankcard trade External:
750
gbankcard trade External: 30+ delinquency
External:
700Quarterly Portfolio Review
Account reviewed, no action taken Monthly
Portfolio Review
New collection
Internal: Bankcard open to buy – $4,500
Portfolio Review
650
MonthlyPortfolio Review
650Quarterly Portfolio Review
Account reviewed, credit line decrease
1616
Q2 11 Q3 11AugustJuly
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A quarterly portfolio review strategy with a monthly compare can accommodate strategy execution on key data changesaccommodate strategy execution on key data changes
Quarterly Portfolio Review
M thl C Monthly Compare
Quarterly Portfolio Review
Monthly Compare Monthly Compare
Key indicators in aKey Comparisons:• Score drop• CC utilization
Additional data allow for better decision making
ymonth-over-month comparison• CC balance
• New derogatory
TREATMENT 1Credit line increase
TREATMENT 2New overlimit cash
TREATMENT 3Credit line decrease
TREATMENT 4Collection
TREATMENT 5No change
1717
Credit line increase New overlimit cash authorization level
Credit line decrease Collection prioritization
No change
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Using a portfolio compare tool can help financial institutions take action soonerinstitutions take action sooner
Internal: New bankcard trade
External: 30+ delinquency
750
700Quarterly Portfolio Re ie
External: New collection
700Portfolio Review
MonthlyPortfolio Compare
650 650
Internal: Bankcard open to buy – $4,500Account
reviewed, no action taken
650
MonthlyPortfolio Compare
650Quarterly Portfolio Review Account
compared, no action taken Account Account
i d
Q2 11 Q3 11AugustJuly
takencompared, credit line decreased
reviewed, no action taken
1818
Q2 11 Q3 11AugustJuly
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Getting Beyond the Portfolio Review
Examples of successful applications
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Portfolio management at a regional financial institution
Case Study
Portfolio management at a regional financial institution
Ch ll• Infrequent portfolio reviews
Need for timel /actionable dataChallenge • Need for timely/actionable data • Surprise bankruptcies
Solution• Monthly compare for LOC, HELOC, CC• Used Express Portfolio Compare to complement continued standard portfolio review• Identified consumers much earlier to take action
Result• Client proactively managed lines to minimize risk earlier
M f d tt ti d ti ith “ ff ” d liResult • More focused attention and action on consumers with “off-us” delinquency
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Retain your best customers through proactive marketing efforts with event-based datamarketing efforts with event based data
• Set monitoring criteria specific to customer retention objectives
• Identify the best customers who are ready to respond to up-sell offers
• Send the right up-sell offer at the right time to improve response• Monitor customer
accounts including those with other institutions
sell offers
• Focus efforts on accounts that are most at risk of attrition
response
• Take action to reduce both account and balance attrition
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Customer retention at a (different) regional financial institution
Case Study
institution
Challenge• Customer attrition
Need for timel /actionable dataChallenge • Need for timely/actionable data • Return to competitive marketing
Solution
• Retention of consumers brought on during challenging economic environment• Monthly compare for LOC, HELOC, CC• Express Portfolio Compare delivered focused data of improving consumers• Up-sell with line increase – use of TransUnion Income Estimator and Debt-to-IncomeUp sell with line increase use of TransUnion Income Estimator and Debt to Income
Estimator for ability to pay
Result • Maintain loyalty• Create opportunities for stronger performance
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SummarySummary
• Review your portfolio management strategy with consideration of external market conditions shifts inconsideration of external market conditions, shifts in consumer performance and specific financial institution risk points
• Leverage external capabilities to provide both technical and analytic bench strength to overcome internal resource and process challengesand process challenges
• Apply a hybridized portfolio management philosophy to move more effectively from strategy development tomove more effectively from strategy development to strategy execution
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