Commercial in confidence

Inteflow User Group

September 2018

1

2

Agenda10:45pm - 11:45pm | Introduction, Status of Decisioning & EvolutionSpeaker: Vaughan Dixon

11:45pm - 12:15pm | Whats New!Speaker: Luke Croft

- Lunch-

1:00pm - 2:00pm | Industry Update: CCR and Open BankingSpeaker: Steve Brown

2:00pm - 2:30pm | Strategic Direction and RoadmapSpeaker: Vaughan Dixon

- Afternoon Tea -

3:00pm - 4:00pm | Proposed Developments & New RequestsSpeaker: Luke Croft

- Networking Drinks -

Commercial in confidence 3

AngelaMerrettServiceDelivery

Luke Croft

Product

Jason TuckerHead

Consulting

Craig FrawleyInteflowSupport

Vaughan DixonCTO

Kristin Witt

Consulting

Jessica Saxby

AccountDirector

Marnie WithersAccountDirector

Steve Brown

ConsumerSpecialist

Your Hosts Today

Commercial in confidence 4

Con Terzoglou

COO

Andrew BrennanHead ofDelivery

James MooreHead ofProduct

Arshad EbrahimHead of

Core

Those back in the office 70+

Core Team

Product Team

Delivery Team

Support Team

SME Team

illion Decisioning Update

What do we see happening in the market?

5

The Market is changing at ever faster ways

6

Customer

Customer Expectation

RPA / AI / Advanced

Models

Digital

Data Sources

Regulation

Fraud

Churn

Hardship

CCRPayment Methods

Fintech

SaaS

Compliance

Robotic Process Automation (RPA) is happening

7

One of the biggest growth areas

- Automating many tasks- Replacing interfacing

High efficiency

High accuracy and compliance

Rapid to apply and scale

Low risk

Employee engagement

Customer benefit. Robots are able to reply 24x7

RPA will be the major growth area in the next period

8

Machine Learning and AI are starting to be adopted

9

Fraud models- identifying those customers that need review

Transactional fraud

User guidanceRecommendation and guidance is a key area to help the underwriter

- The AI engine will become an Intelligent Assistant for your staff

Applying this to your business process

10

Adding an assistant to the decisioning system will provide prompts and recommendations which will guide the underwriter

RecommendationApprove this application. The applicant is young and has not cause for not having a credit file. In 96% of the time this application would be approved and only 0.1% fail

Growth in Payment Providers – opening new markets

11

Payment ProvidersAfterpayOxipayZippayAlipay GlobalAuthorize.netBitPayCashfreeCoinbase CommerceeWAY Rapid 3.1FuturePayG2A PayGoCoinLaybuyPayment Express PxPayPaymentExpressPayPal Express CheckoutPayPal Payflow ProPaystationPOLi Internet BankingPUT IT ON LAY-BUYShopify PaymentsWorldPay (Direct)WorldPay (Offsite)

Bringing younger customers into the credit process

Verification of customers

These will potentially increase the level of data available at the younger age groups

Challenges with verification

New Datasets

High Volume

Impact to Models?

Watch out for the technology companies

12

These organisations are well placed to exploit their reach- these organisations have the desired channel for young consumers- they are probably as trusted as the banks- they have the size to implement change

The fintechs keep arriving. Not all will succeed but a number of good ideas and challenges to existing thinking will appear.

New banks starting in Australia

Tic Toc, Qwid, Volt

Australian Royal Commission: Public opinion driven by the media

'Banking Code Compliance Committee reports that responsible lending breaches increased by 76 per cent', The Age, March 2018

‘Are banks irresponsible about responsible lending?’, The Sydney Morning Herald, March 2018

'CBA peppered problem gambler with credit offers', The Australian Financial Review, March 2018

'CBA wasn't honest with ASIC, while ANZ at risk of breaching responsible lending laws, royal commission hears', ABC, March 2018 'We rely on car

dealers to verify our loans, says Westpac', The Australian Financial Review, March 2018

'Westpac disregarded ASIC credit card lending direction',The Australian Financial

Review, March 2018

‘'Doomed to fail': CBA's 10,000 inappropriate loans’, The Sydney Morning Herald, March 2018

RC: How do you verify a customer’s declared expenses?

ANZ: 'Our processes are we do nothing. There are transactions on those statements that are inconsistent with the statement of position and we don't do anything.'

RC: Why?

ANZ: 'We're talking about the manual review of paper-based bank statements and to use those… would be highly complex, very time-consuming [and] very costly.'

Westpac: ‘Ignoring the regulator is not a good idea.’

RC: Why did you fail to comply with ASIC’s position regarding verification of employment status and income when offering credit card increases?

RC: Tell us about the loan serviceability process failure for overdraft applications?

CBA: The bank's automated system ‘spat out’ wrong approvals and was ‘doomed to fail’ because of bad design.

Responses to the royal commission

The banking royal commission consumer finance hearings highlighted the following issues:

Failures to verify income, expenses and liabilities

Mortgage broker monitoring

Irresponsible car loans

Growing regulatory pressure

Inadequate lending processes

Internal control errors

Statistical models are failing

High risk indirect distribution channels

Current state of affairs

Income and expense

Consistent categorisation based on your own policy and configuration requirements across direct, online, broker and third-party channels

Open banking ready

Leading products will incorporate bank. The outputs and categorisation will be consistent with an implementation that can be completed now

Fraud prevention enabled

ID verification, fraud prevention and data security are integral to all of our products

Fast deployment

Products and services can be up and running within two days

Bank statements offer fast, secure and automated income and expense verification, categorisation and analysis tools. Frictionless products and services are available in various formats to suit your requirements.

Utilising Bank Statements can assist

Regulation will only get harder

17

Smarter use of data will be important

18

Customers expect;- Their data to follow them - What we know we will use and not ask- External data sources will be used to complete where possible

- The process to be frictionless and fastSingle

Customer View

CONSUMER

Populated from Bank statements

Populated from online profile

24 months of International Bank applications between 1st January 2015 – 31st December 2016

Unique illionSACC DATA

3.0%

Late CR Data1.3%

Unique illion SACC and Late CR

Data0.4%

CCR data and SACC do not necessarily intersect, proving the case that a negative bureau is important for the foreseeable future

Small credit contracts are growing SACC compliments Comprehensive Credit Reporting

Bad Rate18%12% 8%

5.4% of applications had negative adverse at illion with 10.8% going ‘bad’ at the bank (5x higher than average)

C A S E S T U D YInternational Bank

22

20

Total Adverse = 2.72% Approval Rate by Bureau Cash Now

No one bureau contains all informationA mutual bank undertook a bureau validation to understand its potential risk factors not captured under a single bureau strategy

C A S E S T U D YMutual Bank

of unseen illion adverse is being approved compared to just 1 in 11 for known adverse

67%1 in 8 Personal Loan members have a SACC or MACC enquiry, of which ½ are unique to Bureau 2

1 in 8

Bureau 1 Unique = 0.7%

Bureau 2 Unique

= 0.86%Common1.16%

Approve Decline

9%

67%

91%

33%

All EquifaxAdverse

Unique illionAdverse

Bureau 2 has 74.3% of the total adverse, compared with Bureau 1 at 68%

74.3%

Unique Bureau

2

50%Multi bureau

50%

23

Unique Bureau 2

Unique Bureau 1

Customers are moving to SaaS to improve responsiveness

21

SaaS brings significant benefits to customers:

- Quicker time to implement / change- Lower costs - Upgrades managed by provider- Guaranteed service levels- Scalability for growth

Inteflow was built to support SaaS and we see an increase in the uptake or migration to this approach

Applicant Volume as expected remains high in the major cities and across the eastern seaboard

What do we see happening in Australia?

23

Approval Rates

All Segments

Approval Rates

Telco / Utility

Approval Rates

Trade

26

Approval Rates

Alternative Finance

27

Approval Rates

Banking

28

Brisbane

Banking

29

Sydney

Banking

30

Melbourne

Banking

31

Adelaide

Banking

Approval Rates will vary by industry segment

32

60% 57%

79%87%

B&F AltFi Trade Telco/Util

Approval Rates by Segment

33

Applicant Volume as expected remains high in the major cities

Looking at what we see happening in NZ

34

35

Customers are moving to SaaS to improve responsiveness

35

62%

82%

86%

83%

0% 20% 40% 60% 80% 100% 120%

Finance

Telco

Utility

Trade

Approval Rates by Segment

Approved Refer Decline Withdraw

36

Approval Percentages(by finance)

Approval Percentages(by telco/utilities)

37

Approval Percentages(by trade)

Top 5 reasons effecting customer segments

38

Duplicate

Condition

Adverse

Score Decline

Data Quality

DL

Income

Adverse

Score Refer

Serviceability

Duplicate

Bureau Report Age

Adverse

Possible Match

Identification

DL

Data Quality

Company Age

Telco / Utility Finance Trade

39

Vaughan DixonChief Technology Officerillion

40