The Art and Science of Implementing Faster Decisioning

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Credit Unions: The Art and Science of Implementing Faster Decisioning to Grow Loans

2©2016 Experian Information Solutions, Inc. All rights reserved.Experian Public.

Preparing For 2017 & Beyond

Agenda

Driving For Growth: Creating Faster Loan Decisioning Strategies

Connecting the Dots: What it Means for Your Credit Union

Q & A

1

2

3

4


Speakers

Scott ButterfieldAdvisor & Consultant

Your Credit Union Partner

Nichole LarmoreNew Business Consultant

Experian

©2016 Experian Information Solutions, Inc. All rights reserved.Experian Public. 4

Section 1:Preparing for 2017& Beyond

1


Laying The Foundation For SustainableLong-Term Growth


Three Critical Components for Achieving Profitable & Sustainable Long-Term Growth

ProfitableLoan Growth

Membership Growth

BranchEfficiency

Regulatory & Compliance is an ongoing challenge

1 2 3


Driving Organic & Profitable Loan Growth is Paramount for Relevancy

Source: Experian Marketing & Insights Analysis of NCUA Call Reports2014 and 2015: Represents Full Year; 2016YTD: Annualized with period ending June 30, 2016

Rate of Loan Growth Across Most Asset Tiers Slowing

2014 2015 2016 - YTD0.00%

2.00%

4.00%

6.00%

8.00%

10.00%

12.00%>$1B

$500M-$1B

$250-500M

$100-250M

$50-100M

$20-50M

<=$20M

1


Creating a Seamless Cross-Channel Experience is Critical to Winning and Retaining New Members

47Average

Member Age

While Membership Growth Rate is Increasing for Some CUs, majority <$500M are below 3%

Source: Experian Marketing & Insights Analysis of NCUA Call Reports2014 and 2015: Represents Full Year; 2016YTD: Annualized with period ending June 30, 2016Average Member Age: NCUA

2014 2015 2016 - YTD

-1.00%

0.00%

1.00%

2.00%

3.00%

4.00%

5.00%

6.00%>$1B

$500M-$1B

$250-500M

$100-250M

$50-100M

$20-50M

<=$20M

2

Alison Carr

seamless and cross-channel experience - I like this language!! This is a great tie in for the auto decision solution. Again speaks to changing demographics of consumers (Millennials and younger) and need to increase investment to not only remain relevant but to grow.


Increasing Costs For Operating Branches and Compliance Impacting Efficiency and Profitability

For Most Credit Unions <$1B in Assets, Improving Efficiency and Reducing Costs is Key

Source: Experian Marketing & Insights Analysis of NCUA Call Reports2014 and 2015: Represents Full Year; 2016YTD: Annualized with period ending June 30, 2016

2014 2015 2016 - YTD70.0

75.0

80.0

85.0

90.0

95.0 <=$20M

$20-50M

$50-100M

$100-250M

$250-500M

$500M-$1B

>$1B

3

¢

¢

¢

¢

¢

¢


The Loan Origination Process Itself Can Be a Challenge For Many Credit Unions

Loan origination process

Receive application

Pre-decision processing

Retrieve credit report

Manual decision review

Prepare documents

Booking and funding

Manual Effort Time


Competition is Skyrocketing:Loans Made By Online Lenders Projected to Increase 6x

$20B2015

$120B2020

Source: 2016 Morgan Stanley Research


The Cost of Coming in Second For a Loanis Significant

$1M $29k

$142k

$285k

$100B gain in loans made by Online Lenders in the next five years:$2.9B of Annualized Net Margin

MISSED LOAN BALANCES ANNUAL MISSED NET MARGIN

$5M

$10M


Section 2:Driving For Growth - Creating Faster Loan Decisioning Strategies

2


Three Step Process for Creating Faster Loan Decisioning Strategies

When establishing or improving automated loan underwriting, consider these questions:

CURRENT STATE: What are our key business problems and objectives? What does our loan underwriting process look like now?

PROPOSED STATE: What would automation look like for our credit union? What will happen if we make these changes?

IMPLEMENTATION & TRACKING: How do we implement automated loan decisioning into our existing system? How do we measure success?

123


Asset Size:$1B+

Location:Southeast

Members:150,000+

GROWTH OBJECTIVES

Loan Growth Ratio well

below peers

Lending Decisions

Made at Each Individual Branch

High Risk Exposure

(Inconsistent, Manual

Process)

Branches:5

BUSINESS PROBLEMS

Only 7%Lending

Decisions Automated

50%Decisions Automated

Grow Loan Portfolio

Increase # of member

cross-sell engagements

Increase speed to decision; centralize decision making

Step 1 – Current State: Client Success StoryIdentify Key Business Problems and Growth Objectives


Step 1 – Current State: Client Success StoryWhere are they now?

Subjectivelending

Automateddecisioning


Step 2 – Proposed State: Client Success StoryWhat would automated loan decisioning look like for our credit union?

Credit attributes

Income andDebt ratios

Industry Specific

Member relationship

OUTPUTINPUT

Credit bureau scores

Recommended Strategy

StatisticalAnalysis


Before: 7% automatic decisions

After: 57% automatic decisions (offline test)

Step 2 – Proposed State: Client Success StoryPutting the strategy to the test

Risk Grade Approved Declined Manual Total Auto Decision

A+ 74.0% 0.8% 25.2% 74.8%A 67.6% 2.6% 29.8% 70.2%B 39.6% 6.6% 53.8% 46.2%C 22.0% 18.6% 59.4% 40.6%D 5.3% 38.4% 56.3% 43.7%E 0.5% 77.0% 22.5% 77.5%

Totals 29.8% 26.8% 43.4% 56.6%


Step 3 - Implementation: Client Success StoryHow do we implement automated decisioning?

Use Current Loan Origination

System (LOS)

Leverage a Hosted Automated

Decisioning Platform

Purchase a New Loan Origination

System (LOS)


Step 3 - Implementation: Client Success StoryHow do we incorporate this into our existing loan origination system?

Inquiry information(Name, address, other information)

Decision & treatment

Decisioning as a ServiceSM

Data Attributes Scores Decisions Treatments

Risk score

Debt to income

Approve

Decline

Employment status

Approve

Decline

HOSTED AUTOMATED DECISIONING

Loan origination process

Receive application

Pre-decision processing

Retrieve credit report & decision

Decision review

–as needed

Prepare documents

Booking and funding

This automated process takes less than 2 seconds


Step 3 - Tracking: Client Success StoryHow Do We Measure Success?

FasterDecisioning

• Approval rate• Take-up rate• Retention rate

GrowLoans

• Increase app volume• Increase fundings

Increase Efficiency • Manual decision rate

While remaining within regulatory and compliance guidelines

• 18.6% increase in average loan application volume• 11.8% increase in funded loans

• Consistency across branches• Manual decision rate significantly reduced

• 57% of applications are auto-decisioned• 35% are auto-approved• 19% are auto-declined


Section 3:Connecting the Dots –What it Means for Your Credit Union

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BETTER

FASTER

STRONGER

To Win the Loan and Membership Game,We Need to Be….


Build a Member-Centric Experience

• Prime credit and millennial consumers demand a frictionless process

• Difficult to be first with clunky and unreliable systems

• Extra processing steps will slow you down

• Lower overhead reduce costs to support improved loan pricing

• Speed and consistency can improved the member experience and satisfaction

• Opportunity Cost: Spend more time consulting members (cross-selling) and less time in loan processing

BETTER

FASTER:

STRONGER:


Final Thoughts: Working Harder For Loan GrowthBigger-Faster-Stronger for 2017 & Beyond

32 $1

Leverage automated decisioning to win more loans:

Optimize your lending model and data to approve more loans based on your risk criteria (including cross-sells)

Create a fast, seamless and flawless member experience for loan applications

Enhance member service and bolster your pricing position

If your price and features are similar to the competition…then beat them on your speed of delivery and overall member experience.


Q & A

The Art and Science of Implementing Faster Decisioning

Economy & Finance

Transcript of The Art and Science of Implementing Faster Decisioning