John Dancu, CEO of IDology, served as moderator of the Getting Smart: the Importance of Analytics and Underwriting webinar facilitated by the Online Lenders Alliance. Representatives from a number of international service providers, including Dale Williams with CoreLogic Teletrack, provided lenders the requirements for entering new markets, like the UK. In addition, the panelist discussed the use of analytics and underwriting in emerging markets to refine lending policies and achieve a profitable lending profile.
Entering New Markets
The panelist agreed that implementing a number of processes will improve the likelihood of lending success in new markets, including:
- Developing a high quality database structure
- Establishing a profile of the target customer
- Evaluating early results
The panel suggested that six months is ideal for accumulating meaningful data but depending on a number of factors, it could be a three to four month time frame. As a rule, less than three months of data does provide enough information to develop a lending successful lending strategy. Once a quality database has been developed and sufficient historical data has been gathered, lenders should focus on the characteristics of a good customer, including:
- Historical performance
- Peer group attributes
- Banking relationships
Data & Analytics in Emerging Markets
With an understanding of performance, peer groups and banking relationships within their own data, the lender may want to take a look at using external data and analytics, which they can purchase from suppliers like CoreLogic Teletrack, to enhance the predictability of decision making. These providers can offer access to identity authentication, industry specific performance and scores, as well as traditional credit performance information and banking data.
“As the UK payday lending market has evolved, access to more focused risk tools can help lenders develop increasingly sophisticated business models, pricing strategies and market position,” said Dale Williams, VP, Global Strategy & Business Development for CoreLogic. “CoreLogic Teletrack provides data and analytics solutions for specialist markets as well as access to bank account, identity verification and traditional credit performance data to help our clients develop informed business processes.”
The panel also addressed the use of analytics tools before and after acquiring a customer. Online lenders may want to validate basic consumer information before requesting that the consumer complete an application. Under these circumstances, the lender may consider using identity verification and authentication tools before leveraging more credit performance information or scoring. In a storefront environment, authentication can be done in combination with application screening.
Once the consumer has been verified and the application is completed, a variety of metrics can be used to evaluate anddetermine the level of screening necessary. The most commonly used metrics are:
- Loan value
- Acquisition costs
- Underwriting cost per funded loan
- Annual rate of return
With this information, lenders can leverage credit models built on thousands of transactions to measure the risk of each loan. Rather than relying on individual indicators, like previous default or ability to pay, credit models enable the lender to assess risk related to both the willingness and ability to repay. Using a credit model built specifically for the payday loan industry is a first step to understanding consumer credit risk. The lender can then access bank account validation and traditional credit screening to enhance decision making and customize the product offer for each client.
While complex, authentication, credit performance history and credit models can be processed in an instant. Once you have established the lending guidelines for your business, leveraging data and analytics for greater insight into consumer identity and credit performance can give you an edge in new markets.
