Vision 2014: Expand Your Consumer Universe and Improve Profitability

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Learn how lenders are expanding their universe, increasing approvals and maximizing profitability by using Experian’s VantageScore® 3.0. We will discuss the significant improvements made within VantageScore 3.0 and what that means for your business. We also will present case studies and a return on investment analysis for lenders that currently are leveraging this data.

VantageScore® is a registered trademark of VantageScore Solutions, LLC.

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Vision 2014: Expand Your Consumer Universe and Improve Profitability

  1. 1. ©2014 Experian Information Solutions, Inc. All rights reserved. Experian and the marks used herein are service marks or registered trademarks of Experian Information Solutions, Inc. Other product and company names mentioned herein are the trademarks of their respective owners. No part of this copyrighted work may be reproduced, modified, or distributed in any form or manner without the prior written permission of Experian. Experian Public. Expand your consumer universe and improve profitability Paul DeSaulniers Experian Kelley Motley Experian #vision2014
  2. 2. 2©2014 Experian Information Solutions, Inc. All rights reserved. Experian Public. The recent financial crisis has reshaped the lending environment.  Focus on model governance to ensure mandated regulatory compliance  New emphasis on consumer education, model transparency, and inclusive lending practices  Importance of controlled growth that balances expansion with risk mitigation  Need for agile and flexible operational processes without single-threaded dependencies Now is the time to challenge your consumer risk score. 1. Is your model geared to support expanding regulatory compliance? 2. Are you able to meet the growing demands for consumer transparency and education? 3. Does your model deliver superior and stable predictive power in the current economic and business environment? 4. Are you mitigating operational risks which can cause major disruptions in your business? 5. Are you partnering with a data and analytics expert who understands how to leverage the full power of traditional and emerging credit data to increase predictiveness? Today’s reality
  3. 3. 3©2014 Experian Information Solutions, Inc. All rights reserved. Experian Public.  Greater prediction through the use of enhanced data elements and more granular data  Increased coverage by scoring 30-35 million more consumers over a traditional risk score  Easy-to-implement with a familiar industry recognized score range  More consistent results of the score across all three credit reporting companies  Optimized for origination and account management uses  Stable model for consistent results across timeframes VantageScore® 3.0 Highlights
  4. 4. 4©2014 Experian Information Solutions, Inc. All rights reserved. Experian Public. VantageScore® 3.0 Performance metrics VantageScore® 3.0  KS in the high 50’s and 60’s  GINI’s into the 80’s  Captures over 75% of all bads in the lowest scoring 20%  More accurately classifies consumers who may be inaccurately categorized as subprime ► An Experian study shows 2.5 million consumers being reclassified from subprime into higher score intervals Lift in 90+ DPD captured at 20% – overall 64.7% 62.6% VantageScore® 3.0 Scorex PLUS 75.7% 69.8% 5.9 % Lift over Scorex PLUS Statistics Overall Bankcard Mortgage Auto KS 63.4 65.7 61.7 59.5 GINI 79.2 81.3 77.8 75.4 Bads captured in lowest 20% 75.8% 80.8% 75.3% 72.3% CRC = Credit Reporting Companies
  5. 5. 5©2014 Experian Information Solutions, Inc. All rights reserved. Experian Public. VantageScore® 3.0 Universe expansion U.S. consumers (millions) Scoreable Universe VantageScore® 3.0 newly scored Legacy models * 170 35  VantageScore® 3.0 includes traditionally excluded consumers: ► Infrequent credit users ► New entrants ► No recent activity ► No open trades VantageScore® 3.0 scores 30–35 million more consumers over conventional models *= Based to published exclusion criteria
  6. 6. 6©2014 Experian Information Solutions, Inc. All rights reserved. Experian Public. VantageScore® 3.0 utilizes familiar 300–850 scale  Scaled to accommodate existing systems  Research was conducted with both lenders and consumers, with each audience indicating a preference for the 300–850 scale  While lenders individually determine their own credit quality cutoffs, the credit tier breakdown below is offered only as an approximation: ► 781–850 Super prime ► 661–780 Prime ► 601–660 Non-prime ► 500–600 Subprime ► 300–499 Deep subprime VantageScore® 3.0 Score ranges Prime: 661 and above Non-prime: Below 660
  7. 7. 7©2014 Experian Information Solutions, Inc. All rights reserved. Experian Public. Population distribution of scoreable consumers 5% 27% 13% 34% 21% 0% 5% 10% 15% 20% 25% 30% 35% 40% 300-499 500-600 601-660 661-780 781-850 VantageScore® 3.0 population distribution Implementing a 631 score cut, the interval bad rate is <8%, encompassing 62% of the population
  8. 8. 8©2014 Experian Information Solutions, Inc. All rights reserved. Experian Public.  All numeric adverse action codes; fewer than 80 definitions  Adverse action codes rewritten to be more consumer-friendly and understandable ► Clear understanding of what impacts a consumer’s VantageScore® credit score ► ReasonCode.org website is an educational resource for consumers VantageScore® 3.0 Easier to adopt adverse action codes
  9. 9. 9©2014 Experian Information Solutions, Inc. All rights reserved. Experian Public. Expand your consumer universe and improve profitability with VantageScore® 3.0
  10. 10. 10©2014 Experian Information Solutions, Inc. All rights reserved. Experian Public. Analytical objective  To answer the following: How many applicant records can be scored using VantageScore® 3.0, where my traditional model was not able to provide a valid score? ► Who are these consumers? ► How do these new consumers perform? ► How many of these consumers can I approve given my current approval criteria? VantageScore® 3.0 Analysis overview
  11. 11. 11©2014 Experian Information Solutions, Inc. All rights reserved. Experian Public. Analysis overview  Review of existing and new consumer accounts ► Retail new account acquisition ► Bankcard existing account portfolio management VantageScore® 3.0 Analysis overview
  12. 12. 12©2014 Experian Information Solutions, Inc. All rights reserved. Experian Public. Model performance Performance definitions Bad Consumers 90+ days delinquent or worse Good Consumers current or 30 days delinquent (<60 DPD) Indeterminate Consumers 60 days delinquent (<90 DPD) Dec 2011 Observation date Dec 2013 24-month performance window Performance Existing account management Dec 2011 Date opened Jan. – Mar. Dec 2013 21- to 23-month performance window Performance New account acquisition Observation date
  13. 13. 13©2014 Experian Information Solutions, Inc. All rights reserved. Experian Public. Bankcard – existing account management Scoring totals 99.33% scoreable using VantageScore® 3.0 as compared to 98.36% scoreable using a competitive score Sample: National randomly selected – 6,524,894 records VantageScore® 3.0 Total 6,481,377 Good 5,956,009 Bad 431,869 Indeterminate 93,499 Competing risk score Total 6,417,611 Good 5,898,930 Bad 426,075 Indeterminate 92,606
  14. 14. 14©2014 Experian Information Solutions, Inc. All rights reserved. Experian Public. Let’s first look at the population scoreable by both models Bankcard – existing account management Accounts scored by both models VantageScore® 3.0 Total 6,481,377 Competing risk score Total 6,417,611 Scoreable by both models Total 6,417,584 Good 5,898,910 Bad 426,070 Indeterminate 92,604
  15. 15. 15©2014 Experian Information Solutions, Inc. All rights reserved. Experian Public. Bankcard – existing account management KS comparison Accounts scored by both models 62.67 59.19 55 60 65 KSstatistic VantageScore® 3.0 Competing risk score Vantage Score® 3.0 shows better separation of good and bad accounts (higher KS)
  16. 16. 16©2014 Experian Information Solutions, Inc. All rights reserved. Experian Public. Bankcard – existing account management Cumulative bad lift chart Accounts scored by both models 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Cumulative%ofbadaccounts Cumulative % of accounts VantageScore® 3.0 Competing risk score Baseline VS3 KS: 62.67 Other KS: 59.19
  17. 17. 17©2014 Experian Information Solutions, Inc. All rights reserved. Experian Public. Bankcard – existing account management Percent bad capture Accounts scored by both models The ability of a model to push the largest percent of bads to the lowest scoring ranges is a hallmark of scorecard performance. 55.4% 76.4% 87.1% 51.1% 72.8% 84.4% 40% 50% 60% 70% 80% 90% 100% 10% 20% 30% %badaccounts Worst scoring VantageScore® 3.0 Competitive score
  18. 18. 18©2014 Experian Information Solutions, Inc. All rights reserved. Experian Public. Bankcard – existing account management Rank ordering Accounts scored by both models 0% 10% 20% 30% 40% 50% 60% 5% 25% 45% 65% 85% Intervalbadrate VantageScore® 3.0 Competing risk score Overall bad rate: 6.64% Bad rate should steadily increase as you move into lower scoring intervals, creating a smooth, monotonic progression. This is a measure of model performance, as well as scorecard stability. Twentiles Best scoring Worst scoring
  19. 19. 19©2014 Experian Information Solutions, Inc. All rights reserved. Experian Public. Now, let’s look at the population uniquely scoreable by VantageScore® 3.0 Bankcard – existing account management Accounts only scored by VantageScore® 3.0 (unique) VantageScore® 3.0 Total 6,481,377 Competing risk score Total 6,417,611 Uniquely scoreable by VantageScore® 3.0 Total 63,793 Good 57,099 Bad 5,799 Indeterminate 895
  20. 20. 20©2014 Experian Information Solutions, Inc. All rights reserved. Experian Public. Bankcard – existing account management Lift chart Accounts only scored by VantageScore® 3.0 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Cumulative%ofbadaccounts Cumulative % of accounts VantageScore® 3.0 Baseline KS score: 48.53
  21. 21. 21©2014 Experian Information Solutions, Inc. All rights reserved. Experian Public. Bankcard – existing account management Percent bad capture Accounts only scored by VantageScore® 3.0 33.1% 59.9% 73.3% 0% 10% 20% 30% 40% 50% 60% 70% 80% 10% 20% 30% %badaccounts Worst scoring VantageScore® 3.0 The ability of a model to push the largest percent of bads to the lowest scoring ranges is a hallmark of scorecard performance.
  22. 22. 22©2014 Experian Information Solutions, Inc. All rights reserved. Experian Public. Bankcard – existing account management Rank ordering Accounts only scored by VantageScore® 3.0 0% 10% 20% 30% 40% 50% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Intervalbadrate VantageScore® 3.0 Deciles Best scoring Worst scoring Overall bad rate: 8.26% Bad rate should steadily increase as you move into lower scoring intervals, creating a smooth, monotonic progression. This is a measure of model performance, as well as scorecard stability.
  23. 23. 23©2014 Experian Information Solutions, Inc. All rights reserved. Experian Public. Bankcard – existing account management Comparing the consumers scoreable only by VantageScore® 3.0 to those scoreable by both models 0% 2% 4% 6% 8% 10% 12% 14% 16% 18% 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 Scored by both models Uniquely scored by VS3 Twentiles Best scoring Worst scoring
  24. 24. 24©2014 Experian Information Solutions, Inc. All rights reserved. Experian Public. Bankcard – existing account management Comparing the consumers scoreable only by VantageScore® 3.0 to those scoreable by both models 0% 10% 20% 30% 40% 50% 60% 0% 2% 4% 6% 8% 10% 12% 14% 16% 18% 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 Scored by both models Uniquely scored by VS3 Int. bad rate scored by both models Int. bad rate scored by VS Overall bad rate 42% of the population, traditionally not scored, can be approved Twentiles Best scoring Worst scoring
  25. 25. 25©2014 Experian Information Solutions, Inc. All rights reserved. Experian Public. Retail – new account origination Scoring totals 99.64% scoreable using VantageScore® 3.0 as compared to 97.4% scoreable using a competitive score Sample: National randomly selected – 410,685 records VantageScore® 3.0 Total 409,200 Good 383,613 Bad 20,101 Indeterminate 5,486 Competing risk score Total 400,024 Good 375,922 Bad 18,850 Indeterminate 5,252
  26. 26. 26©2014 Experian Information Solutions, Inc. All rights reserved. Experian Public. Let’s first look at the population scoreable by both models Retail – new account origination Accounts scored by both models VantageScore® 3.0 Total 409,200 Competing risk score Total 400,024 Scoreable by both models Total 400,013 Good 375,917 Bad 18,846 Indeterminate 5,250
  27. 27. 27©2014 Experian Information Solutions, Inc. All rights reserved. Experian Public. Retail – new account origination KS comparison Accounts scored by both models 52.74 50.76 45 50 55 KSstatistic VantageScore® 3.0 Competing risk score Vantage Score® 3.0 shows better separation of good and bad accounts (higher KS)
  28. 28. 28©2014 Experian Information Solutions, Inc. All rights reserved. Experian Public. Retail – new account origination Cumulative bad lift chart Accounts scored by both models 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Cumulative%ofbadaccounts Cumulative % of accounts VantageScore® 3.0 Competing risk score Baseline VS3 KS: 52.74 Other KS: 50.76
  29. 29. 29©2014 Experian Information Solutions, Inc. All rights reserved. Experian Public. Retail – new account origination Percent bad capture Accounts scored by both models 43.3% 65.1% 79.6% 39.6% 62.4% 77.3% 30% 40% 50% 60% 70% 80% 90% 10% 20% 30% %badaccounts Worst scoring VantageScore® Competitive score The ability of a model to push the largest percentage of bads to the lowest scoring ranges is a hallmark of scorecard performance.
  30. 30. 30©2014 Experian Information Solutions, Inc. All rights reserved. Experian Public. Retail – new account origination Rank ordering Accounts scored by both models 0% 5% 10% 15% 20% 25% 30% 35% 5% 15% 25% 35% 45% 55% 65% 75% 85% 95% Intervalbadrate VantageScore®3.0 Competing risk score Twentiles Best scoring Worst scoring Overall bad rate: 4.71% Bad rate should steadily increase as you move into lower scoring intervals creating a smooth, monotonic progression. This is a measure of model performance as well as scorecard stability.
  31. 31. 31©2014 Experian Information Solutions, Inc. All rights reserved. Experian Public. Now, let’s look at the population uniquely scoreable by VantageScore® 3.0 Retail new account origination Accounts only scored by VantageScore® VantageScore® 3.0 Total 409,200 Competing risk score Total 400,024 Uniquely scoreable by VantageScore® 3.0 Total 9,187 Good 7,696 Bad 1,255 Indeterminate 236
  32. 32. 32©2014 Experian Information Solutions, Inc. All rights reserved. Experian Public. Retail – new account origination (unique) Lift chart Accounts only scored by VantageScore® 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Cumulative%ofbadaccounts Cumulative % of accounts VantageScore® 3.0 Baseline KS score: 30.29
  33. 33. 33©2014 Experian Information Solutions, Inc. All rights reserved. Experian Public. Retail – new account origination (unique) Percent bad capture Accounts only scored by VantageScore® 21.0% 35.8% 51.8% 0% 10% 20% 30% 40% 50% 60% 10% 20% 30% %badaccounts Worst scoring VantageScore® The ability of a model to push the largest percent of bads to the lowest scoring ranges is a hallmark of scorecard performance.
  34. 34. 34©2014 Experian Information Solutions, Inc. All rights reserved. Experian Public. Retail – new account origination (unique) Rank ordering Accounts only scored by VantageScore® 3.0 0% 10% 20% 30% 40% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Intervalbadrate VantageScore® 3.0 Deciles Best scoring Worst scoring Overall bad rate: 14.09% Bad rate should steadily increase as you move into lower scoring intervals, creating a smooth, monotonic progression. This is a measure of model performance, as well as scorecard stability.
  35. 35. 35©2014 Experian Information Solutions, Inc. All rights reserved. Experian Public. Retail – new account origination Comparing the consumers scoreable only by VantageScore® 3.0 to those scoreable by both models 0% 5% 10% 15% 20% 25% 30% 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 Scored by both models Uniquely scored by VS3 Twentiles Best scoring Worst scoring
  36. 36. 36©2014 Experian Information Solutions, Inc. All rights reserved. Experian Public. Retail – new account origination Comparing the consumers scoreable only by VantageScore® 3.0 to those scoreable by both models 0% 5% 10% 15% 20% 25% 30% 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 Scored by both models Uniquely scored by VS3 Int. bad rate scored by both models Int. bad rate scored by VS Overall bad rate 5.1% of the population, traditionally not scored, can be approved Twentiles Best scoring Worst scoring
  37. 37. 37©2014 Experian Information Solutions, Inc. All rights reserved. Experian Public. Comparison of uniquely scored VantageScore® 3.0 records to those scored by both models New accounts Unique VantageScore® 3.0 consumers Consumers scored by both models Age 36 years 47 years Homeownership 31% 58% Length of residence 8.3 years 10.3 years Presence of children 41% 35% Income InsightSM (Credit) $42,228 $87,705 Existing accounts Unique VantageScore® 3.0 consumers Consumers scored by both models Age 57 years 51 years Homeownership 47% 63% Length of residence 11.7 years 11.6 years Presence of children 26% 31% Income InsightSM (Credit) $46,490 $98,265
  38. 38. 38©2014 Experian Information Solutions, Inc. All rights reserved. Experian Public. Bankcard – account management  VantageScore® 3.0 scores 1% more accounts than the competing risk score  6% lift in Kolmogorov-Smirnov (KS) performance  3.2% lift in bads captured in worst scoring 30% Retail – account acquisition  VantageScore® 3.0 scores 2.3% more accounts than the competing risk score  3.9% lift in Kolmogorov-Smirnov (KS) performance  3.0% lift in bads captured in the worst scoring 30% VantageScore® 3.0 vs. competing risk score Summary
  39. 39. 39©2014 Experian Information Solutions, Inc. All rights reserved. Experian Public. For additional information, please contact: Paul.DeSaulniers@experian.com Kelley.Motley@experian.com Hear the latest from Vision 2014 in the Daily Roundup: www.experian.com/vision/blog @ExperianVision | #vision2014 Follow us on Twitter
  40. 40. 40©2014 Experian Information Solutions, Inc. All rights reserved. Experian Public. Visit the Experian Expert Bar to learn more about the topics and products covered in this presentation.

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