©2014 Experian Information Solutions, Inc. All rights reserved. Experian and the marks used herein are service marks or re...
2©2014 Experian Information Solutions, Inc. All rights reserved. Experian Public.
But, the style requires different tools,...
3©2014 Experian Information Solutions, Inc. All rights reserved. Experian Public.
And some hair styles we would just rathe...
4©2014 Experian Information Solutions, Inc. All rights reserved. Experian Public.
Client spotlight
Interline Brands
 Inte...
5©2014 Experian Information Solutions, Inc. All rights reserved. Experian Public.
Interline challenge
Challenges prior to ...
6©2014 Experian Information Solutions, Inc. All rights reserved. Experian Public.
Custom model approach
 Generic risk mod...
7©2014 Experian Information Solutions, Inc. All rights reserved. Experian Public.
Performance and integration
 The custom...
8©2014 Experian Information Solutions, Inc. All rights reserved. Experian Public.
The need to
integrated payment
behavior ...
9©2014 Experian Information Solutions, Inc. All rights reserved. Experian Public.
Updated custom model
Leveraging Interlin...
10©2014 Experian Information Solutions, Inc. All rights reserved. Experian Public.
Decision tree approach
 Statistical mo...
11©2014 Experian Information Solutions, Inc. All rights reserved. Experian Public.
Interline decision tree
Attributes
This...
12©2014 Experian Information Solutions, Inc. All rights reserved. Experian Public.
Interline decision tree with Interline ...
13©2014 Experian Information Solutions, Inc. All rights reserved. Experian Public.
Custom model results
KS (Kolmogorov-Smi...
14©2014 Experian Information Solutions, Inc. All rights reserved. Experian Public.
Custom model results
Cumulative bad cap...
15©2014 Experian Information Solutions, Inc. All rights reserved. Experian Public.
Credit risk evolution
From generic bure...
16©2014 Experian Information Solutions, Inc. All rights reserved. Experian Public.
Risk profile and credit line assignment...
17©2014 Experian Information Solutions, Inc. All rights reserved. Experian Public.
 Continued use for assessing risk and
...
18©2014 Experian Information Solutions, Inc. All rights reserved. Experian Public.
Results (per update)
The need to
integr...
19©2014 Experian Information Solutions, Inc. All rights reserved. Experian Public.
 A greater lift was seen in Interline ...
20©2014 Experian Information Solutions, Inc. All rights reserved. Experian Public.
For additional information, please cont...
21©2014 Experian Information Solutions, Inc. All rights reserved. Experian Public.
Visit the Experian Expert Bar to learn ...
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Vision 2014: Leveraging Commercial Data and Custom Analytics to Optimize Business Performance

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When standard credit scoring models do not predict risk on highly complex portfolios as intended, we turn to portfolio validations and custom analytics to achieve desired results. In this session, we will discuss one client’s strategies for leveraging custom decision trees in an automated environment, and we will share re-validation results for the model after 24 months of use.

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Vision 2014: Leveraging Commercial Data and Custom Analytics to Optimize Business Performance

  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. Leveraging commercial data and custom analytics to optimize business performance Per Sorenson Interline Brands Peter Bolin Experian #vision2014 Sung Park Experian
  2. 2. 2©2014 Experian Information Solutions, Inc. All rights reserved. Experian Public. But, the style requires different tools, products and techniques to get the desired result! It’s all hair…
  3. 3. 3©2014 Experian Information Solutions, Inc. All rights reserved. Experian Public. And some hair styles we would just rather forget… I am sure some of us have our own stories, but that’s for another day
  4. 4. 4©2014 Experian Information Solutions, Inc. All rights reserved. Experian Public. Client spotlight Interline Brands  Interline Brands Inc. comprises 13 unique brands that distribute maintenance, repair and operations products like janitorial and sanitary, plumbing, electrical, hardware, HVAC and other related items  The business is an industry leader that serves a diversified customer base of facilities maintenance professionals, contractors and specialty distributors with approximately $1.6 billion in annual sales Facilities maintenance: Residential (20% of revenue) Facilities maintenance: institutional (50% of revenue) Facilities maintenance: Multi-family (30% of revenue) Interline Brands
  5. 5. 5©2014 Experian Information Solutions, Inc. All rights reserved. Experian Public. Interline challenge Challenges prior to first Custom Score  Managing credit risk with 150,000 active customers across a wide industry base is a challenge  Generic business credit scores provide some performance differentiation across industries, but not consistently  Significant time is spend reviewing and analyzing credit reports  Lack of effectively differentiating the quick “yes” from the “need further review” applications or credit line increase requests  Strained relationships with the sales department as slow turn- around time jeopardizes sales opportunities during high volume periods  Limited view of overall credit risk across all customer segments Continued challenges post first Custom Score  Evaluating credit lines for existing customers using credit bureau data without payment behavior on us  Better view of overall credit risk across all customer segments however assessment does not include payment behavior on us WARNING CHALLENGES AHEAD
  6. 6. 6©2014 Experian Information Solutions, Inc. All rights reserved. Experian Public. Custom model approach  Generic risk models built on entire business population and predicts likelihood of severe delinquency on any given trade  Custom model optimizes bureau attributes to specifically predict likelihood of an Interline account becoming severely delinquent with Interline  Custom model built in 2010, prior to Interline accounts receivable data contribution Intelliscore Plus 0 - 30 31-70 71-100 500 goods 1000 goods 3000 goods 100 bads 80 bads 50 bads 16.7% bad rate 7.4% bad rate 1.67% bad rate Years on file < 4 5-10 11+ 100 goods 300 goods 100 goods 75 bads 20 bads 5 bads 42.9% bad rate 6.25% bad rate 4.8% bad rate Decision tree
  7. 7. 7©2014 Experian Information Solutions, Inc. All rights reserved. Experian Public. Performance and integration  The custom scores allows the credit function to quickly assess the credit risk and approve a majority of applications and credit line increases quickly  The appropriate accounts and applications are identified for further in-depth review  With the increased effectiveness in differentiating credit risk, credit lines can easily be assigned using a standard credit line table  The BusinessIQSM solution allows for easy access to credit assessment and credit line recommendation  BusinessIQSM allows for ongoing credit risk monitoring of all active account
  8. 8. 8©2014 Experian Information Solutions, Inc. All rights reserved. Experian Public. The need to integrated payment behavior on us in assessing credit line exposure in the automated BusinessIQSM process for existing customers More effective risk monitoring and automation of credit line assignments and overall exposure for existing customers BusinessIQSM allows for custom automation of risk assessment The tool also allows for automated ongoing monitoring of existing customers Comprehensive data and predictive insights needed to make more informed financial decisions to grow the business Results Challenges Goals Solution Results
  9. 9. 9©2014 Experian Information Solutions, Inc. All rights reserved. Experian Public. Updated custom model Leveraging Interline’s data contribution Observation December 2012 12 month performance window December 2013 Outcome  Account management model  Interline’s customer account payment history included in Experian risk score and commercial credit attributes  Value of “behavioral” information Business attribute Not including Interline trade Points Age of business Total trades # of trades current # of trades 60+ del Score 10 years 5 5 0 +30 +20 +30 0 80 Including ‘good’ Interline trade Points 10 years 6 6 0 +30 +25 +35 0 90 Including ‘bad’ Interline trade Points 10 years 6 5 1 +30 25 30 -30 55
  10. 10. 10©2014 Experian Information Solutions, Inc. All rights reserved. Experian Public. Decision tree approach  Statistical model that determines the optimal attributes for separating the good accounts from bad accounts  Each “branch node” consists of an attribute which can be split on the attribute’s value ranges to further separate goods from bads  Attributes assessed can include: ► Intelliscore PlusSM V2 ► Business age (includes Interline trade) ► Recent high credit (includes Interline trade) ► Trade count (includes Interline trade) ► Trade delinquency (includes Interline trade) ► Legal balance ► Collection count * Delinquency status of Interline trade
  11. 11. 11©2014 Experian Information Solutions, Inc. All rights reserved. Experian Public. Interline decision tree Attributes This tree segment shows the first split is by Intelliscore PlusSM V2 Next split is by years in file Split by DBT
  12. 12. 12©2014 Experian Information Solutions, Inc. All rights reserved. Experian Public. Interline decision tree with Interline trade Delinquency attribute This tree segment shows the first split is by delinquency status of Interline trade with Interline Next split is by size of Intelliscore PlusSM V2 Split by years in file
  13. 13. 13©2014 Experian Information Solutions, Inc. All rights reserved. Experian Public. Custom model results KS (Kolmogorov-Smirnoff) Re-developed models shows significant performance gains over original Best performance is gained from model using delinquency status of Interline trades specifically 20 39 43 0 5 10 15 20 25 30 35 40 45 50 0% 20% 40% 60% 80% 100% 120% 140% Original model build New model with Interline trade New model with trade and delq ks % lift
  14. 14. 14©2014 Experian Information Solutions, Inc. All rights reserved. Experian Public. Custom model results Cumulative bad capture 19% 39% 48% 34% 51% 65% 47% 61% 71% 0% 20% 40% 60% 80% worst 10% worst 20% worst 30% Original model build New model with Interline trade New model with trade and delq New models show superior bad capture performance New model with Interline trade delinquency status shows marked improvement at the worst 10%
  15. 15. 15©2014 Experian Information Solutions, Inc. All rights reserved. Experian Public. Credit risk evolution From generic bureau scores to segmented custom scores Your own customer payment data greatly enhances credit score performance Creditscoreeffectiveness Credit score evolution Generic bureau score Custom bureau score Custom bureau score Multiple segments Generic bureau score Custom bureau score Custom bureau score Multiple segments No performance data provided to credit bureau Customer performance data provided to credit bureau
  16. 16. 16©2014 Experian Information Solutions, Inc. All rights reserved. Experian Public. Risk profile and credit line assignment Custom score, credit lines and BusinessIQSM $0 $2 $4 $6 $8 $10 $12 $14 1 2 3 4 5 6 7 8 9 10 Creditline DecileLower credit risk Higher credit risk Review: Larger credit line needs and higher credit risk accounts manually reviewed Automation: Appropriate credit lines automatically assigned based on risk profile
  17. 17. 17©2014 Experian Information Solutions, Inc. All rights reserved. Experian Public.  Continued use for assessing risk and assigning credit lines to new customers  Enhanced assessment of credit risk for existing customers by integrating payment behavior on us in credit line management  More robust overall view of the current quality of credit exposure  Potential additional benefits: ► Utilize custom scores as risk dimension in collection strategy ► Additional verification of adequacy of bad debt reserve Updated custom model allows for …
  18. 18. 18©2014 Experian Information Solutions, Inc. All rights reserved. Experian Public. Results (per update) The need to integrated payment behavior on us in assessing credit line exposure in the automated Business IQSM process for existing customers Challenges More effective risk monitoring and automation of credit line assignments and overall exposure for existing customers Goals Business IQSM allows for custom automation of risk assessment  The tool also allows for automated ongoing monitoring of existing customers Solution Comprehensive data and predictive insights needed to make more informed financial decisions to grow the business Results
  19. 19. 19©2014 Experian Information Solutions, Inc. All rights reserved. Experian Public.  A greater lift was seen in Interline portfolio performance by leveraging custom analytics and the building of their custom decision trees  Client leveraged custom analytics and their custom decision tree to address specific business objectives  Decision tree was the best choice due to its ability to separate goods from bads and its easy implementation into BusinessIQSM Final thought Lift + integration = Performance
  20. 20. 20©2014 Experian Information Solutions, Inc. All rights reserved. Experian Public. For additional information, please contact: Peter.Bolin@experian.com Sung.Park@experian.com Hear the latest from Vision 2014 in the Daily Roundup: www.experian.com/vision/blog @ExperianVision | #vision2014 Follow us on Twitter
  21. 21. 21©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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