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How lenders can capitalize on the growth in personal loans

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Personal loan originations have returned to pre-recession levels with sustained year-over-year growth around 20% for multiple years. Meanwhile, delinquency rates remain at historic lows and demand has been met by increased liquidity amid a low-rate environment. If you’ve been riding the wave, take note: there are signs indicating growth is leveling off. How can lenders become more efficient in finding personal loan prospects going forward to sustain growth? And if you are a lender looking to enter the personal loan space, what steps should you take to assess the marketplace and seek out the right opportunities? Learn more in this slideshare presentation.

Published in: Economy & Finance

How lenders can capitalize on the growth in personal loans

  1. 1. How lenders can capitalize on the growth in personal loans January 25, 2017
  2. 2. About our speakers: Paul DeSaulniers Sr. Director, Experian Kyle Matthies Sr. Product Manager, Experian Kelley Motley Director of Analytics, Experian
  3. 3. 3 © Experian 1.Personal loan market overview 2.Comprehensive credit marketing 3.Building the strategy 4.Best practices 5.Q&A Agenda How lenders can capitalize on the growth in personal loans
  4. 4. • Understand the latest in personal loan trends • Learn the three pillars of personal loan marketing • Discover the analytics methodology behind Experian’s Credit3D Objective
  5. 5. 5 © Experian Closed-end uncollateralized financial trade that can be used for: • consolidation of existing card, auto, or other debt • financing “dreams” such as vacations or weddings • unexpected expenses such as home repairs or a medical emergency What is a personal loan? How lenders can capitalize on the growth in personal loans
  6. 6. 6 © Experian Market Overview How lenders can capitalize on the growth in personal loans
  7. 7. 7 © Experian Personal loan originations $5 $10 $15 $20 $25 $30 $35 $40 $45 $50 4Q16: $30.9BN -5.64% YoY 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16 Percent Change YoY 2013-2016 DollarsofLinesOriginated(Billions) Source: Experian IntelliViewSM
  8. 8. 8 © Experian Model Overview: • Predicts risk of borrower • Likelihood of future serious delinquencies (90 days later or greater) • Any type of account • 24-month performance • Score range of 300–850 • Higher scores represent a lower likelihood of risk • Lower scores are higher risk VantageScore® 3.0 A = Super-prime 781–850 B = Prime 661–780 C = Near prime 601–660 D = Sub-prime 500–600 F = Deep sub-prime 300–499 How lenders can capitalize on the growth in personal loans
  9. 9. 9 © Experian Distribution of personal loan originations by VantageScore® band 636 300 400 500 600 700 800 0% 10% 20% 30% 40% 50% 60% 70% 2016 Q4 Super Prime Prime Near Prime Subprime Deep Subprime Average Source: Experian IntelliViewSM
  10. 10. 10 © Experian Source: Experian IntelliViewSM Personal loan delinquency rates by state Best/worst five states 2016 60-89 DPD 1. Alaska 0.16% 2. South Dakota 0.19% 3. Oregon 0.21% 4. Iowa 0.21% 5. New Hampshire 0.21% … 47. Oklahoma 0.66% 48. South Carolina 0.69% 49. District of Columbia 0.71% 50. Illinois 0.76% 51. Georgia 0.77%
  11. 11. 11 © Experian Personal loan late-stage delinquency rates Delinquency near pre-recession low 0.0% 0.2% 0.4% 0.6% 0.8% 1.0% 1.2% 1.4% 1.6% 60-89 DPD 90-180 DPD Percent balances 4Q16 Data: 60-89: 0.49% 90-180: 0.74%
  12. 12. 12 © Experian Comprehensive Credit Marketing
  13. 13. 13 © Experian Marketing strategy should be about more than just response rate. A comprehensive approach can ensure quality originations and healthy portfolio growth. 1. Response Rate 2. Risk Expansion 3. Long-term Value Three Pillars of Comprehensive Prescreen How lenders can capitalize on the growth in personal loans
  14. 14. 14 © Experian How do you reach receptive audiences to get the most out of your marketing campaigns? Offer timing Offer relevance Combine propensity models and offer relevance to get the right consumers the right offer at the right time. Response Rate: Make an Impact Most people don’t need your product; are you effectively finding those that do? How lenders can capitalize on the growth in personal loans
  15. 15. 15 © Experian Current Profile • Credit Score: 641 • Utilization: 41% • Revolving and Personal Trades: 4 • Outstanding Balances: $13,000 What’s Joe Doing? • Making more than the monthly payment to pay down revolving debt • Seeking personal loan to consolidate remaining balance • Wants one monthly payment at a lower interest rate than revolving cards Where’s Joe Going? • Prime risk score as a result of decreased utilization • Building new borrowing relationships How do you spot the trend? • Declining trended utilization indicating deleveraging • Ability to pay indicated by estimated income Risk Expansion: Not Your Average Joe Risk expansion without all the risk ` Past Present Future Score 618 641 703 Utilization 66% 41% 23% Trades 6 4 4 Balances $21,000 $13,000 $6,000 How lenders can capitalize on the growth in personal loans
  16. 16. 16 © Experian • Many consumers make steady payments throughout the term, but others use personal loans for short-term needs. • Many short-term borrowers close their personal loan and open a new trade, often in the same month, to gain access to additional cash. • Identify consumers upfront to create retention opportunities and build loyalty. Long-term Value: Build lasting relationships How lenders can capitalize on the growth in personal loans No “Set it and Forget It” in Personal Loans
  17. 17. 17 © Experian Building the Strategy How lenders can capitalize on the growth in personal loans
  18. 18. 18 © Experian Data Sample Sample of accounts that originated a personal loan from June 2015 – December 2015 (11.1M trades) Performance Metrics: Identified: originations, delinquencies, and attrition Segmented by risk: super prime, prime, and near prime Regression Testing: Ranking predictive attributes independently identifies a short list of tools that may become part of selection criteria. Chi-square Attribute Interaction: As attributes are applied in a decision tree, their interaction creates unique combinations. An attribute that ranks lower independently may become significant when combined with other attributes. Analytics Approach How lenders can capitalize on the growth in personal loans
  19. 19. 19 © Experian Who opens a personal loan? No Revolving Trade w/ Bal. Revolving Trade w/ Balance > $0 67% of those that open a personal installment loan had a revolving trade with a balance >$0 Originations June – December 2015 67% 33%
  20. 20. 20 © Experian •31.5% of consumers that close a personal loan reopen another within a few months of the original account closure •68% of consumers that re-open a new personal loan within a short timeframe of closing another person loan, do so with the same company 28% additional open within one month How do consumers use personal loans? Month of personal loan closure 47% of those that reopen do so the same month the other loan closed The remaining 25% open within two months of previous account closure Jan – March 2016 How lenders can capitalize on the growth in personal loans
  21. 21. 21 © Experian Analytical segmentation offers an opportunity to refine you approach RESPONSE RISK RETENTION Personal Installment Performance June 2016 Observation June 2015 Dec 2015 Open Personal Installment Performance 6 Months How lenders can capitalize on the growth in personal loans 12 Months
  22. 22. 22 © Experian Upgrade your approach through analytics Swap in Swap Out How lenders can capitalize on the growth in personal loans
  23. 23. 23 © Experian VantageScore provides bad rate of 4.32% for consumers scoring 604-646 Overlaying premier attributes provides additional separation with bad rate of 3.3% - 8.70% Total number of open personal finance trades open in the last 6 months Risk Score 601-603 7.32% Bad Rate Risk Score 647-660 2.65% Bad Rate Near Prime 4.04% Bad Rate 1+ 8.70% Bad Rate <1 3.30% Bad Rate Risk Score 604-646 4.32% Bad Rate RISK Risk Segmentation Near-Prime Population
  24. 24. 24 © Experian Risk Score provides close rate separation of 36% for consumers scoring 601-660 Overlaying premier attributes and trended data provides additional separation with close rate of 30% - 60% # of trades with revolving utilization change in last 3 mos. Risk Score 601-626 40.01% Close Rate Risk Score 627-660 34.18% Close Rate Near-Prime 36.47% Close Rate 3+ 29.11% Close Rate <8 29.72% Close Rate RETENTION Retention Segmentation Near-Prime Population <3 46.64% Close Rate 8+ 59.71% Close Rate Total number of personal installment trades
  25. 25. 25 © Experian Best Practices and Credit3D How lenders can capitalize on the growth in personal loans
  26. 26. 26 © Experian • All lending is subject to cyclical trends, successful lenders focus on the right product at the right time. • Beware of marketing fatigue. Bombarding consumers with mailers can damage your brand image and make it more likely for your offer to end up in the trash. • Focus on personal loans in the second quarter of the calendar year as consumers seek to consolidate revolving debt and only target consumers that are most likely to respond. Timing is everything How lenders can capitalize on the growth in personal loans
  27. 27. 27 © Experian • Maximize response rates: Propensity tools aren’t enough. Layering credit attributes can further refine results and improve campaign performance. • Risk expansion: Expand risk score cutoffs without taking on incremental risk. Trended data helps identify trends in credit behavior. Find candidates in lower score ranges who are deleveraging and trending up. • Long-term value: Understanding how a consumer uses credit enables long-term loyalty building. Give your team the edge by identifying likely short-term and long-term borrowers. Think comprehensive How lenders can capitalize on the growth in personal loans
  28. 28. 28 © Experian Credit3D is a suite of segmentation products for use in batch prescreen, account review, and online marketing and decisioning. • Propensity scores and attributes • Ability to pay metrics Credit3D comprehensive solutions package the most predictive Credit3D products to optimize marketing efforts: Segmentation with Experian’s Credit3D Comprehensive solutions leveraging the latest data and analytics How lenders can capitalize on the growth in personal loans • Trended attributes for risk optimization • Offer alignment and profitability • Response Rate • Risk Expansion • Long-term Value

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