Data in the New Financial Frontier
Every interaction, every transaction, every piece of information captured from a customer is available for companies to slice, dice, parse and evaluate. When financial institutions (FIs) look at their origination process for individuals applying for credit, they have a wealth of data at their disposal to inform and guide their decision process.
But how do the FIs turn the mountain of data into actionable insight? How can they apply it to their unique lines of business and risk tolerance thresholds, while meeting compliance and regulatory requirements?
Data agnostic, third party platforms like the one from Zoot provide a single, API-connected source for all the data an FI needs. These platforms can take that data and run it through a comprehensive decisioning engine to help drive new customer acquisition, mitigate risk and enhance customer loyalty.
The future of origination is one of real-time, hyper-personalization. This snapshot will examine current and potential futures for origination-specific lines of business, including credit cards (revolving and retail) and auto loans.
(R)Evolving Credit Cards
The credit card market overall has been rising through 2017, with approximately 171 million US consumers that have at least one credit card. Since 2008, all consumer risk tiers (from super prime to subprime) have seen an increase in available credit.[i] Balances are on the rise as well, with total card balances for the first quarter of 2017 reaching $693 billion.[ii]
One of the drivers for the increase in credit accessibility? Real-time access to data from multiple disparate sources that help inform credit decisions. Data agnostic platforms allow credit issuers to pull data from virtually any source, opening alternative data sources and new avenues to evaluate creditworthiness for populations with thin or nonexistent credit files.
White Label and Retail Credit Cards
Retail credit origination shares some characteristics with traditional cards, but there are some significant differences too. One of the main differences between retail cards and traditional cards remains the interest rate. At the end of 2016, the average retail card APR was 23.84%, while the average credit card APR was 15%.[iii]
Retail cards that can be used within a chain or a single store are often one of the first credit products for younger people or those with thin credit history. For originators, access to that credit-hungry population represents opportunity and a great way to get engaged with new customers.
Originators know that making a credit decision for a population that has no traditional credit file or has insufficient history is no easy task. Without the historical context, creditors can risk delinquencies and defaults.
Once again, data helps mitigate that risk. With the broad variety of readily available alternative data, issuers can tap into a wealth of detail about the person applying for credit and make an informed offer.
Credit Cars: Origination in Auto Sales
Auto loan originations are a significant market for credit issuers, with steady growth in both originations (year over year) and outstanding loans.[iv] The total auto loan sector is currently estimated at $1.2 trillion, with an average finance amount of just over $28,000 for new car purchases.[v]
There are areas for improvement in auto loan origination, specifically in the ease of experience, transparency and communication with consumers. How can lenders meet those demands while appropriately making decisions about whether to provide a loan?
The answer is again access to data. Using a data agnostic, fully automated decisioning platform, auto lenders can improve customer experience and create origination workflow that happens in real-time. By implementing an automated decisioning platform, lenders can take the current mountain of paperwork and reduce it to a digital interface, streamlining and improving the application process for individuals.
Origination: Changing to Meet Consumer Expectations
Lending, and loan origination, has certainly changed. And the driver for the future of loan origination can be summed up in a word: Data.
Access to the right data will make credit applications faster and more personal. Access to alternative data will enable creditors to serve markets that do not have traditional files or have thin history. Access to third party systems and the data contained therein can inform the decision process, resulting in personalized product recommendations that are specific for the individual, rather than a broad classification.
Originators are moving into a brave new world of data agnostic, one-to-one decisions informed from all available sources. By partnering with the right vendor, leaders in the traditional card, retail card and auto loan industries can position themselves for success as the industries evolve.
[i] https://www.transunion.com/blog/consumer-credit-origination-balance-and-delinquency-trends-Q1-2017
[ii] https://www.cnbc.com/2017/05/09/credit-card-growth-is-back-to-its-prerecession-high.html
[iii] http://www.creditcards.com/credit-card-news/retail-card-survey-2016.php
[v] https://qz.com/913093/car-loans-in-the-us-have-hit-record-levels-and-delinquencies-are-rising-fast-too/[/vc_column_text][/vc_column][/vc_row]
