Consumer Empowerment: The Impact of Credit Self-Monitoring. Brendan le Grange Director, Research and Consulting TransUnion Asia

Transcription

1 Consumer Empowerment: The Impact of Credit Self-Monitoring Brendan le Grange Director, Research and Consulting TransUnion Asia

2 In this session, we ll review: The emergence of consumer credit self-monitoring as a market trend And why we re using an example from Hong Kong The different reasons that encourage consumers to self-monitor Risk improvements at one end of the scale, and Credit seeking behaviour on the other The different ways lenders benefit from self-monitoring Customer education Customer engagement 2018 TransUnion LLC All Rights Reserved 2

3 Credit self-monitoring emerged 10 years ago in the US, with FinTechs beating lenders to the punch In 2008 Credit Karma introduces the first free credit scores Primary focus on customer acquisition Enhancements later to drive customer engagement Education, simulators, alerts Inception Catalyst Bank entry Maturity 2018 TransUnion LLC All Rights Reserved 3

4 Credit self-monitoring emerged 10 years ago in the US, with FinTechs beating lenders to the punch US Regulator pushes for enhanced consumer credit education Continued focus on free reports helps Credit Karma pass one million users by June 2010 Revenue model of lead generation emerges Credit data used to customize offers, which are then shared with lenders Inception Catalyst Bank entry Maturity 2018 TransUnion LLC All Rights Reserved 4

5 Credit self-monitoring emerged 10 years ago in the US, with FinTechs beating lenders to the punch Financial institutions start to respond, with printed credit report data for existing customers in 2013 More innovative offerings from 2016, with more context and broader inclusions Lenders continue to pay for leads, driving Credit Karma revenue to $500 million from 80 million users Inception Catalyst Bank entry Maturity 2018 TransUnion LLC All Rights Reserved 5

6 Credit self-monitoring emerged 10 years ago in the US, with FinTechs beating lenders to the punch 100 million American consumers now monitor their credit data actively Most financial institutions now offer free credit reports to generate leads Globally, 1 billion consumers have accessed their credit data Inception Catalyst Bank entry Maturity 2018 TransUnion LLC All Rights Reserved 6

7 Hong Kong is a small Special Administrative Region in southern China

8 with 7.5 million people, it s a population similar to the Johannesburg Metro in a space the size of Sandton

9 484m 223m With 22 buildings taller than the Carlton Centre

10 TransUnion Hong Kong oversees the data of 5.3 million consumers with a similar range of products as are present in South Africa. For the last 18 years, those consumers have had access to their own credit reports. For the last 18 months, that access has included free smartphone applications as a channel.

11 The different motivations for self-monitoring

12 Characteristics inherent to each channel affect the make-up of the consumers they attract Indirect subscribed via one of our indirect partners 39% better-than-prime 41% better-than-prime subscribed via Direct 21% TransUnion Hong Kong CreditVision Score tiers: Subprime ; near prime ; prime ; prime plus ; super prime 3519 or higher Source: TransUnion consumer credit database 2018 TransUnion LLC All Rights Reserved 12

13 Characteristics inherent to each channel affect the make-up of the consumers they attract Indirect subscribed via one of our indirect partners 39% 68% better-than-prime Millennials or younger 41% 49% better-than-prime Millennials or younger subscribed via Direct 21% Millennials are born from 1980 to 1994, Generation Z from 1995 onwards Source: TransUnion consumer credit database 2018 TransUnion LLC All Rights Reserved 13

14 Characteristics inherent to each channel affect the make-up of the consumers they attract Indirect subscribed via one of our indirect partners 59% carry at least a R30,000 balance 69% carry at least a R30,000 balance subscribed via Direct 21% R30,000 is an approximation, based on an actual cut of HK$20,000 Source: TransUnion consumer credit database 2018 TransUnion LLC All Rights Reserved 14

15 Self-monitoring consumers are significantly younger and are riskier than average 35% Distribution of consumers by age 30% 25% 20% Self-monitoring consumers Full bureau 15% 10% 5% 0% before to to to to to to to onwards Silent Baby Boomers Generation X Millennials Generation Z 2018 TransUnion LLC All Rights Reserved 15

16 Self-monitoring consumers are significantly younger and are riskier than average 100% Distribution of consumers by risk tier 90% 80% 70% 60% 50% 40% 30% Super prime Prime plus Prime Near prime Subprime 20% 10% 0% Full bureau Self-monitoring TransUnion Hong Kong CreditVision Score tiers: Subprime ; near prime ; prime ; prime plus ; super prime 3519 or higher 2018 TransUnion LLC All Rights Reserved 16

17 Subscribers We studied the 140k consumers who self-monitored from Sep 16 to Sep 17 in both channels 16,000 12,000 8,000 4,000 Indirect channel Direct channel Sep 16 Nov 16 Jan 17 Mar 17 May 17 Jul 17 Sep 17 subscription month t t -1 t +3 Source: TransUnion consumer credit database 2018 TransUnion LLC All Rights Reserved 17

18 Distribution of all consumers Success looks different for different self-monitoring consumers Score in the subprime range at t-1 t -1 t t +3 Bankruptcy managers and a bankruptcy declaration by t+3 The first group small, but part of a rising trend in Hong Kong are consumers who need information in preparation for a formal bankruptcy declaration. TransUnion Hong Kong CreditVision Score tiers: Subprime ; near prime ; prime ; prime plus ; super prime 3519 or higher Source: TransUnion consumer credit database 2018 TransUnion LLC All Rights Reserved 18

19 Distribution of all consumers Success looks different for different self-monitoring consumers 49% Score in the subprime range at t-1 14% Credit improvers t -1 t t +3 but no bankruptcy declaration by t+3 Credit improvers are also subprime, they have a history of being near prime or worse for six months, and they are not looking to declare bankruptcy. TransUnion Hong Kong CreditVision Score tiers: Subprime ; near prime ; prime ; prime plus ; super prime 3519 or higher Source: TransUnion consumer credit database 2018 TransUnion LLC All Rights Reserved 19

20 Distribution of all consumers Success looks different for different self-monitoring consumers Score better than subprime at t-1 31% Credit seekers t -1 t t +3 with balances growing by at least 25%, or at least 2 accounts opened by t+3 The next logical segment are consumers preparing to take on significant new credit, and wanting to access the best deals when doing so. TransUnion Hong Kong CreditVision Score tiers: Subprime ; near prime ; prime ; prime plus ; super prime 3519 or higher Source: TransUnion consumer credit database 2018 TransUnion LLC All Rights Reserved 20

21 Distribution of all consumers Success looks different for different self-monitoring consumers 52% Score better than subprime at t-1 Credit managers t -1 t t +3 with balances growing by less than 25%, and fewer than 2 accounts opened by t+3 Many consumers have longer-term goals. They may not need credit in the shortterm, but may want to maintain good credit and protect themselves from fraud. TransUnion Hong Kong CreditVision Score tiers: Subprime ; near prime ; prime ; prime plus ; super prime 3519 or higher Source: TransUnion consumer credit database 2018 TransUnion LLC All Rights Reserved 21

22 Fraud protection is an under-appreciated benefit of self-monitoring, but will not be covered here While 61% of Hong Kongers say they are worried about their identity being stolen only 23% think ID theft can affect credit health and only 7% say requesting a copy of their credit report is one of the most important things to do after ID theft Based on an online survey of 1,000 adults in 2017 Source: TransUnion consumer credit database 2018 TransUnion LLC All Rights Reserved 22

23 Today we ll focus on the two segments of most interest to lenders Credit improvers Score in the subprime range Do they improve their credit position? Can we see how they do this? t -1 t t +3 Credit seekers Credit managers Are they more likely to grow after monitoring? Can we predict who will grow? Scores better than subprime t -1 t t +3 Source: TransUnion consumer credit database Growth 25% 2 or more new accounts 2018 TransUnion LLC All Rights Reserved 23

24 52% 31% 3% Bankruptcy managers 14% Credit improvers Credit seekers Credit managers

25 % of accounts 90+ days in arrears Hong Kong has exceptionally low credit risk, which makes studying riskier consumers more difficult 18% Comparative 90+ delinquency rates in South Africa and Hong Kong, as of Q % 14% 12% 17% 13% South Africa Hong Kong 10% 8% 6% 4% 2% 0% 4% 1% 0.2% 0.1% Personal loans Bankcards Mortgage Source: TransUnion consumer credit database 2018 TransUnion LLC All Rights Reserved 25

26 Distribution of credit improvers As for measured credit risk, 44% of credit improvers do indeed improve their scores 30% Distribution of consumers by change in score from t-1 to t+3 25% 29% 20% 15% 21% 23% 10% 5% 7% 5% 6% 9% 0% -61 or worse -60 to to -1 No change +1 to to or better TransUnion Hong Kong CreditVision Score odds double every 20 points Source: TransUnion consumer credit database 2018 TransUnion LLC All Rights Reserved 26

27 Average unsecured balances in ZAR The clearest way in which they do this is by decreasing their balances after monitoring 70,000 Average balances of credit improvers, in Rand 65,000 60,000 33% 62,683 63,660 60,707 56,362 55,000 53,303 50, Subscription month Converted from original values at ZAR 1.7 per HKD 1 Source: TransUnion consumer credit database 2018 TransUnion LLC All Rights Reserved 27

28 1 in 10 save 16% 1 in 25 save 24% Better scores lead to better prices in Hong Kong, so score improvements are a win-win 60% 50% 40% 55% 46% Median APR by risk tier 42% 33% Average APR % of consumers who moved from subprime to 90% 75% 60% 30% 45% 20% 10% 19% 14% 1 in 25 save 40% to 75% 6% to 7% 30% 15% 0% Subprime Near prime Prime Prime plus Super prime 0% APR is calculated from balance, term, and repayment data reported to the bureau; it is not the advertised rate Source: TransUnion consumer credit database 2018 TransUnion LLC All Rights Reserved 28

29 In summary: High-risk consumers benefit from self-monitoring, typically by reducing their total unsecured balances Down 17% three months after monitoring Lower balances and improved credit behavior help to improve scores Nearly 5 in 10 credit improvers saw their score rise 4 in 10 improved their score by 21 points or more 3 in 10 improved their score by 61 points or more 2018 TransUnion LLC All Rights Reserved 29

30 52% 31% 3% Bankruptcy managers 14% Credit improvers Credit seekers Credit managers

31 Since self-monitoring consumers are younger and riskier, we built a comparable control group 35% Distribution of consumers by age 30% 25% 20% Self-monitoring consumers Control 15% 10% 5% 0% before to to to to to to to onwards Silent Baby Boomers Generation X Millennials Generation Z Source: TransUnion consumer credit database 2018 TransUnion LLC All Rights Reserved 31

32 Since self-monitoring consumers are younger and riskier, we built a comparable control group 100% Distribution of consumers by age 90% 80% 70% 60% 50% 40% 30% 20% Super prime Prime plus Prime Near prime Subprime 10% 0% Self-monitoring Control Source: TransUnion consumer credit database 2018 TransUnion LLC All Rights Reserved 32

33 Consumers who self-monitored are twice as likely to open an account afterwards 31% 16% of self-monitoring consumers opened an account in the three months after monitoring of consumers in the control group opened an account in the same period Opened accounts include credit cards and personal loans Source: TransUnion consumer credit database 2018 TransUnion LLC All Rights Reserved 33

34 Index of accounts opened Low-risk consumers who self-monitor are in the market for new credit products Indexed total accounts opened per month Self-monitoring Control x 1.4x 1.2x 1.1x Subscription 0 month Accounts opened include credit cards and personal loans, indexed to the average from t -3 to t -1 Source: TransUnion consumer credit database 2018 TransUnion LLC All Rights Reserved 34

35 Lower-risk consumers could be defined as either credit managers or, if they grew their balances by 25% or more, credit seekers.

36 Number of accounts opened The uplift is from credit seekers, with credit managers consolidating their positions 0.2 Accounts opened per consumer per month Credit Seekers Credit Managers x 4.4x Subscription 0 month Total balances include credit cards and personal loans, indexed to t -1 to show percentage change over time Source: TransUnion consumer credit database 2018 TransUnion LLC All Rights Reserved 36

37 Credit seekers are also more likely to open a new account, three times as likely as control 50% of credit seekers opened an account within 3 months 20% of credit managers opened an account within 3 months 16% of control Opened accounts include credit cards and personal loans Source: TransUnion consumer credit database 2018 TransUnion LLC All Rights Reserved 37

38 52% 31% Credit seekers Credit managers

39 CreditVision Behavioural Clusters can help to identify the consumers looking to grow 65% 55% 45% Credit seeker rate per CV Behavioural Cluster it s a fantastic re-engagement tool highly exposed consumers are more likely to use it for credit management 35% 25% 15% Dormant Engaged Card Disengaged High Spend Transactor Savvy Card User Loyal Credit User Engaged Loan Affluent Credit User CreditVision Behavioural Clusters are calculated monthly using an unsupervised machine learning algorithm, putting consumers into the one segment that best describes their recent credit activity. Source: TransUnion consumer credit database 2018 TransUnion LLC All Rights Reserved 39

40 In summary: Low-risk consumers benefit from self-monitoring, typically by finding new products 31% opened a new account within 3 months That is twice the rate at which the non-monitoring control open accounts And credit seekers open 6X as many accounts in the month of subscription as credit managers Credit seeking behaviour is identifiable in the data With rates ranging from 28% to 73% in pre-existing customer segments 2018 TransUnion LLC All Rights Reserved 40

41 Self-monitoring is a win-win scenario: the lender who makes the reports available benefits directly from the short-term growth and increased engagement

42 This Hong Kong pioneer saw new customer win rates double and double again 75% 65% % of subscribers who opened an new relationship, opening that at our partner 72% 55% 45% 35% 25% 15% 20% 18% 25% 36% t -2 t -1 t t +1 t +2 t +3 18% Source: TransUnion consumer credit database 2018 TransUnion LLC All Rights Reserved 42

43 4% conversion rate when presenting an offer 16% of new CreditView users opened an account 95% first time card holders with bank

44 75% of subscribers refresh dashboards monthly 50% of consumers exposed to credit score simulator run simulations 35% of simulations explore impact of new financial product

45 CreditView alerts average 40 % unique click-through rates

46 In summary: Consumers across the risk spectrum benefit from self-monitoring Higher-risk consumers reduce their balances Helping 4 in 10 to make significant score improvements, and Opening up significant savings on the cost of debt to 20% of them Lower-risk consumers find new credit 3 in 10 open an account (twice the rate of non-monitoring consumers) 5 in 10 if you can identify credit seekers at the time of monitoring, which you can with models and score simulators Lenders benefit, too, through greater engagement 2018 TransUnion LLC All Rights Reserved 46

47 In summary: Consumers across the risk spectrum benefit from self-monitoring Lenders benefit, too, through greater engagement Alerts average a 40% click-through rate 75% of existing customers refresh their dashboards monthly And they are signaling their credit needs 1 in 2 run score simulations, and 1 in 3 simulations explore the impact of a new product addition New customers are attracted, too 16% of app users opened an account with a major US bank, 95% of those were new customers 2018 TransUnion LLC All Rights Reserved 47

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