Getting Beyond the Portfolio Review

Transcription

1 2011 Financial Services Regional Seminar Getting Beyond the Portfolio Review Linda Moynihan Vance Director, Product Development and Channel Management Financial Services TransUnion 2011 TransUnion LLC All Rights Reserved

2 Session overview A discussion of our economic environment Some current practices and their associated challenges A new approach for your consideration TransUnion LLC All Rights Reserved

3 Getting Beyond the Portfolio Review The environment 2011 TransUnion LLC All Rights Reserved

4 Card originations appear to have bottomed out nationally and are beginning to rebound. Delinquency has hit historic lows. 90+ DPD In ncident Delinq quency Rate 1.6% 1.4% 1.2% 1.0% 0.8% 0.6% 0.4% 0.2% 0.0% Total Quarter Credit Card Originations End of Quarter 90+ Consumer Incident Credit Card Delinquency Rate Response to mortgage delinquency CARD Act concerns 25,000,000 20,000,000 15,000,000 10,000,000 5,000,000 0 Total Quar rter Acquisitio on Volume Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q4 20 Q Q As we have demonstrated, consumers in part are protecting their available card credit their primary source of liquidity in uncertain times Sources: TransUnion Trend Data and Credit Reporting Databases TransUnion LLC All Rights Reserved

5 Total Quarter Acquisition Volume Mortgage delinquency is slowly improving across the nation 8.0% 7.0% 6.0% 5.0% 4.0% 3.0% 2.0% 1.0% 0.0% Total Quarter Mortgage Originations End of Quarter 60+ Consumer Incident Mortgage Delinquency Rate 8,000,000 7,000,000 6,000,000 5,000,000 4,000,000 3,000,000 2,000,000 1,000,000 0 Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q1 20 Q2 20 Q3 20 Q4 20 Q1 20 Q DPD Incident Delinquency Rate Despite the success of certain stimulus programs, originations remain generally stagnant Sources: TransUnion Trend Data and Credit Reporting Databases TransUnion LLC All Rights Reserved

6 Auto lending is beginning to rebound. Auto delinquency is controlled across the U.S. Total Quarter Acquisition Volume Total Quarter Auto Loan Originations End of Quarter 60+ Consumer Incident Auto Loan Delinquency Rate 9,000,000 8,000,000 7,000,000 6,000,000 5,000,000 4,000,000 3,000,000 2,000,000 1,000, % 0.9% 0.8% 0.7% 0.6% 0.5% 0.4% 0.3% 0.2% 0.1% 0.0% 60+ DPD Incident Delinquency Rate Q1 20 Q2 20 Q3 20 Q4 20 Q1 20 Q2 20 Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Cash for Clunkers worked well; the market has stabilized Sources: TransUnion Trend Data and Credit Reporting Databases TransUnion LLC All Rights Reserved

7 A brief digression: Do not use average credit scores to estimate average risk you could get the wrong answer Consumer Credit Score P(90+ DPD) Consumer # % Consumer # % Consumer Credit Score P(90+ DPD) Consumer # % Consumer # % Consumer # % Consumer # % Consumer # % Consumer # % Consumer # % Consumer # % Consumer # % Consumer # % AVERAGE % AVERAGE % TransUnion, LLC All rights reserved

8 Here s another illustration of what can go wrong TransRisk Account Management Score TransUnion Account Management Score 45% 40% Consumer #1 Consumer #2 Consumer #3 Consumer #4 Consumer #5 TRAM Score Corresponding Probability of Default % % % % % Credit scores are logarithmic, not linear 35% 30% 25% 20% 15% 10% bility of Default Interval Proba 5% 0% > 850 Score Ranges Average credit score = 617 P(90+DPD) = 5.01% Average P(90+DPD) = 12.70% Score of 524! TransUnion, LLC All rights reserved

9 Risk of default increased markedly both before and during the course of the recession, finally peaking in Q TransUnion Credit Risk Index USA NV IL PA ND CRI Q1-05 Q2-05 Q3-05 Q4-05 Q1-06 Q2-06 Q3-06 Q4-06 Q1-07 Q2-07 Q3-07 Q4-07 Q1-08 Q2-08 Q3-08 Q4-08 Q1-09 Q2-09 Q3-09 Q4-09 Q1-10 Q2-10 Q3-10 Q4-10 Q1-11 Q2-11 Source: TransUnion Trend Data Database TransUnion, LLC All rights reserved

10 In this environment, financial institutions face three key challenges Challenge Continued risk due to external market conditions Shifts in consumer performance Causes A stubbornly volatile economy, a continued depressed real estate market and ongoing concerns around ARM resets Unable to measure risks unique to each customer Concentration risk (geographic, demographic or otherwise) Unable to accurately forecast delinquency and losses and set appropriate loan loss reserves Difficulty isolating high-risk accounts when economic conditions shift Increased attrition Highly competitive marketplace, including traditional and non-traditional channels, leading to customer migration Unable to actively monitor accounts and execute up-sell or retention efforts before customers consider competitors products TransUnion LLC All Rights Reserved

11 The industry focus and concerns voiced by many of our customers can be broadly classified into five concepts Customer growth and retention Controlled growth Consistent portfolio management Expanding wallet share Increased efficiency in portfolio management TransUnion LLC All Rights Reserved

12 Getting Beyond the Portfolio Review Current practices 2011 TransUnion LLC All Rights Reserved

13 Financial institutions seek account management tools that reliably differentiate good and bad accounts, scalable to constrained budgets Challenges with traditional practices and technology Unable to measure risks unique to each customer and portfolio Executing on portfolio management strategy Current tools do not identify potential delinquency early enough Difficulty isolating high-risk accounts Limited resources available to actively monitor accounts Current tools do not scale down to resource or price requirements TransUnion LLC All Rights Reserved

14 The need for a hybrid solution Investment Size LARGER Custom Portfolio Review Account Management Triggers Hybrid Individual Monitoring Express Portfolio Review SMALLER LOW Analytic Complexity HIGH TransUnion LLC All Rights Reserved

15 Current process for portfolio reviews Work: Receive file back and append internal attributes For many financial institutions, the process has been labor intensive and vulnerable to breakdown 750 Quarterly Portfolio Review Work: Identify action to be taken Work: Submit file for portfolio review Work: Compare to previous file Work: Action taken 650 Quarterly Portfolio Review Q2 11 July August Q TransUnion LLC All Rights Reserved

16 More frequent portfolio reviews can help financial institutions take action sooner balance complexity, investment, portfolio volatility, etc. Internal: New bankcard trade External: 30+ delinquency Identify both negative and positive changes to your customer s condition, and respond with more effective treatment strategies 750 Quarterly Portfolio Review Account reviewed, no action taken External: New collection 700 Monthly Portfolio Review Internal: Bankcard open to buy $4, Monthly Portfolio Review 650 Quarterly Portfolio Review Account reviewed, credit line decrease Q2 11 July August Q TransUnion LLC All Rights Reserved

17 A quarterly portfolio review strategy with a monthly compare can accommodate strategy execution on key data changes Quarterly Portfolio Review Quarterly Portfolio Review Monthly Compare Monthly Compare Key Comparisons: Score drop CC utilization CC balance New derogatory Key indicators in a month-over-month comparison Additional data allow for better decision making TREATMENT 1 Credit line increase TREATMENT 2 New overlimit cash authorization level TREATMENT 3 Credit line decrease TREATMENT 4 Collection prioritization TREATMENT 5 No change TransUnion LLC All Rights Reserved

18 Using a portfolio compare tool can help financial institutions take action sooner Internal: New bankcard trade External: 30+ delinquency 750 Quarterly Portfolio Review Account reviewed, no action taken 700 External: New collection Monthly Portfolio Compare Internal: Bankcard open to buy $4, Monthly Portfolio Compare Quarterly Portfolio Review Account compared, no action Account Account taken compared, credit line reviewed, no decreased action taken Q2 11 July August Q TransUnion LLC All Rights Reserved

19 Getting Beyond the Portfolio Review Examples of successful applications 2011 TransUnion LLC All Rights Reserved

20 Case Study Portfolio management at a regional financial institution Infrequent portfolio reviews Challenge Need for timely/actionable data Surprise bankruptcies Solution Monthly compare for LOC, HELOC, CC Used Express Portfolio Compare to complement continued standard portfolio review Identified consumers much earlier to take action Result Client proactively managed lines to minimize risk earlier More focused attention ti and action on consumers with off-us delinquency TransUnion LLC All Rights Reserved

21 Retain your best customers through proactive marketing efforts with event-based data Set monitoring criteria specific to customer retention objectives Monitor customer accounts including those with other institutions Identify the best customers who are ready to respond to up- sell offers Focus efforts on accounts that are most at risk of attrition Send the right up-sell offer at the right time to improve response Take action to reduce both account and balance attrition TransUnion LLC All Rights Reserved

22 Case Study Customer retention at a (different) regional financial institution Customer attrition Challenge Need for timely/actionable data Return to competitive marketing Solution Retention of consumers brought on during challenging economic environment Monthly compare for LOC, HELOC, CC Express Portfolio Compare delivered focused data of improving consumers Up-sell with line increase use of TransUnion Income Estimator and Debt-to-Income to Estimator for ability to pay Result Maintain loyalty Create opportunities for stronger performance TransUnion LLC All Rights Reserved

23 Summary Review your portfolio management strategy with consideration of external market conditions, shifts in consumer performance and specific financial institution risk points Leverage external capabilities to provide both technical and analytic bench strength to overcome internal resource and process challenges Apply a hybridized portfolio management philosophy to move more effectively from strategy development to strategy execution TransUnion LLC All Rights Reserved