2011 financial services regional seminar getting beyond the portfolio … · 2015-12-04 · 2011...

2011 Financial Services Regional Seminar

Getting Beyond the Portfolio Review

Linda Moynihan VanceDirector, Product Development and Channel Managementp gFinancial ServicesTransUnion

© 2011 TransUnion LLC All Rights Reserved

Session overviewSession overview

• A discussion of our economic environment

• Some current practices and their associated challenges• Some current practices and their associated challenges

• A new approach for your consideration

© 2011 TransUnion LLC All Rights Reserved2


The environment


Card originations appear to have bottomed out nationally and are beginning to rebound Delinquency has hit historic lowsare beginning to rebound. Delinquency has hit historic lows.

Total Quarter Credit Card OriginationsE d f Q t 90+ C I id t C dit C d D li R t

1.2%

1.4%

1.6%

20,000,000

25,000,000End of Quarter 90+ Consumer Incident Credit Card Delinquency Rate

quen

cy R

ate Total Q

uar

Response to mortgage delinquency

0.6%

0.8%

1.0%

10,000,000

15,000,000

ncid

ent D

elin

q rter Acquisitio

0.0%

0.2%

0.4%

05 05 05 05 06 06 06 06 07 07 07 07 08 08 08 08 09 09 09 09 10 10 10 10 11 11

0

5,000,000

90+

DPD

Inon Volum

e

CARD Act concerns

Q1

200

Q2

200

Q3

200

Q4

200

Q1

200

Q2

200

Q3

200

Q4

200

Q1

200

Q2

200

Q3

200

Q4

200

Q1

200

Q2

200

Q3

200

Q4

200

Q1

200

Q2

200

Q3

200

Q4

200

Q1

20

Q2

20

Q3

20

Q4

20Q

1 20

Q2

20

As we have demonstrated, consumers in part are protecting their available

4 © 2011 TransUnion LLC All Rights Reserved

card credit—their primary source of liquidity in uncertain timesSources: TransUnion Trend Data and Credit Reporting Databases

Mortgage delinquency is slowly improving across the nationthe nation

Total Quarter Mortgage OriginationsE d f Q t 60 C I id t M t D li R t

6.0%

7.0%

8.0%

6,000,000

7,000,000

8,000,000End of Quarter 60+ Consumer Incident Mortgage Delinquency Rate

quen

cy R

ate Total Q

uarte

3.0%

4.0%

5.0%

3,000,000

4,000,000

5,000,000

ncid

ent D

elin

q er Acquisition

0.0%

1.0%

2.0%

05 05 05 05 06 06 06 06 07 07 07 07 08 08 08 08 09 09 09 09 10 10 10 10 11 11

0

1,000,000

2,000,000

60+

DPD

In Volume

Q1

200

Q2

200

Q3

200

Q4

200

Q1

200

Q2

200

Q3

200

Q4

200

Q1

200

Q2

200

Q3

200

Q4

200

Q1

200

Q2

200

Q3

200

Q4

200

Q1

200

Q2

200

Q3

200

Q4

200

Q1

20

Q2

20

Q3

20

Q4

20

Q1

20

Q2

20

Despite the success of certain stimulus programs, originations remain


generally stagnant Sources: TransUnion Trend Data and Credit Reporting Databases

Auto lending is beginning to rebound. Auto delinquency is controlled across the U.S.is controlled across the U.S.

Total Quarter Auto Loan OriginationsE d f Q t 60 C I id t A t L D li R t

0.7%

0.8%

0.9%

1.0%

6 000 000

7,000,000

8,000,000

9,000,000End of Quarter 60+ Consumer Incident Auto Loan Delinquency Rate

quen

cy R

ate

Total Quarte

0.3%

0.4%

0.5%

0.6%

3,000,000

4,000,000

5,000,000

6,000,000

ncid

ent D

elin

qer A

cquisition V

0.0%

0.1%

0.2%

0.3%

05 05 05 05 06 06 06 06 07 07 07 07 08 08 08 08 09 09 09 09 10 10 10 10 11 11

0

1,000,000

2,000,000

60+

DPD

InVolum

e

Q1

200

Q2

200

Q3

200

Q4

200

Q1

200

Q2

200

Q3

200

Q4

200

Q1

200

Q2

200

Q3

200

Q4

200

Q1

200

Q2

200

Q3

200

Q4

200

Q1

200

Q2

200

Q3

200

Q4

200

Q1

20

Q2

20

Q3

20

Q4

20

Q1

20

Q2

20


“Cash for Clunkers” worked well; the market has stabilizedSources: TransUnion Trend Data and Credit Reporting Databases

A brief digression: Do not use average credit scores to estimate average risk—you could get the wrong answer

ConsumerCreditScore P(90+ DPD)

estimate average risk you could get the wrong answer

ConsumerCreditScore P(90+ DPD)

Consumer #1 700 1.55%Consumer #2 700 1.55%Consumer #3 700 1 55%

Consumer #1 600 5.84%Consumer #2 600 5.84%Consumer #3 600 5 84% Consumer #3 700 1.55%

Consumer #4 500 13.69%Consumer #5 500 13.69%C #6 500 13 69%

Consumer #3 600 5.84%Consumer #4 600 5.84%Consumer #5 600 5.84%C #6 600 5 84% Consumer #6 500 13.69%

AVERAGE 600 7.62%

Consumer #6 600 5.84%AVERAGE 600 5.84%

©2011 TransUnion, LLC All rights reserved7

Here’s another illustration of what can go wrongHere s another illustration of what can go wrongTransRisk Account Management Score

40%

45%

TransUnion Account Management Score

25%

30%

35%

bilit

y of

Def

aultCredit scores are logarithmic, not linear

TRAM Score

Corresponding Probability of

Default415 38 48%C #1

5%

10%

15%

20%

Inte

rval

Pro

ba415 38.48%476 21.64%682 1.55%699 1.55%815 0.30%

Consumer #4Consumer #5

Consumer #1Consumer #2Consumer #3

0%

5%

> 850

840 -

850

824 -

839

810 -

823

796 -

809

779 -

795

760 -

778

740 -

759

720 -

739

701 -

719

681 -

700

661 -

680

640 -

660

618 -

639

595 -

617

568 -

594

536 -

567

493 -

535

422 -

492

150 -

421

Score Ranges

Average P(90+DPD) = 12.70%Score of 524!

Average credit score = 617P(90+DPD) = 5.01%


Risk of default increased markedly both before and during the course of the recession, finally peaking in Q4 2009the course of the recession, finally peaking in Q4 2009

TransUnion Credit Risk IndexUSA NV IL PA ND

160

180

120

140

CR

I

80

100

60

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

In this environment, financial institutions face three key challengeskey challenges

Challenge Causes

Continued risk due to external market

conditions

• 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)

Shifts in consumer performance

• 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’ productsbefore customers consider competitors products


The industry focus and concerns voiced by many of our customers can be broadly classified into five conceptscustomers can be broadly classified into five concepts

• Customer growth and retention

• Controlled growth

• Consistent portfolio management

• Expanding wallet share

• Increased efficiency in portfolio managementy p g



Current practices


Financial institutions seek account management tools that reliably differentiate good and bad accounts scalable to constrained budgetsdifferentiate 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 enoughCurrent 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


The need for a hybrid solutionThe need for a hybrid solution

Investment Size

LARGERAccount

ManagementTriggers

CustomPortfolio Review

Hybrid

Individual

ExpressPortfolio Review

SMALLER

IndividualMonitoring

Analytic ComplexityLOW HIGH

© 2011 TransUnion LLC All Rights Reserved14

Current process for portfolio reviewsCurrent process for portfolio reviews

For many financial institutions, the process has been labor intensive and

Work: Receive file back and append internal

750

process has been labor intensive and vulnerable to breakdown

append internal attributes

Work: IdentifyQuarterly Portfolio Review

W k S b i filWork: Compare to previous file

Work: Identify action to be taken

650Quarterly Portfolio Review

Work: Submit file for portfolio review

to previous file

Work: Action taken

1515

Q2 11 Q3 11AugustJuly


More frequent portfolio reviews can help financial institutions take action sooner—balance complexity investment portfolio volatility etcaction sooner balance complexity, investment, portfolio volatility, etc.

Identify both negative and positive changes to your customer’s condition, and respond with more effective treatment strategies Internal: New

bankcard trade External:

750

gbankcard trade External: 30+ delinquency

External:


Account reviewed, no action taken Monthly

Portfolio Review

New collection

Internal: Bankcard open to buy – $4,500

Portfolio Review

650

MonthlyPortfolio Review


Account reviewed, credit line decrease

1616



A quarterly portfolio review strategy with a monthly compare can accommodate strategy execution on key data changesaccommodate strategy execution on key data changes

Quarterly Portfolio Review

M thl C Monthly Compare

Quarterly Portfolio Review

Monthly Compare Monthly Compare

Key indicators in aKey Comparisons:• Score drop• CC utilization

Additional data allow for better decision making

ymonth-over-month comparison• CC balance

• New derogatory

TREATMENT 1Credit line increase

TREATMENT 2New overlimit cash

TREATMENT 3Credit line decrease

TREATMENT 4Collection

TREATMENT 5No change

1717

Credit line increase New overlimit cash authorization level

Credit line decrease Collection prioritization

No change


Using a portfolio compare tool can help financial institutions take action soonerinstitutions take action sooner

Internal: New bankcard trade

External: 30+ delinquency

750

700Quarterly Portfolio Re ie

External: New collection

700Portfolio Review

MonthlyPortfolio Compare

650 650

Internal: Bankcard open to buy – $4,500Account

reviewed, no action taken

650

MonthlyPortfolio Compare

650Quarterly Portfolio Review Account

compared, no action taken Account Account

i d


takencompared, credit line decreased

reviewed, no action taken

1818




Examples of successful applications


Portfolio management at a regional financial institution

Case Study

Portfolio management at a regional financial institution

Ch ll• Infrequent portfolio reviews

Need for timel /actionable dataChallenge • 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

M f d tt ti d ti ith “ ff ” d liResult • More focused attention and action on consumers with “off-us” delinquency


Retain your best customers through proactive marketing efforts with event-based datamarketing efforts with event based data

• Set monitoring criteria specific to customer retention objectives

• Identify the best customers who are ready to respond to up-sell offers

• Send the right up-sell offer at the right time to improve response• Monitor customer

accounts including those with other institutions

sell offers

• Focus efforts on accounts that are most at risk of attrition

response

• Take action to reduce both account and balance attrition


Customer retention at a (different) regional financial institution

Case Study

institution

Challenge• Customer attrition

Need for timel /actionable dataChallenge • 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-IncomeUp sell with line increase use of TransUnion Income Estimator and Debt to Income

Estimator for ability to pay

Result • Maintain loyalty• Create opportunities for stronger performance


SummarySummary

• Review your portfolio management strategy with consideration of external market conditions shifts inconsideration 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 challengesand process challenges

• Apply a hybridized portfolio management philosophy to move more effectively from strategy development tomove more effectively from strategy development to strategy execution


2011 financial services regional seminar getting beyond the portfolio … · 2015-12-04 · 2011...

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