the art and science of implementing faster decisioning
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Credit Unions: The Art and Science of Implementing Faster Decisioning to Grow Loans
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Preparing For 2017 & Beyond
Agenda
Driving For Growth: Creating Faster Loan Decisioning Strategies
Connecting the Dots: What it Means for Your Credit Union
Q & A
1
2
3
4
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Speakers
Scott ButterfieldAdvisor & Consultant
Your Credit Union Partner
Nichole LarmoreNew Business Consultant
Experian
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Section 1:Preparing for 2017& Beyond
1
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Laying The Foundation For SustainableLong-Term Growth
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Three Critical Components for Achieving Profitable & Sustainable Long-Term Growth
ProfitableLoan Growth
Membership Growth
BranchEfficiency
Regulatory & Compliance is an ongoing challenge
1 2 3
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Driving Organic & Profitable Loan Growth is Paramount for Relevancy
Source: Experian Marketing & Insights Analysis of NCUA Call Reports2014 and 2015: Represents Full Year; 2016YTD: Annualized with period ending June 30, 2016
Rate of Loan Growth Across Most Asset Tiers Slowing
2014 2015 2016 - YTD0.00%
2.00%
4.00%
6.00%
8.00%
10.00%
12.00%>$1B
$500M-$1B
$250-500M
$100-250M
$50-100M
$20-50M
<=$20M
1
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Creating a Seamless Cross-Channel Experience is Critical to Winning and Retaining New Members
47Average
Member Age
While Membership Growth Rate is Increasing for Some CUs, majority <$500M are below 3%
Source: Experian Marketing & Insights Analysis of NCUA Call Reports2014 and 2015: Represents Full Year; 2016YTD: Annualized with period ending June 30, 2016Average Member Age: NCUA
2014 2015 2016 - YTD
-1.00%
0.00%
1.00%
2.00%
3.00%
4.00%
5.00%
6.00%>$1B
$500M-$1B
$250-500M
$100-250M
$50-100M
$20-50M
<=$20M
2
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Increasing Costs For Operating Branches and Compliance Impacting Efficiency and Profitability
For Most Credit Unions <$1B in Assets, Improving Efficiency and Reducing Costs is Key
Source: Experian Marketing & Insights Analysis of NCUA Call Reports2014 and 2015: Represents Full Year; 2016YTD: Annualized with period ending June 30, 2016
2014 2015 2016 - YTD70.0
75.0
80.0
85.0
90.0
95.0 <=$20M
$20-50M
$50-100M
$100-250M
$250-500M
$500M-$1B
>$1B
3
¢
¢
¢
¢
¢
¢
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The Loan Origination Process Itself Can Be a Challenge For Many Credit Unions
Loan origination process
Receive application
Pre-decision processing
Retrieve credit report
Manual decision review
Prepare documents
Booking and funding
Manual Effort Time
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Competition is Skyrocketing:Loans Made By Online Lenders Projected to Increase 6x
$20B2015
$120B2020
Source: 2016 Morgan Stanley Research
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The Cost of Coming in Second For a Loanis Significant
$1M $29k
$142k
$285k
$100B gain in loans made by Online Lenders in the next five years:$2.9B of Annualized Net Margin
MISSED LOAN BALANCES ANNUAL MISSED NET MARGIN
$5M
$10M
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Section 2:Driving For Growth - Creating Faster Loan Decisioning Strategies
2
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Three Step Process for Creating Faster Loan Decisioning Strategies
When establishing or improving automated loan underwriting, consider these questions:
CURRENT STATE: What are our key business problems and objectives? What does our loan underwriting process look like now?
PROPOSED STATE: What would automation look like for our credit union? What will happen if we make these changes?
IMPLEMENTATION & TRACKING: How do we implement automated loan decisioning into our existing system? How do we measure success?
123
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Asset Size:$1B+
Location:Southeast
Members:150,000+
GROWTH OBJECTIVES
Loan Growth Ratio well
below peers
Lending Decisions
Made at Each Individual Branch
High Risk Exposure
(Inconsistent, Manual
Process)
Branches:5
BUSINESS PROBLEMS
Only 7%Lending
Decisions Automated
50%Decisions Automated
Grow Loan Portfolio
Increase # of member
cross-sell engagements
Increase speed to decision; centralize decision making
Step 1 – Current State: Client Success StoryIdentify Key Business Problems and Growth Objectives
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Step 1 – Current State: Client Success StoryWhere are they now?
Subjectivelending
Automateddecisioning
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Step 2 – Proposed State: Client Success StoryWhat would automated loan decisioning look like for our credit union?
Credit attributes
Income andDebt ratios
Industry Specific
Member relationship
OUTPUTINPUT
Credit bureau scores
Recommended Strategy
StatisticalAnalysis
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Before: 7% automatic decisions
After: 57% automatic decisions (offline test)
Step 2 – Proposed State: Client Success StoryPutting the strategy to the test
Risk Grade Approved Declined Manual Total Auto Decision
A+ 74.0% 0.8% 25.2% 74.8%A 67.6% 2.6% 29.8% 70.2%B 39.6% 6.6% 53.8% 46.2%C 22.0% 18.6% 59.4% 40.6%D 5.3% 38.4% 56.3% 43.7%E 0.5% 77.0% 22.5% 77.5%
Totals 29.8% 26.8% 43.4% 56.6%
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Step 3 - Implementation: Client Success StoryHow do we implement automated decisioning?
Use Current Loan Origination
System (LOS)
Leverage a Hosted Automated
Decisioning Platform
Purchase a New Loan Origination
System (LOS)
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Step 3 - Implementation: Client Success StoryHow do we incorporate this into our existing loan origination system?
Inquiry information(Name, address, other information)
Decision & treatment
Decisioning as a ServiceSM
Data Attributes Scores Decisions Treatments
Risk score
Debt to income
Approve
Decline
Employment status
Approve
Decline
HOSTED AUTOMATED DECISIONING
Loan origination process
Receive application
Pre-decision processing
Retrieve credit report & decision
Decision review
–as needed
Prepare documents
Booking and funding
This automated process takes less than 2 seconds
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Step 3 - Tracking: Client Success StoryHow Do We Measure Success?
FasterDecisioning
• Approval rate• Take-up rate• Retention rate
GrowLoans
• Increase app volume• Increase fundings
Increase Efficiency • Manual decision rate
While remaining within regulatory and compliance guidelines
• 18.6% increase in average loan application volume• 11.8% increase in funded loans
• Consistency across branches• Manual decision rate significantly reduced
• 57% of applications are auto-decisioned• 35% are auto-approved• 19% are auto-declined
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Section 3:Connecting the Dots –What it Means for Your Credit Union
3
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BETTER
FASTER
STRONGER
To Win the Loan and Membership Game,We Need to Be….
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Build a Member-Centric Experience
• Prime credit and millennial consumers demand a frictionless process
• Difficult to be first with clunky and unreliable systems
• Extra processing steps will slow you down
• Lower overhead reduce costs to support improved loan pricing
• Speed and consistency can improved the member experience and satisfaction
• Opportunity Cost: Spend more time consulting members (cross-selling) and less time in loan processing
BETTER
FASTER:
STRONGER:
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Final Thoughts: Working Harder For Loan GrowthBigger-Faster-Stronger for 2017 & Beyond
32 $1
Leverage automated decisioning to win more loans:
Optimize your lending model and data to approve more loans based on your risk criteria (including cross-sells)
Create a fast, seamless and flawless member experience for loan applications
Enhance member service and bolster your pricing position
If your price and features are similar to the competition…then beat them on your speed of delivery and overall member experience.
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Q & A
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