the spectrum of lending: completing the consumer picture€¦ · short-term borrowers are unbanked...
TRANSCRIPT
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Liz Pagel
Vice President
Consumer Lending Market Strategy
The Spectrum of Lending:
Completing the Consumer Picture
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© 2018 TransUnion LLC All Rights Reserved | 3
• What does the alternative credit database look like, and why is it relevant to
you?
• Can we test the conventional wisdom about consumers active in alternative
credit markets?
• How can blending traditional and alternative credit data help lenders refine
underwriting strategies?
• What are some practical applications?
In this session, we’ll review:
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What does the alternative credit database look like,
and why is it relevant to you?
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© 2018 TransUnion LLC All Rights Reserved | 5
Alternative loans
are a major
category of credit
obligations
not reflected in
the traditional
credit file
What are alternative loans?
Not included: Utilities, telecom, other non-loan obligations
Rent to
Own
Buy-here
pay-here
Installment
Loans
Short-term
Loans
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Historically short loan terms
incongruous with:
• Standard reporting formats
• Monthly reporting cadence
Why haven’t we talked about alternative loan data before?
Technical
limitations
Relevance to
traditional lenders
Loan category historically outside
scope for lenders:
• Products not offered
• Perception that customer base
does not participate in this market
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© 2018 TransUnion LLC All Rights Reserved | 7
Recognizing the importance of these data, TransUnion
acquired FactorTrust in November 2017
Source: TransUnion alternative lending database
29.5 million consumers
+ 500,000 each month
Not widely reported Real-time updates Full file reporting
FCRA-compliant data
with adverse action
codes
Strict reciprocity-driven
reporting model
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2015 2016 20172-YR
growthToday
Consumers 15.9M 21.2M 26.1M 64% 29.5M
Tradelines 48.5M 56.0M 72.4M 49% 78.8M
Inquiries 65.5M 88.1M 118.9M 82% 143.2M
Source: TransUnion alternative lending database
Our alternative credit database has information on 28M
consumers and is growing rapidly
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© 2018 TransUnion LLC All Rights Reserved | 9
The database has robust, FCRA-compliant data, much of
which is incremental and worth highlighting
8+Credit inquiries
per year
per consumer
Inquiry data Tradeline data
Contact• Email address
• Mobile/home numbers
• Up-to-date addresses
Payments• Payment account
• Payment status
• Payment amount
• Returned payments
Loan behavior• Loan roll-over tagging
Employment (stated)• Employer
• Monthly income
• Payroll type
• Payroll frequency
Checking• Bank
• Account number
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Can we test the conventional wisdom about
consumers who are active in alternative credit
markets?
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What’s the conventional wisdom around consumers who
are active in the alternative loan market?
#1
#2
#3
Consumers active in the alternative loan market are
riskier than those who are not
Short-term borrowers are unbanked – they don’t have
access to traditional loan products
Consumers present in the alternative credit database
utilize credit differently
Consumers active in the alternative loan market are more
delinquent on their traditional products#4
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Hypothesis #1: Consumers active in the alternative loan
market are riskier than those who are not
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© 2018 TransUnion LLC All Rights Reserved | 13
TRUE: Alternative credit consumers are much more likely to
be subprime, but over 30% are near prime or better
VantageScore® 3.0 risk ranges
Subprime = 300-600; Near prime = 601-660; Prime = 661-720; Prime plus = 721-780; Super prime = 781-850 Source: TransUnion consumer credit database,
TransUnion alternative lending database
Risk distribution as of Q1 2018
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Alternative lending consumers U.S. population
Ris
k d
istr
ibu
tio
n
Super prime
Prime plus
Prime
Near prime
Subprime
Unscored
25%
66%
12%
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Hypothesis #2: Short-term borrowers are unbanked –
they don’t have access to traditional loan products
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FALSE: Alternative credit market participants have open
traditional credit products on par with the U.S. population
Number of open traditional credit products as of Q1 2018
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Alternative lending consumers U.S. population
Dis
trib
uti
on
of
# o
f o
pen
tra
des
3+
2
1
0
Source: TransUnion consumer credit database,
TransUnion alternative lending database
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To better understand these consumers and their use of
traditional credit, we conducted a study
t: consumer opens a
traditional credit productt + 12
Metrics measured at t-1:
Consumer demographics
Wallet profile
Presence in alternative
lending database
Alternative lending attributes:
Number of short-term trades,
number of cell phones, etc.
t - 1
Metrics measured at t+12:
Delinquency rates of
originated products
Measured at t:
Originated product
attributes
Lender type
We studied over 5 million consumers who originated a traditional product between Q2 2015 and Q1 2016
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Distribution of consumers
449,294
5,134,172
Present in alternativelending database
Not present
Of the over 5 million consumers who opened a traditional
product, 8% were present in the alternative lending database
Source: TransUnion consumer credit database,
TransUnion alternative lending database
• “Not present” is also a valuable
data point
• Hit rate is much higher in
subprime at 22.0%
• Hit rate is much lower in prime
and above at 1.7%
The “not present” population represents consumers present in the traditional credit database but not
present in the alternative lending database.
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© 2018 TransUnion LLC All Rights Reserved | 18
We controlled for risk and open traditional trades and ended
up with a study population of almost 1.5 million consumers
The “not present” population represents consumers present in the traditional credit database but not present
in the alternative lending database. Source: TransUnion consumer credit database,
TransUnion alternative lending database
Example of sampling down for VantageScore® 3.0 661-720 and 1 open trade
1.27%
4.04%
1.27%
0%
1%
2%
3%
4%
5%
% o
f co
nsu
mers Present in alternative lending
database
Not present
Not present, sampled
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Hypothesis #3: Consumers present in the alternative
credit database utilize traditional credit differently
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TRUE: These consumers are more likely to open auto and
personal loans. But, they’re present across all products.
The “not present” population represents consumers present in the traditional credit database but not present
in the alternative lending database. Source: TransUnion consumer credit database,
TransUnion alternative lending database
Distribution of traditional credit products opened at t
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Present in alternative lendingdatabase
Not present
Dis
trib
uti
on
of
op
en
ed
pro
du
cts
Other
Real estate
Private label
Bankcard
Secured personal loan
Unsecured personal loan
Auto
50%37%
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Slightly more consumers borrow from traditional finance
companies, but all lender types are represented
The “not present” population represents consumers present in the traditional credit database but not present
in the alternative lending database. Source: TransUnion consumer credit database,
TransUnion alternative lending database
Distribution of lenders for traditional products opened at t
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Present in alternative lendingdatabase
Not present
Dis
trib
uti
on
of
len
der
typ
es
FinTech
Credit union
Bank
Traditional finance company
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When looking at just unsecured personal loans, all lender
types are still represented
The “not present” population represents consumers present in the traditional credit database but not present
in the alternative lending database. Source: TransUnion consumer credit database,
TransUnion alternative lending database
Distribution of lenders for unsecured personal loans opened at t
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Present in alternative lendingdatabase
Not present
Dis
trib
uti
on
of
len
der
typ
es
FinTech
Credit union
Bank
Traditional finance company
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Consumers with alternative lending activity receive lower
unsecured personal loan amounts
The “not present” population represents consumers present in the traditional credit database but not present
in the alternative lending database. Source: TransUnion consumer credit database,
TransUnion alternative lending database
Average originated amount of unsecured personal loans
$0
$500
$1,000
$1,500
$2,000
$2,500
$3,000
$3,500
Ori
gin
ati
on
am
ou
nt
Present in alternative
lending databaseNot present
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These consumers also tend to receive lower lines on
cards, potentially driven by choice of providers
The “not present” population represents consumers present in the traditional credit database but not present
in the alternative lending database. Source: TransUnion consumer credit database,
TransUnion alternative lending database
Average credit limit of originated revolving products
$0
$200
$400
$600
$800
$1,000
$1,200
$1,400
$1,600
$1,800
$2,000
Bankcard Private label
Avera
ge c
red
it l
imit
Present in alternative lendingdatabase
Not present
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Hypothesis #4: Consumers active in the alternative loan
market are more delinquent on their traditional products
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TRUE: At first glance, these consumers have higher
delinquency levels across all products
Serious delinquency is 90+ DPD for card, 60+ DPD for all else.
The “not present” population represents consumers present in the traditional credit database but not present
in the alternative lending database. Source: TransUnion consumer credit database,
TransUnion alternative lending database
Ever seriously delinquent in 12 MOB of originated traditional product
0%
5%
10%
15%
20%
25%
Unsecuredpersonal loan
Auto Securedpersonal loan
Bankcard Private label
% s
eri
ou
s d
elin
qu
en
cy
Present in alternativelending database
Not present
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Consumers who perform well on alternative loans have
delinquency rates closer to those not present on the file
Serious delinquency is 90+ DPD for card, 60+ DPD for all else.
The “not present” population represents consumers present in the traditional credit database but not present
in the alternative lending database. Source: TransUnion consumer credit database,
TransUnion alternative lending database
Ever seriously delinquent in 12 MOB of originated traditional product
0%
5%
10%
15%
20%
25%
Unsecuredpersonal loan
Auto Securedpersonal loan
Bankcard Private label
% s
eri
ou
s d
elin
qu
en
cy
Present in alternativelending database
Not present
Consumers with atleast one alternativeloan and nodelinquencies
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In summary, these consumers are higher risk overall, but
additional data points can help separate that risk
Credit profile factors
Are more likely to originate auto or personal loans than other products
but do originate all product types
Skew heavily toward subprime but are not all subprime
Have smaller personal loans and lower credit limits on cards, even
when controlling for credit score
Have higher serious delinquency rates across all products
Are less delinquent when they’ve had multiple paid-as-agreed
short-term loans
Alternative lending consumers:
Risk distribution
Product type
Credit performance
Loan amount
Borrow more frequently from finance companies, although they’re
materially present across all lender typesLender type
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v
vv
How can blending traditional and alternative credit
data help lenders refine underwriting strategies?
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Lenders commonly utilize credit score thresholds for risk
decisioning
Source: TransUnion consumer credit database,
TransUnion alternative lending database
Ever 90+ DPD on traditional product by risk score
0%
10%
20%
30%
40%
50%
60%
Delin
qu
en
cy r
ate
VantageScore® 3.0
All consumers
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Knowing a consumer is in the alternative lending database
can help lenders make more precise evaluations
The “not present” population represents consumers present in the traditional credit database but not present
in the alternative lending database. Source: TransUnion consumer credit database,
TransUnion alternative lending database
Ever 90+ DPD on traditional product by risk score
0%
10%
20%
30%
40%
50%
60%
Delin
qu
en
cy r
ate
VantageScore® 3.0
All consumers
Present inalternativelending database
Not present
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The “not present” population represents consumers present in the traditional credit database but not present
in the alternative lending database.
Note: For near prime tier only. Near prime = VantageScore® 3.0 601-660
10%
17%
0%
4%
8%
12%
16%
20%
24%
0%
10%
20%
30%
40%
50%
60%
0 1 2 3 4-5 6-7 8+
Delin
qu
en
cy ra
te%
of
near
pri
me c
on
su
mers
# of deposit accounts
Deposit accounts in alt. lending file; ever 90+ DPD in 12 MOB on traditional product
Source: TransUnion consumer credit database,
TransUnion alternative lending database
We can also use other attributes to mitigate risk. Near prime
consumers with more deposit accounts are more delinquent.
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Consumers with more address changes are more likely to
be delinquent
The “not present” population represents consumers present in the traditional credit database but not present
in the alternative lending database.
Note: For near prime tier only. Near prime = VantageScore® 3.0 601-660 Source: TransUnion consumer credit database,
TransUnion alternative lending database
11%
16%
0%
4%
8%
12%
16%
20%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
1 2 3 4+
De
linq
ue
nc
y ra
te%
of
near
pri
me c
on
su
mers
# of zip codes
Number of zip codes in alt. lending file; ever 90+ DPD in 12 MOB on traditional product
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A high number of cell phone numbers on file is another
high-risk indicator
The “not present” population represents consumers present in the traditional credit database but not present
in the alternative lending database.
Note: For near prime tier only. Near prime = VantageScore® 3.0 601-660 Source: TransUnion consumer credit database,
TransUnion alternative lending database
10%
20%
0%
4%
8%
12%
16%
20%
24%
0%
10%
20%
30%
40%
50%
60%
Unknown 1 2 3 4-5 6+
De
linq
ue
nc
y ra
te%
of
near
pri
me
co
nsu
me
rs
# of cell phone numbers
Number of cell numbers in alt. lending file; ever 90+ DPD in 12 MOB on traditional product
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Consumers who make ST products part of their financial
management strategy handle all debt more responsibly
Note: Only includes consumers who have ever had a short-term trade.
The “not present” population represents consumers present in the traditional credit database but not present
in the alternative lending database.
Note: For near prime tier only. Near prime = VantageScore® 3.0 601-660 Source: TransUnion consumer credit database,
TransUnion alternative lending database
14%
9%
0%
3%
6%
9%
12%
15%
0%
1%
2%
3%
4%
5%
6%
7%
8%
9%
10%
1 2 3 4 5 6 7 8 9 10 11-20 21-50 51+
Delin
qu
en
cy ra
te%
of
near
pri
me c
on
su
mers
# of short-term loans
Number of short-term loans ever; ever 90+ DPD in 12 MOB on traditional product
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Consumers who have experience successfully managing
alternative credit also perform better on traditional trades
Source: TransUnion consumer credit database,
TransUnion alternative lending database
18%
8%
0%
4%
8%
12%
16%
20%
24%
0%
5%
10%
15%
20%
25%
30%
0 1 2 3-4 5-6 7-8 9-10 11+
De
linq
ue
nc
y ra
te%
of
near
pri
me c
on
su
mers
# of satisfactory short-term loans everNote: Only includes consumers who have ever had a short-term trade.
The “not present” population represents consumers present in the traditional credit database but not present
in the alternative lending database.
Note: For near prime tier only. Near prime = VantageScore® 3.0 601-660
Satisfactory short-term trades; ever 90+ DPD in 12 MOB on traditional product
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Alternative data can provide deeper insights into consumer
behavior than traditional credit data alone
Alternative data factors
Are more delinquent when they utilize several deposit accounts over time
Experience more delinquencies with more moves
Are typically higher risks when they have more than two cell phones on file
Alternative lending consumers:
Deposit accounts
Regular borrowing
Contact information
Address stability
Are less delinquent on traditional products when they’re regular short-
term loan users
Positive paymentsAre less delinquent on traditional products when they’ve had
multiple, positive, short-term loan payments
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v
vv
What are some practical applications?
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© 2018 TransUnion LLC All Rights Reserved | 39
Subprime Near prime Prime Prime plus Super prime
Trended data
Multisource alternative data
Alternative credit data
VantageScore® 3.0 risk ranges
Subprime = 300-600; Near prime = 601-660; Prime = 661-720; Prime plus = 721-780; Super prime = 781-850
The alterative credit data complement CreditVision Link
data sources to score consumers across the spectrum
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© 2018 TransUnion LLC All Rights Reserved | 40
For traditional,
FinTech, and
consumer finance
lenders
For short-term /
alternative lenders
CreditVision® LinkSM Scores
CreditVision Link Short-Term
Risk Score
Additionally, a suite
of Alternative
Credit Attributes
(ACA) will be
available for:
- Prescreen
suppression/
inclusion
- High-risk triggers
- Custom model
builds
The alternative credit data will be layered into
TransUnion’s next generation of CreditVision Link Scores
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© 2018 TransUnion LLC All Rights Reserved | 41
• Alternative data are a valuable supplement to traditional credit data when
making lending decisions
• Alternative loan consumers are active in traditional credit but have different
preferences and behaviors — understanding these differences can unlock
valuable insights
• Alternative data, when combined with traditional data, can be used to identify
experienced borrowers with good performance or to segment out higher-risk
consumers
• This is just one example — TransUnion is continually exploring and evaluating
data sources to provide new insights to better serve consumers
In summary:
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