By: Clarity Services, Inc. A part of Experian
Summary description: In today’s data-driven world, lenders who do not utilize updated prescreening criteria accounting for today’s industry trends are at a serious disadvantage. That includes accurately differentiating credit and fraud risks. Next-generation solutions are set to answer the market’s needs.
How to Optimize Your Alternative Financial Services in 2019
Credit-challenged consumers are a diverse group.
Young people, immigrants, underbanked applicants, prior-prime borrowers and others may be categorized as subprime, but generalizations alone do not predict risk if these applicants are seeking alternative financial services.
With 47 percent of Americans unable to afford a $400 emergency expense, according to the Federal Reserve Board, opportunities for significant growth will continue.
Competitive Advantage: the Most Comprehensive Alternative Credit Data
Clarity Services, Experian’s face for alternative financial services, continues to be the leading provider of alternative credit data in the United States. With more than twice the amount of unique consumer profiles than the nearest competitor, the FCRA-regulated credit reporting agency has led the way in evaluating credit and fraud risk among subprime consumers.
With the largest sample of consumer identities in the subprime market, Clarity is better able to accurately calibrate solutions for the evolving market trends confronting lenders.
Three Trends to Consider
Each year, Clarity releases an authoritative study on subprime lending trends. Last year’s report, 2018 Alternative Financial Services Lending Trends, featured analysis of application and loan data in Clarity’s database, including overlaid VantageScore insights from Experian from 2013 to 2017.
Ongoing research has uncovered significant trends:
Online migration continues: Even well-established storefront lenders have supplemented their core brick-and-mortar businesses with online customer acquisition initiatives. Overall, small dollar loan volume (not number of loans) increased 256 percent from 2013 to 2017. During the same period, online installment dollar loan volume increased 481 percent.
Characteristics of online installment loans: Average loan amounts have increased over time (well exceeding $1,000), as well as the accompanying payment terms (nearing one year). With these correlational increases, the advantage of utilizing stronger, data-driven underwriting products to help steer repayment through completion is amplified.
Consumer acquisition – direct mail growth: In recent years, Clarity has tracked exponential growth in online small dollar lenders’ use of prescreened direct mail programs using alternative credit data and traditional bureau data to generate new loans. The bureau projects a nearly 900 percent increase in mail volumes from 2015 to 2018.
Clarity is currently working on its 2019 report, which will be released in the coming months.
Meeting Trends Head-On
As the online small-dollar market has migrated heavily toward larger installment loans with longer terms, a lender’s ability to more accurately assess liability has become even more important. Clearly discerning credit and fraud risks is crucial in conceptualizing and isolating distinct problems.
That’s why Clarity has added to its already industry-leading solutions for the subprime market. By leveraging the full force of Experian’s broad and diverse set of data assets, the combined power of both bureaus yields unprecedented insight into applicant behavior.
Solutions with the Most Relevant Criteria
Clarity’s upgraded solutions continue to grow, enabling lenders to make smarter business decisions throughout the entire consumer credit cycle. The key drivers to the successful development of next-generation solutions are:
Accurately assessing market trends.
Capturing the voices and perspectives of lenders and their consumers.
Leveraging the vast combined data assets of Clarity and Experian, the largest libraries in their respective markets.
There is no substitute for having access to the most qualitative and quantitative underlying data when crafting lending solutions for credit and fraud risk.
The Leading Sources for Alternative Credit and Traditional Bureau Data
The best way to obtain the most comprehensive view of subprime consumers is to use solutions from the largest data sources in the alternative credit and traditional credit industries. Lenders can achieve universe expansion goals without increasing risk of default or fraud. With the most predictive, actionable scores now available through all acquisition channels, next-generation risk solutions have arrived.