effective data testing npt for final
TRANSCRIPT
THE ALTERNATIVE CREDIT BUREAU
Evaluate & Effectively Test Alternative Credit Data
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Scott BrackinVice President, Auto
WELCOME TO FACTORTRUST WEBINAR
Dallas MunkusDirector, Customer Analytics
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AGENDA
We will discuss:
• The value and types of alternative credit data
• Key components of a comprehensive data set for testing
• Best practices for an effective implementation strategy
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VALUE OF ALTERNATIVE DATA M A R K E T O P P O R T U N I T Y T O S TAY C O M P E T I T I V E
Underserved by Big 3
300-4996%
500-5498%
550-59910%
600-64910%
650-69913%
700-74916%
750-79918%
800-85019%
“Big 3” ~$8.5B in 2014 Revenue – Serving the “Prime/Banked”
Credit and Consumer Data Services Market For Underbanked / Non-prime Largely Untapped
Massive Underserved Market Population
113Mof US adults, have a FICO score
under 700
FICO Score Distribution of US Population (240M)
With ~$8.5B in combined revenue, the Big 3 credit reporting agencies (“CRAs”) are focused on covering prime US consumers, leaving a significant market opportunity in the underbanked
population that is non-prime.
From CFPB (*May 2015) – 26 million U.S. adults have no credit history with the Big 3 bureaus, and further 19 million U.S. adults credit data is so limited or out of date with the Big 3 bureaus, that they are
unscoreable. In total, 45 million U.S. adults are living without credit scores.
47% OF U.S. ADULTS HAVE BELOW-AVERAGE CREDIT SCORES
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VALUE OF ALTERNATIVE DATA E C O S Y S T E M
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VALUE OF ALTERNATIVE CREDIT DATA N O N - T R A D I T I O N A L V S T R A D I T I O N A L
“I am not sure how to effectively utilize alternative data.”
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COMPREHENSIVE DATA TEST INGE S TA B L I S H C L E A R G O A L S
Know the endgame and the more likely
your objective will be met.
Considerations:
• qualify more consumers
• eliminate credit losses
• improve conversion
• risk adjust pricing
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COMPREHENSIVE DATA TEST INGK E Y E L E M E N T S
The key to a successful data analysis involves starting with:
1. Proper input file
– Relevant sample size
– Performance Indicator(s)
– Matured accounts
2. Comprehensive data set, including
Bookings
Rejects
Approved Not Booked
3. List of potential alternative data providers to a manageable group
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Measurements
Hit Rate
DisparityImpact
COMPREHENSIVE DATA TEST INGM E A S U R E M E N T: H I T R AT E
Hit Rate – Number of
applicants who would have
been present in the alternative
data file at the time of
application
Separation – Lift provided
by presence in the
database
Impact – Overall
results of cost
benefit analysis
“How do I implement alternative credit data?”
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• There are large collections of public and proprietary data from thousands of
sources with identity intelligence and verification available that allow you to
make sure that the borrower’s:
– Input data is current and accurate
– SSN was issued and belongs to the name of the borrower
– Name verifications, e.g. marriage licenses
– Physical addresses and date verification
– Birth date verification
IMPLEMENTATI ON STRATEGY V E R I F Y O R VA L I D AT E A N A P P L I C A N T ’ S I D E N T I T Y
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• Knowing that a consumer is not present in an
alternative database is also telling
• Not being present in a short-term loan database
usually indicates an overall lower default rate
• If you simply segment on hit or no-hit, you will
potentially miss additional ranking power from
alternative data attribute suites or scores
IMPLEMENTATI ON STRATEGY VA L U E O F A “ N O H I T ”
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IMPLEMENTATI ON STRATEGY O V E R L AY Y O U R R I S K S C O R E
KS is a standard measure for model effectiveness in the credit risk space and most auto
finance companies would consider the 40% lift in KS, as with this case study, statistically and
strategically significant.
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• Alternative credit data may be used to automatically monitor accounts for
changes or events.
• Triggers alert finance providers on where and when to take action – Events
include:
– New loans or inquiries on file
– Change in salary
– Recent or late payments
– Change in debt-to-income
– Most recent address
– Most recent phone number
IMPLEMENTATI ON STRATEGY A L E R T S T O R I S K A C T I V I T Y
QUESTIONS?
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QUESTIONS AND NEXT STEPS
To inquire about data tests and analysis,
contact:
Scott BrackinVice President, Auto
Twitter: @underbankedstew
THE ALTERNATIVE CREDIT BUREAU