unlocking small business lending profitability
TRANSCRIPT
Unlocking Small Business Lending ProfitabilityBalance Risk, Cost and Compliance
©2014 Fair Isaac Corporation. All rights reserved. 2
Small and medium enterprise (SME) lending is challenging.
The challenge: Smaller loan/lease amounts aren’t profitable enough to justify a lengthy, costly originations process.
ANDAutomation is the answer, but ensuring proper risk evaluation, enabling agile workflow to adjust to changing market conditions and remaining compliant can be difficult to achieve.
©2014 Fair Isaac Corporation. All rights reserved. 3
Unlock SME lending performance and agility with...
Analytics
Scoring
Decision Automation
Reduce costs and time-to-decision while helping drive risk management and compliance.
$
Loan/leaseamount
Originationtime
Originationcost
Risk exposurecontrol
Regulatorycompliance
LOW
HIG
H
©2014 Fair Isaac Corporation. All rights reserved. 4
Success story: The captive leasing arm of a global equipment manufacturer applies advanced analytics and automation across 35 countries to retain and expand customer relationships.
©2014 Fair Isaac Corporation. All rights reserved. 5
This leasing group is building personalized customer experiences across 35 countries to cross-sell products, financing and affinity programs for long-term profitable relationships.
Applying analytics and automated originations with region-specific models,they adapt to local markets, but witha common set of scoring metrics tocompare and report worldwide.
Keys to success: Customer-centric, region-specific analytics + global view.
North AmericaRegion
COMMON SCORING METRICS
Latin America Region
Europe, Middle East and Africa
Region
Asia Pacific Region
©2014 Fair Isaac Corporation. All rights reserved. 6
Success story: A Pacific Rim bank that used to manually review every SME credit application now focuses attention where it matters most.
©2014 Fair Isaac Corporation. All rights reserved. 7
With the benefit of analytic insight, bankers spend less time reviewing
higher scoring (lower risk) applications.
Most of their attention focuses on applications in the middle “gray area,” where decisions are now made faster.
Automated business rules reject the approximately 30% of lower scoring (higher risk) applications, which no
longer consume resources.
Additional benefit: Improved regulatory compliance by ensuring that all credit decisions are demonstrably fair and consistent.
Keys to success: Automatically rank order applicants by risk level.
LOW
HIG
H
RIS
K S
CO
RE
(lo
w r
isk)
(hig
h r
isk)
©2014 Fair Isaac Corporation. All rights reserved. 8
Success story: A North American bank pulled back from SME lending during the financial crisis. Now the bank’s new portfolio provides a more complete picture of customer risk/reward and better analytic controls.
©2014 Fair Isaac Corporation. All rights reserved. 9
ModelData Mart
Tracking
Monitoring
OngoingValidation
ManagementReporting
Alerts
DecisionSimulation
DecisionExecution
ScoringServices
DecisionOptimization
Development&
Calibration
BUSI
NES
S
CONSU
MER
ORIGINATIONS SYSTEM
ModelData Mart
Structured& Unstructured(e.g. text, speech)
FO
UN
DA
TIOND
EVELOPMENT
ADVANCED
DEC
IS
IONING
PR
OFESSIONAL
By extending its existing originations system for consumer lending across SME lending, the bank improves visibility into the creditworthiness of SME principals, while tailoring a full range of services to each customer.
Centralized, automated model management increases control over the expanding range of data and analytics informing bank decisions. The tools keep track of where models are used, how they’re performing and when they need updating. They also maintain a detailed audit trail for demonstrating regulatory compliance.
Keys to success: Expanded visibility and control.
©2014 Fair Isaac Corporation. All rights reserved. 10
Success story: An online alternative SME lender seized opportunities when banks pulled back. Now, with rebounding banks driving competition, the lender needs to sharpen its pricing.
©2014 Fair Isaac Corporation. All rights reserved. 11
SimulatedActual
SimulatedActual
Gaps are opportunities for learning and improvement
Supplementing traditional small business scores with insights from online marketplaces and social media, this lender can better segment applicant populations, reducing prices for lower risk SMEs.
Day 15: Response KPISegment 3 is performing as expected; continuing on-track performance can be extrapolated
What’sworking?
What’s not? Quickly comparing actual to simulated results, the lender learns where its strategies are succeeding, where it can do better and how customer behavior is changing.
Keys to success: More data, optimized decision strategies, speedy learning.
Day 30: Transaction KPISegment 5 is performing differently than expected; change strategy sooner rather than later
RESP
ON
SETR
AN
SAC
TIO
NS
DAYS
DAYS
©2014 Fair Isaac Corporation. All rights reserved. 12
Success story: A leasing company captured a large national account by demonstrating that it could accurately make instant automated decisions for 80% of SME equipment purchases at the point of sale.
©2014 Fair Isaac Corporation. All rights reserved. 13
This leasing company relies on a small business originations score tailored to leasing plus additional data evaluated by rules-driven decisioning to route questionable applications to underwriters. Focused on fewer applications and with the benefit of analytic insight, they’re able to make better decisions faster.
Accurate analytic segmentation of applicant populations improves profitability. It also increases credit risk transparency for securitization, helping the lessor sell the debt on secondary markets.
Leasing decisions used to take up to 24 hours
Now most decisions are
made instantly...
AUTO-DECISIONED ANALYST-DECISIONED
And the rest,within minutes
12
12 12
x2
80% 20%
6
6 6
9
9 9
3
3 3
Keys to success: Scoring tailored to leasing, rules-driven decisions.
For more information North America toll-free Latin America & Caribbean Europe, Middle East & Africa Asia Pacificwww.fico.com +1 888 342 6336 +55 11 5189 8222 +44 (0) 207 940 8718 +65 6422 7700 [email protected] [email protected] [email protected] [email protected]
FICO is a trademark or registered trademark of Fair Isaac Corporation in the United States and in other countries. Other product and company names herein may be trademarks of their respective owners. © 2014 Fair Isaac Corporation. All rights reserved.
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