vision 2014: reporting-alternative-data

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Reporting alternative data? Understand the positive benefits to you and your customer

Patrick Walker PERC

Alpa Jain Experian

#vision2014

2 © 2014 Experian Information Solutions, Inc. All rights reserved. Experian Public.

Regulatory

Research

Impact to you and your customers

What Experian can do?

Today’s agenda The three perspectives of full file reporting


Regulatory

and research

Patrick Walker

PERC


PERC advocates the inclusion of alternative data for use in credit granting

Alternative = regular bill payment data from telecoms, energy utilities, rental payments and other such non-financial services that are valuable inputs for credit decisions

PERC’s Alternative Data Initiative (ADI)


Utilities, telecom providers, and other non-financial service providers typically only report negative data directly or via collections:

PERC wants these providers to also report positive data:

Story behind negative-only reporting Consumer being penalized?

Very late

payments Charge-offs Collections

Account

open status

On-time

payment

Age of

account

Mildly late

payments


What have we found?


Most recent study

A New Pathway to

Financial Inclusion: Alternative data, credit building,

and responsible lending in the

wake of the great recession June 2012


2%

3%

3%

4%

48%

19%

5%

3%

2%

7%

2%

2%

3%

4%

6%

44%

19%

4%

3%

2%

11%

2%

0% 10% 20% 30% 40% 50%

Decline >= 50

Decline between 25 and 49

Decline between 10 and 24

Decline less than 10

No change

Increase less than 10

Increase between 10 and 24

Increase between 25 and 49

Increase >= 50

Can now be scored

Remain a no score 2005 'Utility Sample'

2009

VantageScore® change with alternative data, all consumers

Consistent credit score impacts Over time…


VantageScore® tier changes with alternative data

Rise one

or more tiers No change

Fall one

or more tiers

Entire sample

Including unscoreables 9% 88% 3%

Excluding unscoreables 4% 93% 3%

Thin file

Including unscoreables 64% 35% 1%

Excluding unscoreables 25% 69% 6%

Uses the ‘ABC’ tiers:

900-990 = A

800-899 = B

700-799 = C

600-699 = D

501-599 = F

Unscoreable defined

as lowest tier

More tier rises than falls


0%

5%

10%

15%

20%

25%

30%

< $20K $20-$29K $30-$49 $50-$99 $100K+

2009/2010 2005/2006

(At 3% portfolio target default rate)

Change in acceptance by household income


Average firm benefits of fully reporting are several times the costs

► Benefits include fewer delinquencies, decline in accounts in arrears, and improved cash-flow

► Costs include IT upgrades, conducting new processes, compliance procedures and new customer service demands

10% of firms in survey currently fully report to a bureau

89% currently refer delinquencies to a collections agency

Firms: Impact of reporting Utility and telecom survey


Firms: Impact of reporting Benefits / costs of reporting to a credit reporting agency

0

1

2

3

Benefit =Costs

Benefits 1 to 2x Costs

Benefits 2 to 5x Costs

Benefits 5 to10 x Costs

Benefits > 10x Costs

Utility and telecom survey: Benefits / costs of reporting to a credit bureau All firms reported benefits > costs, including compliance costs


Firms that fully report see changed consumer payment behavior

Half of those surveyed indicated that if a non-financial obligation payment was reported to a credit bureau and would have an impact on their credit standing, they would be more likely to pay on time


U.S. customer survey

About half of customers more likely to pay on time if payment reported was reported to a credit bureau and impact their credit files and credit scores

► Over a third would be much more likely

Customers: Response to reporting


Firms that report are overwhelmingly satisfied with experience

Level of satisfaction Number of respondents

Very satisfied 2

Somewhat satisfied 5

Neutral / mixed 2

Somewhat unsatisfied 0

Very unsatisfied 0

Table D: Level of satisfaction from reporting experience PERC 2008 Data Furnisher’s Survey Responses


Firms overestimate perceived costs of credit reporting

Response

Number of

respondents

Large cost

(> 30% of IT budget) 0

Medium cost

(15-30% of IT budget) 0

Small cost

(5-15% of IT budget)

2

Minimal / no cost

(<5% of IT budget) 3

Don’t know 2

Prefer not to answer 1

Direct non-IT

cost estimates

Number of

respondents

Large cost

(>30% CS budget) 0

Medium cost

(15-30% CS budget) 0

Small cost

(5-15% CS budget) 5

Minimal / no cost

(<5% CS budget) 1

Don’t know 1

Prefer not to answer 1

* CS Budget = Customer Service Budget PERC 2008 Data Furnisher’s Survey

IT costs related to reporting Non-IT costs related to reporting


89% of companies did not need to restructure their billing systems to facilitate reporting

56% of companies sought regulatory approval to report

88% did not believe regulatory approval was necessary

Firms that fully report


What it means to you

and your customer?

Alpa Jain

Experian


Trade strength and content Today, tomorrow…

Reporting has been an effective tool in payment prioritization for 30+ years

It is important to bring alternative data into the credit ecosystem

Over 97% of

the national

consumer

loans are

reported to

Experian

Banks and

credit unions (All):

Accounts for

100%

of all financial

institution loans

100% of the

Top-100

mortgage

providers

report to

Experian

Mortgage:

Top-100 mortgage

providers

Accounts for 99%

of all mortgage

loans serviced

Over 95% of

loans issued

by the Top-50

issuers are

reported to

Experian

Card issuers:

Top-50 bank card

issuers

Accounts for 80%

of all loans issued

149 of the

Top-150 auto

lenders, or

99%, report

their data to

Experian

Auto Lenders:

Top-150 auto

lenders

Accounts for 70%

of all auto loans

financed

Represents

200–250M

additional

positive

tradelines

Energy and

Telecoms

High impact

and Important

alternative data


Consumers benefit from (and expect) consistent and transparent data reporting

Energy and communication spend is a meaningful monthly household obligation

Ranks high in terms of recurring household spend

Full-file reporting to credit bureaus (i.e. inclusive of “positive data”) will benefit majority of consumers

Inconsistent reporting of consumer data is proven to drive consumer confusion and ultimately disputes

U.S. credit reporting is a shared “ecosystem” available to all data contributors Mortgage Auto Personal

loan

Energy

spend*

Student

loan *Estimated


Case study #1 Improving arrears

01/0

3/0

5

03/2

8/0

5

06/2

0/0

5

09/1

2/0

5

12/1

9/0

5

03/1

3/0

6

06/0

5/0

6

09/1

1/0

6

12/0

4/0

6

02/2

6/0

7

05/2

1/0

7

08/2

7/0

7

11/1

9/0

7

02/1

1/0

7

650,000

630,000

610,000

590,000

570,000

550,000

Residential accounts in arrears – Rolling one-year average 670,000

An estimated

reduction of

78K in arrears

Estimated value of credit reporting = $33.6M

* Based on a $432 average balance

Location

Industry Type Utility

Midwest

Total Residential Customers 2M+


Case study #2 Becoming the creditor of choice

Key findings:

Slow paying customers may not be paying other lenders late

► 39% had 0-1 derogs on file

► 17% had 2-3 derogs on file

Unscoreable customers can benefit

► 17% of previously unscoreable consumers would receive a score

● Almost 10% had no trades on file previously

● Another 7% had a thin file (less than three trades)

Experian provided a pre-

reporting analysis for this

utility to support the decision

to report full file

Location


Northeast



Case study #3 Helping consumers

“Many consumers have thin or no credit files, making them unscoreable.”

Center for Financial Services Innovation

To

tal co

nsu

mers

5% to 6% of the

consumers became

scoreable with the

additional utility trade

4% of the portfolios were new consumers

Location


Midwest



Case study #3 Helping consumers

60%

20% To

tal re

co

rds

81% scores had little or no change in score Key metric:

50+ pt

increase

in score

25-49 pt

increase

in score

10-24 pt

increase

in score

< 10 pt

increase

in score

No

change

< 10 pt

decrease

in score

10-24 pt

decrease

in score

25-49 pt

decrease

in score

50+ pt

decrease

in score

11% of all scores

increased significantly

with the additional trade

Over 70% consumers

who decreased in score

already had two or more

derogs on file

40%

0%

Location


Midwest



Case study #3 Helping consumers – thin file

Generally positive

impact to thin file

consumers with

the additional

utility trade

Similar distribution

to all consumers

0%

100%

97%

90%

100%

0% 50% 100%

Super Prime (900-999)

Prime (800-899)

Non-Prime (700-799)

Sub Prime (600-699)

Sub Zero Prime ( < 600)

Consumers

Positive scoreband changes – Thin file consumers

Location


Midwest



Impact from reporting 60 DPD rates by quarter

Location


Midwest



What can Experian

do to help?

Alpa Jain

Experian


Poll Question #1

What do you think would be the impact

to your inbound call volume if you

reported positive data?

a) No increase

b) Slight increase

c) Moderate increase

d) Heavy increase


Impact to disputes rates and customer assistance calls

Client 2010

disputes 2011

disputes 2012

disputes 2013

disputes

Northeast utility 0.26% 0.25% 0.24% 0.23%

Midwest utility 0.11% 0.15% 0.16% 0.19%

FY10 FY11 FY12 FY13

Experian dispute volumes 100%

20%

40%

60%

80%

0%


Poll Question #2

In what areas is Experian prepared

to help me? (check all that apply)

a) Financial analysis, benchmarking and trending

b) Data reporting – initial and ongoing

c) Help insure positive customer experience

d) PR / media relations support


Experian support Your partner throughout the process

Experian recognizes the importance

of the energy and telecommunication industries

SME dedicated resources: Analysts, data specialists, IT support,

client services, and sales and marketing

Research Internal case studies

PERC supporter

Resources

Data reporting guidebook

NCAC – Dispute support

Pre-reporting analysis

Support IT support for file conversion, secure

data transfer, and data quality


Brand enrichment RentBureau® press coverage experience

It’s clearly a good thing for credit scores to contain more thorough and accurate

information that truly reflects an individual’s willingness to pay their bills, and

for that reason other credit reporting agencies should follow Experian’s lead.

-Inching Forward on Credit Scores, The Huffington Post

“ ”


Benefits of reporting Improve your bottom line while helping consumers

Increase cash flow Improve collections

Enhance customer

experience Assist consumers


For additional information, please contact:

[email protected]

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vision 2014: reporting-alternative-data

Economy & Finance

experian public

costs benefits

credit reporting agency

credit bureau

compliance costs

inclusion of alternative

credit building

credit files