In Credit Risk Management, Customer Acquisition and Retention

Marketing_StrategyThe ranks of marketers who focus on analytics to build their brands and increase sales is growing rapidly, yet many bank marketers steer clear when the topic of credit attributes comes up. To be sure, much of the science behind creating credit risk policy seems to have little in common with marketing campaigns. However, recently there have been new developments that just might be the turning point for marketers to start caring about the seemingly irrelevant attribute. Here’s a rundown of some of these innovative approaches that hold great promise.

One example of a new credit attribute that benefits marketing is “revolving vs. transacting”. This is a score that indicates if a consumer uses their cards as a charge card (paid off every month) or credit card (carries a balance). While there might be some sociographic measures to broadly guess what card a consumer will prefer, we can now define it with certainty. This is accomplished with a new type of credit report that shows consumer behavior over time, allowing us to match payments to the prior month’s balance due. With this information in hand, we can tell if a consumer would prioritize a lower interest rate or a higher credit limit. This ability to treat customers as a segment of one is critical to making the right offer and driving real marketing value.

Alternative data is a great way to bridge the gap between marketing’s desire for a painless customer experience and credit risk’s need for a thorough vetting. In a mobile credit application, there are practical restrictions on the number of questions you can ask a consumer before they abandon the process. Certainly, your credit risk team will want more data than the consumer is willing to enter on their device. What if you could limit your questions to name, birth date, SSN, and income? A few lenders have been doing this for years, but new data sources make it much easier. They can provide all the information you need and more—from email addresses to Twitter handles. While there is an additional cost, the increase in completed applications pays for the difference. Marketing gets a customer friendly app, the risk team is ensured the critical data for making a sound decision is gathered, and profitability goes up.

One of the most vexing challenges for marketers is offering credit to people who lack a credit history, often called underbanked or thin-file consumers. To be clear, you can reach them through many marketing techniques, but getting them approved for credit is the real challenge. I’ve had several friends experience this dilemma—a college student, a newly immigrated professional, and a divorcee. There are several new credit attributes that specialize in predicting the risk of these consumers. They use non-traditional data, like utility bill and cell phone payments, payday loans, and state licenses to analyze risk. Marketing campaigns need not be fettered by the data limitations of the credit risk team. The key is to define the target market you intend to reach, and then work with the risk analysts to ensure they are ready with appropriate data and scoring models. The worst disaster is to launch a campaign, then watch the risk department reject 90% of the applications you just solicited.

For most institutions, the greatest limitations on growing market share come not from the inability to reach consumers with marketing campaigns, but the challenge of stewarding them through the underwriting and on-boarding process. As data providers continue to innovate with new attributes, scores, and models that help approve more consumers, marketers have a rare opportunity to move their established brands ahead of competitors. Offering credit to underserved consumers, reducing fraud risk through alternative channels, and even improving the customer experience can be achieved with these new tools. In many cases, it will be the business side of the house that will identify and promote opportunities that arise from these innovations in credit attributes, not the technical or risk folks. That means if marketers can recognize the right ones and act quickly, they can build immensely successful campaigns from what they once thought of as an unlikely source.

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