In Customer Acquisition and Retention, Customer Experience, Prescreen

IMG_3893Instant prescreen has been around for more than two decades. This highly effective approach to customer acquisition and cross-sell has new innovations that further enhance its value to financial institutions (FIs). Alternative data is being incorporated into prescreen decisioning processes and now there are nine FCRA compliant data sources that can be used to provide new types of valuations on consumers. Additionally, the realtime application of instant prescreen is particularly critical for digital banking as it grows in importance.

One of the value propositions of alternative data is to find creditworthy individuals that fall outside of traditional credit files and make them customers. This includes thin file consumers, people whose credit was impaired but has improved, and even people who have a lot of assets yet rarely use credit. In each of these scenarios the option to make an offer of credit is possible because of the additional information provided by alternative data sources. This is a significant differentiator for FIs that are able to use more data because they can find people who aren’t already being bombarded with tons of generic offers.

Uncovering a new population of credit worthy consumers is significant. However, using multiple FCRA data sources also has a huge impact on a FI’s ability to differentiate the offer, price and credit line for each consumer. For example, data can be used to determine whether someone would prefer a lower interest rate or a higher credit limit based on their transaction history. Increasing the personalization of credit offers naturally drives higher acceptance rates. Think about the number of credit offers that show up in your mailbox every week. Are they specifically targeted to your lifestyle or do they appear the same?

FIs can choose their strategy and then utilize the data that applies to the target market they are pursuing. For college students without extensive credit history, utility data is a great resource for understanding their payment history. Their offers can be personalized to include discounts if the student uses their card at the campus bookstore or cash back on grocery and gas purchases.

The speed and full approval of a realtime prescreen credit decision is a natural fit for digital transacting. The more mobile a customer is; the less patient they are. Having completed the entire underwriting process before making an offer makes an enormous difference in abandonment rates and creates a positive customer experience. Currently many online processes don’t make targeted offers and those that do are slow and cumbersome to complete on smaller devices. Imagine as a consumer you received an offer and were able to accept it on your phone or tablet simply by clicking an accept button. No forms or fine print, just a firm offer of credit.

Banks don’t need to use all nine sources to increase their pool of creditworthy consumers. The right move is to find one or two that fit the bank’s business strategy. Choosing none is a losing proposition— adding nontraditional data can increase a lender’s approval rate by 5 percent to 15 percent, according to LexisNexis. There has never been a better time to embrace an instant prescreen strategy.

Editor’s Note: Instant prescreen is a process that allows banks to assess a consumer’s creditworthiness from credit report data in certain limited circumstances without the consumer’s advance consent. Under FCRA rules, banks are not permitted in a prescreen transaction to see a consumers’ credit data or file in the decisioning process, and for any consumer passing the prescreen filter, the bank must make a “firm offer of credit”.

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