Four ways trended and alternative data can help improve account risk management

Companies invest millions in managing their existing credit portfolios. With the advent of the consumer-first era, lenders and financial institutions are under increasing pressure to drive customer retention and acquisition by improving the customer experience without unnecessarily increasing the risk the organisation carries. Our latest blog explores how trended and alternative data can help risk managers improve and streamline their account management strategies.

Balancing risk strategies with a good customer experience is important

In an industry that is becoming increasingly competitive, it’s essential for lenders and financial institutions to differentiate themselves in their customers’ eyes. While it is important to provide a good customer experience through enhanced offers and preferential pricing, risk managers must maintain a delicate balance between driving customer acquisition and retention, and effectively managing the organisation’s risk.

Retention strategies aimed at top customers such as increasing privileges or adjusting rates can be effective, but an overly liberal application of these can erode profits.

Similarly, undisciplined efforts to retain customers such as offering better rates on insurance premiums and higher credit limits without consider the associated risks can result in loss or compressed margins.

One way of maintaining this balance is understanding your customers better. Companies need to expand their view of customers above and beyond what their own internal data shows in order to have a 360º market view of customers’ behaviour and to harness valuable information that can boost their risk management strategies.

Traditional scoring models don’t offer enough insight anymore

Traditionally, a company’s risk management strategy consists of screening a portfolio for early delinquency behaviour by using internal scoring models that predict the probability of bad payment behavior over a certain period of time.

These customer insights are usually based on internal behavior and in some instances can be augmented by additional credit data from the industry to make decisions about customer treatment strategies.

This approach however limits a risk manager’s view of a customer to a certain point in time. It doesn’t provide a holistic view of the customer’s credit movement over time and doesn’t offer insights into other information that could be relevant to the decision-making process. This could include things like knowing how many delinquent customers are linked to failed businesses, how many customers are linked to successful businesses, and knowing how many properties have recently been purchased by our consumers paired with the value of a consumer’s property portfolio.

This is where alternative and trended data come in.

Alternative data finds non-traditional sources of information which lenders can use to gain insights for improved decision-making and provides more insight above the normal credit behaviour that risk managers consider during account management and early delinquency strategies. Trended data on the other hand looks at a consumer behaviour and repayment patterns over time and allows companies to see patterns and behaviours invisible to traditional point-in-time views. Supplementing an organisation’s internal data with trended credit and alternative data lets risk managers make confident decisions based on an even broader spectrum of information on a consumer.

Four ways trended and alternative data can help risk managers

There are four key reasons a risk manager should care about trended data and using trended data within their account management runs:

  1. Improved precision

    Using the additional insights trended data provides empowers risk managers to make more aggressive line management decisions versus using traditional, static credit information. The full picture of the consumer’s spend and usage trends can significantly improve existing strategies.

  2. Effective customer retention

    Risk managers need to retain the right customers. We have found that more consumers could receive greater access and more favourable terms when evaluated with CreditVision trended data versus using traditional credit data. Thanks to a more detailed review of their balance movement, utilisation, seasonality and payment behaviours these consumers can benefit from Gold or Platinum classification as these are all factors proven to greatly influence profitability and improve retention of customers by staying in tune to their trends. This also holds true when it comes to treatment strategies driven by a more complete picture of the customer

  3. Assistance with compliance

    The direction of customer risk behaviour provides an early warning indicator that helps accurately calculate provisioning on the different risk segments of the portfolio. Enhancing insights on the current segments also helps ensure better compliance regarding provisioning models or assisting with IFRS 9 compliance.

  4. Accurate forecasting

    And finally, by having a trended data bureau score to complement internal behaviour scores will allow for more accurate loss forecasting and delinquency prediction.

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