As we enter the latter stages of the pandemic, many countries are experiencing a two-lane economy. Some individuals currently have more cash than they had when the pandemic started—and now they’re ready to spend. Yet, for a significant portion, the financial fallout from 2020 is still rippling across their lives.
According to Experian’s eBook released today: Navigating a New Era of Credit Risk Decisioning, one out of three consumers remain concerned about their finances. However, the research also found that consumers are no longer reducing their discretionary spending as much as they were six months ago, with high-income houses starting to spend the most.
It is increasingly important for lenders to understand individual customers and segments to make the most relevant decisions and offers during this unprecedented time. The report identifies three things lenders need to do to navigate the complexity of the current lending and credit landscape:
1. Leverage data and advanced analytics – to create a comprehensive understanding of the risk and opportunity of their portfolio as well as visibility into changes to customer profiles.
2. Proactively engage customers – offer new credit and other products to support those that are recovered and ready to engage.
3. Prepare for a potential wave of delinquency - as payment holidays come to an end, lenders should make it easy for customers that are still struggling. Lenders must offer online support and flexible terms that help customers solve their problems.
“Consumers experienced the financial impacts of the pandemic differently, depending on their sector of employment and income level and this has led to starkly different credit needs,” said Donna DePasquale, Executive Vice President of Global Decisioning at Experian. “Lenders need to understand now more than ever who their customers are and provide them with the right solutions at the right time.”
The report also takes a deep look into the role that data, analytics and advanced decisioning play in today’s digital-first world. The data inputs generated by the pandemic have impacted credit risk models and machine learning applications in unexpected ways, in some cases due to widespread payment holidays and government assistance. The study reveals that business confidence in their current credit risk and management analytics models—from businesses of all sizes—dropped from 71% to 61% in six months. This is driving nearly half of businesses to dedicate resources to enhance their analytics. Investments in analytics, such as machine learning solutions, enable companies to utilize non-traditional data sets quickly, explain what the data is revealing, and test new credit risk and forecasting models.
“Forward-looking companies will need to go beyond traditional data sources and leverage expanded data in order to anticipate the credit needs of their customers while using tools to automate the process and reduce the risk,” added DePasquale. “The future of credit risk decisioning means requesting less of your customers without sacrificing relevant, safe and convenient experiences.”
Experian surveyed nearly 9,000 consumers and 2,700 businesses from around the globe to learn more about how they’re stabilizing their finances and returning to growth. Navigating a New Era of Credit Risk Decisioning can be downloaded here.
Experian is the world’s leading global information services company. During life’s big moments — from buying a home or a car to sending a child to college to growing a business by connecting with new customers — we empower consumers and our clients to manage their data with confidence. We help individuals to take financial control and access financial services, businesses to make smarter decisions and thrive, lenders to lend more responsibly, and organizations to prevent identity fraud and crime.
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