Ted Iacobuzio of TowerGroup gave the closing keynote, expanding on the survey results Fair Isaac announced today. More than 100 of the InterACT attendees took the survey – clearly this is top of mind. Some highlights:
- Lenders appreciate the need for integrated customer information and multi-product decisioning
- Lenders are not all at the same speed in implementation
- Respondents split between thinking that the current situation is a large-scale threat or manageable challenges
- Delinquencies and charge-offs are the short-term fires that need to be put out right now
- Lenders need help implementing universal decisioning to avoid this kind of situation in the future
Ted described the current environment some. Consumer confidence is in a tail spin but consumers are not necessarily spending differently (shown by growth in debit cards outstripping savings), which is a key fact from a lending point of view. Home equity borrowing is falling, as house prices are, reversing a long period in which revolving consumer credit grew slowly and much slower than home equity credit. It looks like receivables are being driven from equity lending to credit cards. Credit card growth has been nearly flat for 6 years but now the market is back at 8% growth and some of this is going to be “toxic” because it parallels the drop in home equity lending. So what to do is a problem.
The study targeted the attendees of InterACT and was designed by TowerGroup. The respondents covered collections, credit risk, different sizes of institutions and different types of institutions from credit card issues to banks etc. Handling fraud management, collections and risk management enterprise-wide is running at about 40% with the rest handling them by product line or functional area. This does not correlate strongly with size – big institutions may feel under more pressure but may not be ahead in this area. Key findings:
- 1 in 3 felt it was a systemic threat or severe challenge
- More than half felt it was a manageable crisis
- Smaller institutions typically less worried, probably because they have less exposure to problems though this may change as things ripple through
- 55% see delinquencies and 49% charge-off as biggest impact in the short term and Tower recommends careful segmentation for treatments
- Most see delinquencies as the top challenge over the next 2 years and Tower recommends focusing on existing customers because they are better understood – maximize profitability of existing portfolio is key.
- Customer Information – 70% think integrated view of customer is important and growing in importance. Tower feels this is critical to growing the profitability of your current portfolio provided you are able to act on this integrated data by automating appropriate decision making.
- As times get worse, Tower says, an integrated customer data view becomes a necessary survival skill but finding the funds necessary to integrate this customer view are harder to come by because of the liquidity crunch.
- Reduced fraud is considered the prime benefit of enterprise fraud management, no surprise, but reducing fraud losses frees up cash that is urgently needed in the current situation so an increased focus on this is useful. More than half have an enterprise fraud solution
- In collections, pre-delinquent calling is widely (60%+) held to be effective as does Tower
- Basel II is seen as increasing the decision complexity for 40% of large institutions, while also increasing costs and driving a need for increased decision consistency.
- 76% of respondents coordinate risk and finance and Tower thinks this is really important and drives the adoption of enterprise decision management
- Optimization is not used enterprise-wide by any except a small percentage of the respondents. Integration across product lines and households will also increase the use of optimization, Tower believes, and 80% of respondents are focused on optimization for credit risk because new techniques are a necessity in the current situation.
- Respondents tended to have a decisioning system per functional area rather than integrated across functions. But, to accomplish the things discussed above, an enterprise-wide approach to decisioning is necessary. Keeping optimization, prospecting, origination and portfolio/customer management siloed is a recipe for problems.
- While most regarded their decisioning systems as currently adequate, they also saw the threat in the future. Tower sees this as good self-awareness.
- 75% plan to improve analytics and thus decisioning in the next 12 months. Analytics have to change as everything is changing about the loyalty and behavior of portfolios.
Conclusions:
- Financial Service Institutions (FSIs) see the need for integrated customer information and multi-product decisioning
- Immediate needs are fixes for delinquencies and charge-offs
- FSIs need help determining long term needs
- FSIs need help with implementation and justification
- All sizes of FSIs have the need but the biggest institutions feel the pain most.
Ted took some questions including one about budgets – clearly FSIs don’t have the budget to fix these problems but they need to find it as they will have to respond, though this may not happen until early next year. Ted also reiterated his surprise at the sharp split between larger and smaller FSIs – they had not expected it but it was very clear. That said, everyone is going to be impacted as the mortgage crisis moves into a more general liquidity crunch.
A cool survey and some interesting results. That’s it from InterACT 2008!
