The Future of Credit Scoring:
ESG, Innovation, and the ABS Investor
ABS Investors: We want competition and transparency from scoring models
FTI Consulting Report Uncovers Investor Sentiment Around Credit Scores, ESG and More
During the second half of 2021, VantageScore commissioned FTI Consulting to conduct a comprehensive primary research study among institutional investors with exposure to securitizations, to gain insights into investor perceptions around the ABS market. Specifically, the research aims to identify areas of opportunity within consumer credit scoring that will allow fixed-income investors to be better served.
FTI conducted in-depth interviews with ABS investment specialists – including investors, issuers and ratings agencies – followed by an independent, quantitative online survey of 333 global institutional investors with ABS exposure who represent a sum aggregate of $47 trillion in assets under management (AUM). This report highlights the key findings, investor sentiment and VantageScore’s potential to empower capital markets participants to make critical decisions without compromising credit integrity.
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Of the many critical insights presented, key findings from the research include:
Investors welcome competition in credit scoring
ABS investors overwhelmingly support competition within credit scoring of ABS, as 93% supported the consideration of competitive models – with a similar level of support from those who focus on ABS and RMBS specifically (91%).
Greater desire for transparency in credit score calculation
58% agree greater transparency around how credit scores are calculated would be helpful as they voiced a general lack of understanding of how scores are calculated.
Investors voice the importance of inclusiveness of ABS models
85% of investors noted the importance of the development of models that are more inclusive and incorporate methodologies that will enable the inclusion of the majority of the underserved communities across the United States
Lack of clarity perceived around ESG definition and measurement around consumer assets
While the majority of investors expect ESG to continue to play an ever-increasingly larger role in the decisioning process, 73% voiced that the ESG measurement and definition is ill-defined for consumer assets.
ESG expected to take on even greater role in investor decisioning
79% claim ESG plays an important role already in investor decisioning, and 76% expect this to increase in the future
Credit cards, student loans and home equity loans are the top three biggest causes of concern for investors
The majority of investors expect credit cards (58%), student loans (56%), and home equity (53%) ABS to present the most risk in the coming five years
This research reflects institutional desire for more transparency, greater predictability and increased focus on ESG - all of which align with VantageScore's capabilities and mission to be the best-in-class, most inclusive score provider in the market.