Are You Ready for Tomorrow’s Borrower?
May marks one of the calendar highlights for VantageScore. It is the time when we and our partners at SourceMedia get a chance to “go deep” into the subject of consumer credit risk.
It is often the case that this subject attracts scant attention at conferences, so we helped create a half-day symposium where credit card issuers have an opportunity to learn about the many advances our industry has made to assist issuers. These advances increase issuers’ businesses, as a result of sharper portfolio management, and also broaden their customer base without lowering pricing or credit standards.
This year’s “Consumer Credit Summit at Card Forum,” took place on May 7th in Miami. In addition to 11 highly relevant panelists, we also were honored to have two show-stopping keynote addresses.
First, we heard from Oliver Wyman, one of the world’s leading consulting firms. Rob Mau made the provocative assertion that many banks simply aren’t creating enough new value for their clients and that “Big Tech” offers some solutions.
Later that morning, one of the industry’s leading economists, Equifax’s Amy Crews Cutts, delivered a “State of the Consumer” address to inform card issuers about how consumer credit behaviors are evolving and how that evolution can impact default rates.
And of course, our own VantageScore data scientists participated in a number of discussions involving the latest news regarding data suppression within the credit files as well as an interesting chat that separated fact from science fiction when it comes to the use of machine learning and artificial intelligence (AI) in credit decisioning.
All three of the credit reporting companies and LexisNexis shared their thoughts. And we heard from some of the up-and-coming FinTechs that are developing products and services aimed at shaking up the industry. At VantageScore, we don’t just pay lip service to competition; we literally welcome it!
I also gave a brief introduction at the event, and I want to share some of those thoughts here…
The demographic makeup of the United States is changing. Legacy thinking and legacy scoring systems are not going to adequately prepare your business for tomorrow’s borrower. Consider this:
- For the first time in recorded history, children under the age of five no longer outnumber those aged 65 and above.
- According to the Pew Institute, Asia has replaced Latin America (including Mexico) as the biggest source of new immigrants to the United States.
- Despite having massive student loan debt, more than eight-in-ten Millennials say they either currently have enough money to lead the lives they want or they expect to in the future.
- Our own data shows that this generation is flipping the switch. Unlike any prior generation, thinner-file Millennials have equal incomes and more savings and assets as compared to their fuller file counterparts; indicating that they are intentionally avoiding revolving credit card debt. In other words, their lack of credit usage isn’t tied to income. They are choosing to be thin file on purpose, and are thus arguably less risky.
- Minorities are expected to account for more than 75 percent of household growth over the next 10 years.
- According to the Conference Board, the U.S. is likely to experience large variation in consumption growth (i.e., increased economic demand) across states and metropolitan statistical areas as a result of population trends. While consumption in states like Florida, Texas, Arizona and Nevada is expected to grow more than twice as fast as the national average, states like New York and Illinois will see barely any growth at all. Rhode Island and Michigan will actually experience negative consumption growth, according to the study.
Is your business still relying on legacy scoring systems and marketing tactics despite these inevitable changes?
If so, read on! We’ve got a great lineup of articles this month, including a really interesting strategy outlined in a new whitepaper we developed. The strategy is a process of verifying credit scores with a “second pull” that can actually enhance the predictive insight of a lender’s credit decision.
At VantageScore, we are proud to be pushing the envelope in terms of our model and our thought leadership and welcome the competition.