Stand Out from the Crowd with Simple Default Analytics

How to Use Default Analytics as Your Critical Differentiator

Default analytics can be your most important tool (or skill-set). As job loss remains high and forbearance and unemployment stimulus programs end, many borrowers are facing considerable financial stress.

Accordingly, financial institutions have proactively increased loan loss reserves, reduced exposure in open-to-buy, and are re-prioritizing their focus on default operations in preparation for increased credit losses.

Today, default leaders are trying to leverage a modernized set of analytics tools to improve the precision around customer treatment, contact strategies, and account-specific offers.

Rather than recreate the wheel, here is a practical approach to turning analytics into your critical differentiator.

Use Pre-Delinquency Account Risk for Increased Predictability

Action 1: Identify Sample Delinquency Accounts

How to do it

  1. Identify all of the accounts within your current 30-day delinquency portfolio for which you also have the customer direct deposit account (DDA).
  2. For each customer, look back over the last 13 months of data and, starting with the first month, calculate a baseline of debits, credits, and a net positive roll rate.
  3. Compare each subsequent month’s debit and credit information to the baseline and try to detect the change in financial circumstance that is the likely cause for the customer’s journey to delinquency.

Action 2: Classify the Risk Attributes Within the Data

How to do it

  1. At a very basic level, begin measuring the breadth of the events identified above relative to the net positive roll rate and their time to delinquency.
    • These simple pieces of information can help characterize the risk an account will roll into delinquency based on a given type of event. Think: loss of income, increase in expense and increased deposits, as well as an expected time to reach delinquency.

Offer Options to Avoid Delinquency

“Pre-delinquency options help customers maintain financial footing and mitigates larger losses down the line.”

Based on the customer information you’ve assembled, restructure digital experiences and non-digital interactions to provide potential programs and/or assistance. Offering options pre-delinquency helps customers maintain financial footing and mitigates larger losses down the line – while fostering a level of trust.

Action: Create Different Post-Delinquency Paths

How to do it

  1. Realistic Plans for All – If pre-delinquency activities aren’t enough to stop the roll into early stage collection, be aggressive in offering realistic plans that serve both the customer and the bank.
    1. Banks may want to route some accounts faster to settlement if probability of repayment is low.
    2. Other customers may have more flexibility; in which case they should be routed to work with the collections team or presented multiple offers in the digital space.
  2. Analytics considerations to determine the best path post delinquency:

Offer and Treatment Information

  1. Specific offer performance by type (fulfilled %, broken %, broken reason, interval until broken)
  2. Specific treatment performance by type

Detailed Cure and Payment Performance Information

  1. Portfolio performance for accounts without treatment
  2. Portfolio performance for accounts with treatment
  3. Average cure rate by interval
  4. Average straight through flow without cure
  5. Average full flow with treatment

Start the Customer Dialogue

Action 1: Digitally Engage Immediately

How to do it

Right now, customers want to receive information on any benefits, programs, or updates about their financial health.

Reach out to the customers with an identified risk and provide a clickable link for access to the offers, programs, and services available to them. Be prepared to share content that is relevant to their circumstance and make it easy to engage in a “digital conversion.”

Action 2: Determine Engagement Behaviors

How to do it

If digital doesn’t work, examine the population’s digital engagement actions to understand channel preference and usage.

Obtain and analyze channel usage data to create an effective contact strategy and reduce time wasted on missed contacts. Bridgeforce recently shared ways to “use the analytics you have” for customer channels to improve contact accessibility.

How to Reduce Workload with Default Analytics

Using deposit data to detect pre-delinquency accounts and determine best paths forward can lead to a reduced workload for default departments.

However, transforming raw data into usable data can take significant time, so you will want to start early. The business, IT, and data science teams will need to work together in order to execute successfully and we know how hard this can be.

Accessing your default analytics can be both resource- and time-intensive. 

Here’s the best way to get started:

  1. Define a clear business outcome
  2. Build the team internally or with external assistance
  3. Determine the right data scope and context
    1. For default initially, examine only customers with both the at-risk credit account and a deposit account
    2. To test the process, the team should start with unsecured and revolving credit products
  4. Collect and analyze the data
  5. Make adjustments to raw data pulls and analysis as necessary

Start Differentiating with Default Analytics Today

We know it is a lot, because we’ve completed this work from start to finish with our clients.

Bridgeforce has the experience and expertise to rapidly convert your data into your greatest differentiator. Through Data Solutions and our Consulting team, we have analyzed hundreds of millions of accounts. Reach out to discuss how your business can use analytics to prepare for increased delinquency and loss volumes.

[Editor’s note: this article was written by Michael Orefice, former IT Director at Bridgeforce]

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