American consumers have evolved – as shown by their attitudes, behaviors and even changing credit performance. A Forbes article detailing trends that will shape consumer behavior noted a cultural shift toward all aspects of rich and full lives, citing: escape, mindfulness, and super–personalization as major trends, among others.1 People who have grown up in a digital world are demanding more from every type of experience, with greater value placed on transparency and authenticity. Perhaps you have witnessed this shift in your book of business as well.
The changing demands of consumers are partially due to Millennials, one of the largest and most influential generations in history. Approximately 80 million Millennials holding $200 billion in buying power are entering their peak spending years.2 This is happening alongside well-managed balance growth and low levels of delinquency—further support that the U.S. economy has recovered.
Together, evolving consumer behaviors and the improved economy have created new opportunities. Backed by strong economic fundamentals, consumer credit performance has been steadily improving within certain lending products such as Mortgage and HELOCs. Concurrently, subprime auto lending has caught up to its pent–up demand and account volumes have doubled in the last six years. There have also been 13 consecutive quarters of double–digit, year over year declines in mortgage delinquencies3; do you know how that impacts your portfolio?
It is important to consider whether your current non–prime customers are behaving better than they were five years ago. A sampling of the TransUnion depersonalized credit database studied over 10 years revealed that more consumers are moving upward to better risk profiles. Credit risk score distribution, as shown here, details the growth of near prime, prime and super prime risk tiers to levels equivalent or higher than those in 2006. The subprime tier has decreased to levels lower than 10 years ago, showing that more consumers are managing credit better than they have in the past.
The new financial and credit environment requires adapting to changes in the market with a more competitive portfolio management strategy. Overall, the economy continues to grow and consumers are gaining access to credit, but according to TransUnion data, there were over 11 million new collections accounts reported in Q3 of 2015. Although some customers are improving their credit profile, there are many at risk—identifying the difference between the two within your portfolio requires a proactive approach. Regular portfolio reviews can help identify customers exhibiting riskier behavior, in order to more actively manage loan losses.
Portfolio performance, including both profitability and loss rates, directly correlates with how well you identify, anticipate and manage fluctuations. With regular account insights, you can make better–informed decisions about any further action you may need to initiate in your portfolio.
- Barkworth, Hazel. “Six Trends That Will Shape Consumer Behavior This Year” Forbes. February 4, 2014.
- Fromm, Jeff. Garton, Christie. “Marketing to Millennials” 2013.
- TransUnion’s Q3 2015 Industry Insights Report.