Integrating the Consumer Perspective Drives Smarter Decisions

Consumers’ credit behavior is an ever-changing dynamic that is critical for lenders to understand for portfolio management and prudent growth. Today, more consumers have access and are using credit. In a strong economic environment, lenders benefit from the growth tide, but at the same time are faced with changing consumer needs and behaviors in an increasingly competitive market.

Helping lenders improve marketing, origination and servicing strategies by integrating the consumer perspective was the focus of this year’s TransUnion Financial Services Smarter Decisions Summit.

Attended by nearly 300 senior-level financial services executives from around the world, the invite-only Summit highlighted opportunities for lenders to meet changing consumer choices, preferences and behavior. This year’s event was the culmination of months of research, and it was truly our pleasure to present new findings, and debunk and prove hypotheses to our clients, while engaging in thought-provoking topics, which are sure to spur new research studies.

An evolving consumer credit mindset

Our new report about consumer payment hierarchy found that when faced with the choice of which debts to pay and which to miss, consumers tend to prioritize unsecured personal loans ahead of other credit products like auto loans, mortgages and credit cards.

This represents a significant change in traditional payment hierarchy. Since at least 2004, consumers with an auto loan, credit card and mortgage have prioritized their auto payments. With the exception of the economic downturn period, mortgages have traditionally been the second payment made, followed by credit cards.

With the growth in personal loans over the past five years, consumer behavior has shifted for those who have this loan type. Consumers facing liquidity constraints choose to pay their unsecured personal loan, auto loans, mortgages and credit cards—in that order.

We found lenders need to constantly refine their customer mindset models to adjust for the dynamic consumer decision process that changes over time and in relation to their specific circumstances.

Opportunities for lenders to align with consumer needs

During the Summit, we shared other research into consumer behavior, and attendees learned about opportunities to meet today’s consumer credit needs:

• Millennials: Understanding the ways this generational demographic differs from their predecessors along key dimensions of credit participation, preferences, growth and performance will help lenders engage and serve them differently and more effectively.
• Auto financing: Understanding a consumer’s preference for a loan versus a lease can help auto lenders incorporate these insights into serving a customer’s next purchase and financing need.
• Distracted consumers: Card issuers struggle to distinguish between a distracted versus a struggling consumer payment pattern at the time of first missed payment. Identifying these types of consumers and their payment behavior would allow them to prioritize collections and create a more satisfying customer experience.
• HELOCs: As home values rise, more people are now eligible for HELOCs. Traditional banks and credit unions can restart their marketing efforts to reach this valuable segment of consumers who have gained equity in their existing homes and are more likely to respond to a HELOC offer.
• Mortgage: While refinance originations are lagging in the rising interest rate environment, there continues to be a large number of consumers buying their first home. Trended credit data and scores allow mortgage lenders to measure risk more effectively and even identify these first-time homebuyers before they enter the mortgage market.
• New-to-credit: There are millions of consumers who enter the credit market every month and receive their first score. Lack of adequate credit history to qualify for credit continues to be a challenge for lenders to assess risk within this segment. At the same time, these consumers are at the beginning of their credit lifecycle and may represent profitable growth opportunities for lenders with the use of alternative data.
• Product substitution: Consumers have been substituting personal loans for credit cards, primarily to gain a lower APR or monthly payment and/or higher access to credit. Understanding how to defend your base when consumers substitute their existing balances for a different product is a crucial consideration. And, growing your base by attracting consumers who are likely to substitute is an important growth tactic.

An evolving credit landscape creates opportunities for fast-moving lenders

To give lenders access to our analytical tools and depersonalized data sets, we also announced new modules in TransUnion’s Prama^sm analytics platform. Prama Benchmarking and Data Extract modules are the latest additions to the Prama environment, which already includes Market Insights, Vintage Analysis and Attribute Manager.

The latest Prama modules give our customers a significant advantage—the ability to gain deeper insights into their own portfolios while comparing their books of business to peers at speeds that keep pace with market dynamics.

Prama Benchmarking provides advanced data analytics and visualization capabilities specific to the auto loan, credit card, mortgage and personal loan markets, to deliver relevant insights for each line of business.

Lenders will now be able to measure their performance across numerous metrics and filters, and compare it to the industry and to their peers. This information can be used to improve how financial services companies segment, target, acquire, cross-sell and retain customers.

The Data Extract module provides self-service access to to query against TransUnion depersonalized, archive credit data, allowing customers to receive faster delivery of data to support their own analytics—in their own environment and with their preferred tools.

In addition to these industry insights, it was also our pleasure to have John Silvia, Chief Economist at Wells Fargo Securities, open the event with context on the fundamental factors of economic performance and growth.

We would also like to thank Mitch Lowe, Co-Founder of Netflix and CEO of MoviePass; Deepanjan De, Financial Services industry lead at Facebook; Jason Dorsey, Co-Founder and Chief Strategy Officer at The Center for Generational Kinetics; and Serge Vartanov, Chief Marketing Officer at AutoGravity, for their analysis on harnessing consumer perspectives to help drive success in the consumer lending industry.

If you missed the event, access the recent on-demand webinar recording of TransUnion’s Q1 2017 Industry Insights for more observations from our research team.

For more information about research presented at the Financial Services Summit, fill out the form below to contact me or reach out to your business partners at TransUnion.