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Account Management Best Practice: How to flatten the impairment curve


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In today’s session we will cover:

• COVID-19 Market Update Tim Collins: Chief Product Officer

• Consumer Insights

• Credit Market Insights Priven Moodley: Head of Consulting

• Account Management Best Practices

• Wrap-up Tim Collins: Chief Product Officer


SPEAKERS’ DETAILS

Priven MoodleyHead of Consulting @: [email protected]

TransUnion Africa linkedin.com/in/privenmoodley

Tim CollinsChief Product Officer @: [email protected]

TransUnion Africa linkedin.com/in/timcollins7/

mailto:[email protected]

mailto:[email protected]


COVID-19 is the number one threat globally


South Africa Cumulative COVID-19 Confirmed Cases

# of confirmed cases

Mar, 5th

First SA case

confirmed

March, 23rd

National

shutdown

announced

April, 23rd

President

announces

phased opening

of economy

March 5th

First case confirmed

in SA by Minister of

Health Zweli Mkhize

March 15th

President Cyril Ramaphosa

announced his initial set of

measures to stem the

COVID-19 pandemic

March 23rd

President Cyril

Ramaphosa announced

21 day lockdown

March 22nd

SBSA1 announced payment

holidays for select business

customers & student debt relief

17 202

1,6552,173

3,300

4,793

+7000

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

Mar.25 Apr.20Mar.05 Mar.12 Mar.20 Apr.01 Apr.05 Apr.12 Apr.27 May.03

1

+310%

March 29th & 30th

SBSA, ABSA, FNB announced

direct relief via payment holidays

for customer, business &

corporates clients (rules vary)

1 – Nedbank announces that it will support its clients with suitable individual solutions to cash flow challenges

March 27th

Moody’s Investor Services

cuts South Africa’s investment

grade to Ba1

Source: World Health Organization (https://data.humdata.org/dataset/novel-coronavirus-2019-ncov-cases) & Press Searches

April 4th

ZAR breached R19.00/$

mark following downgrade

by rating agencies

April 3rd

Fitch downgraded SA’s

credit rating to BB with

negative outlook

April 6th

SARB announced 2 - 4%

reduction in SA’s GDP &

370k job losses for 2020

Apr, 9th

National

lockdown

extended

April 14th

SARB unexpectedly

cuts Repo rate by 1.0%

from 5.25% to 4.25%

April 20th

Crude oil price

crashes from $18

a barrel to -$38

May 1st

Level 4

regulations with

phased economy

entry begins

SA has taken swift action to flatten the curve, however the impact of

COVID-19 is expected to carry on for a significant period of time

https://data.humdata.org/dataset/novel-coronavirus-2019-ncov-cases


Lemonade is about coming

to terms with the impacts of

COVID-19 and businesses

managing it as part of their

BAU strategies with

softness felt throughout

2020

I am Legend refers to a

worst case scenario likely

worse than ever

experienced where the

repercussions will be

significant and long-lasting

Rocky is an underdog story

that links to SA being in a

tough spot but bouncing

back from this crisis by Q3

2020

• We followed a data driven approach by baselining the trajectory of the Banking, Retail, Telco &

Insurance industries to a pre-COVID-19 world with a view of how macroeconomic and new business

activity would influence these industries

• This led us to three scenarios:

Our data driven analysis indicates three possible scenarios that will

influence the Banking, Retail, Telco & Insurance industry


Macroeconomic

Variables

• GDP: 1%

• Unemployment

rates: ~29.1%

(6.7M people)

• Repo rate stays at

5.25%

• CPI: 4.5%

• Disposable

income: 28%

• GDP: -2%

• Unemployment

rates: ~30% (7M

unemployed)

• Repo rate reduced

5%

• CPI: 5%

• Disposable income:

20%

• GDP: -4%

• Unemployment

rates: ~33% (7.3M

unemployed)

• Repo rate cut to

4.25%

• CPI: 10%


10%

• GDP: -6%

• Unemployment

rates: ~35% (7.7M

unemployed)

• Repo rate slashed to

3.25%

• CPI: 20%


5%

Base-case(Pre-COVID 19)

Rocky Lemonade I am LegendHypothesis

Source: Econometrics, Oxford Economics, SARB, StatsSA, World Bank & International Labour Organisation

To analyse the impact of COVID-19, we developed scenarios based on

historical trends, macro indicators & projections of new business activity


Businesses should be thinking of their response to the

COVID-19 pandemic in three phases

H2 2020

Phase 2:

Prioritise post-COVID

robustness

Now

Phase 1:

Getting organised

and mitigating the

downside

2021 Onwards

Phase 3:

Out the blocks first,

fast recovery




H2 2020

Phase 2:


robustness

Now

Phase 1:

Getting organised

and mitigating the

downside

2021 Onwards

Phase 3:


fast recovery

Monitor monitor monitor:

• Implement extensive monitoring on your

base for changes in behavior e.g. Income

reduction, Payment Holidays

• Partner with external entities to

understand overall market and close gaps

in your existing information e.g. Payment

Holiday data

Educate your customers:

• Keep customers informed about the

current circumstances to improve

financial health and loyalty e.g. impact on

Credit Report, Payment Holidays, Credit

Life Insurance, Payment Arrangements,

Debt Counselling

Manage & Collect

Case Study: Lenders that help

consumers self monitor are seeing

improvements in loyalty (~40%) and

overall credit health (~10%) pre

crisis




H2 2020

Phase 2:


robustness

Now

Phase 1:

Getting organised

and mitigating the

downside

2021 Onwards

Phase 3:


fast recovery

Know your customer…..again

• Existing segmentation models may longer

hold therefore relook at these using

additional data points. (e.g. Essential

Services Worker)

• Be prepared to counter aggressive “first

movers” that will target your base,

continue limit increases and x-sell / upsell

for good customers / businesses

Flatten the impairment curve

• Monitor transactor versus revolver

behaviour for early distress and revise

pre-delinquency and early stage

strategies using trended balance and

payment information

• Allow customers to pay digitally to

mitigate social distancing concerns

Manage & Collect

Case Study: Local lender leveraged

balance, utilisation, shopping habits,

wallet share, comm channel, loyalty

data etc. to creating unique

marketing strategies for each cluster




H2 2020

Phase 2:


robustness

Now

Phase 1:

Getting organised

and mitigating the

downside

2021 Onwards

Phase 3:


fast recovery

Get a bigger crystal ball

• Existing forecasting processes are largely

dependent on internal data, important to

start leveraging external sources to get an

outside view of your portfolio

Pick your battles…

• Complete a pre-assessment utilising

additional external data sources to

determine payment potential, payment

propensities etc. to better focus your

collections efforts

• Be sensitive to collections on consumers

directly impacted by the virus as this

could negatively impact brand

Manage & Collect

Case Study: Local lender was able

to double average product per

customer over 3 years using

shopping behavior to identify next

best product offer


• What financial impact are we starting to see on South African consumers coming out of level 5 lockdown?

• SME’s are some of the worst hit businesses, how will this impact individuals?

• How sensitive to distress is the South African consumer right now and what impact could that have on their

credit portfolio?

• How can we help customers manage their credit lines better to mitigate risk?

• How do I protect wallet share from competitors?

• What precedence do we have from other crisis's that can help us better predict consumer behavior?

• What immediate actions should we put in place to mitigate these risks?

Given these potential scenarios, it is vital that we try and understand

how customer behavior may change


InsightsInsights


Only 45% of

consumers

have reached

out to lenders

to discuss

payment

options

81% of Consumers

being negatively

impacted

31% of Consumers

have had their work

hours reduced

88% of Consumers are

concerned about paying

their current bills

10% of Consumers

have lost their jobs

Consumers feel they will

be R7,065.8 short on

their bills

Consumers expect to not be

able to service their obligations

within the next 4 weeks

1 in 2 consumers are not actively approaching lenders to overcome

the financial burden they are feeling

Source: TransUnion Consumer Financial Hardship Study


37%

25%

37%

46%

19%

20%

34%

8%

15%

15%

7%

25%

Utilities

Personal loan

Cell phone bill

Rent payment

Credit card

Insurance

Account with retail/clothing store

Bond/home loans payment

Car payment

Medical bill(s)

Other

Student loan

45%

39%

37%

47%

29%

36%

36%

13%

26%

22%

3%

10%

Utilities

Personal loan

Cell phone bill

Rent payment

Credit card

Insurance



Car payment

Medical bill(s)

Other

Student loan

55%

47%

43%

42%

37%

30%

29%

21%

19%

18%

9%

5%

Utilities

Personal loan

Cell phone bill

Rent payment

Credit card

Insurance



Car payment

Medical bill(s)

Other

Student loan

56%

29%

38%

33%

31%

48%

13%

15%

8%

35%

15%

4%

Utilities

Personal loan

Cell phone bill

Rent payment

Credit card

Insurance



Car payment

Medical bill(s)

Other

Student loan

Generation Z

Generation X

Millennials

Baby Boomers

Consumers are prioritising utility services over financial services

obligations during COVID-19

Source: TransUnion Consumer Financial Hardship Study


• Most consumers are feeling the financial burden of reduced economic activity and increased social

distancing

• They are not forthcoming with their distress to lenders to mitigate

• Utility services are very high on the list of concerning impending payments due by consumers

• Financial services obligations rank lower with their concerns across all age groups

Now lets try to identify why pro-active insights and understanding of the credit active population is

important

So what does this tell us about consumer sentiment during

the COVID-19 crisis?


R2,300

R3,700

2015 2020

R550

R860

2015 2020

Cost of acquiring new customer Marginal cost of cross selling an existing

customer

5-year CAGR = 11.3%

5-year CAGR = 12.2%

It is still cheaper to service an existing customer through product

offers than to onboard a new customer with volatile expected risk


Established CustomerNew Customer

Tenure

Pro

fita

bil

ity

Low profitability

as upfront cost of

acquisition is

clawed back

Product utilisation

is adopted and

profit margin turns

positive

Portfolio risk starts

to mature with

impairments

absorbed into profit

Product maturity

requires further

product penetration to

maintain profit

margins

Through the Cycle Customer Profitability

Positive margin funds growth and

expansion

Losing a good, loyal customer always hurts your business model

more than losing a prospective lead


Established CustomerNew Customer

Tenure

Pro

fita

bil

ity

Downturn Cycle Customer Profitability

Reduction in average

margin per consumer

TTC Profit Curve

Downturn Profit Curve

This is exacerbated even further now that consumers are under

distress because of the COVID-19 crisis


Credit consumers were already under significant distress going into

the crisis

Source: TransUnion consumer credit database

Exis

ting A

ccount

Sco

re D

istr

ibution

TransUnion scorecard risk tiers: PD = probability of consumer defaulting in next 12 months

Subprime 0-615 (PD ~1.7%); Near prime 616-729 (PD~3.1%); Prime 730-821 (PD~6.8%); Prime

plus 822-917 (PD~13.8%); Super prime 918–999 (PD~39.3%)

Risk Distribution of Existing Accounts as of Q4 2019

41%

71%

27%13%

58%

12%

70%78%

0%

20%

40%

60%

80%

100%

Clothing Credit card Banking PL Non-bankingPL

Retailrevolving

Retailinstallment

VAF Home loan

Subprime Near prime Prime Prime plus Super prime


Credit Card consumers are highly leveraged across other

credit facilities

= 1% of customers

Credit Card

consumers

5,371,042 unique consumers

928,604

Consumers with

only a Credit

Card

1,326,627

Consumers with

a Credit Card

and a Mortgage

commitment

3,115,811

Consumers with

a Credit Card

and access to

other

unsecured

credit

83% of consumer have access

to other credit lines to augment

income

25% of consumers have

a mortgage to fulfill

58% have access to

another unsecured credit

line

A consumer granted a payment holiday on a mortgage has

additional capacity to increase unsecured consumption


Consumers that default on Credit Cards carry distress into retail

accounts but maintain a higher portion of other trades

860,236 consumers

defaulted on a

Credit Card

trade line

537,121defaulted on

all other

trade lines as

well

Personal

Loan

Credit

Card

Retail

88.7% of consumers could not maintain a portfolio

including a Personal Loan in satisfactory standing

post the default


with insurance premiums post the default

Telco

Short-term

Insurance


including a Retail account in satisfactory standing

post the default

86.2% of consumers with a portfolio containing a

telco account could not keep subscriptions

current

Consumers that moved into default from Dec

2019 till Mar 2020


Personal Loan consumers are highly leveraged across

other credit lines

= 1% of customers

Personal Loan

consumers

8,125,811unique consumers

2,698,163

Consumers with

only a Personal

Loan

854,710

Consumers with

a Personal

Loan and a

Mortgage

commitment

4,572,938

Consumers with

a Personal

Loan and

access to other

unsecured

credit



income



56% have access to


line

Increased utilisation on revolving loans places distress on

a consumers existing term loan repayments due to

increased installments required


Consumers that default on a personal loan generally move into

distress across their entire wallet with limited residual credit

2,807,082 consumers

defaulted on a

Personal Loan

trade line

2,234,269defaulted on

all other

trade lines as

well

Credit

Card

Retail


including a Credit Card in satisfactory standing

post the default



Telco

Short-term

Insurance


including a Retail account in satisfactory standing

post the default



current

Personal

Loan


2019 till Mar 2020


Retail credit consumers are highly leveraged across other

credit lines

= 1% of customers

Retail Credit

consumers

12,478,943unique consumers

6,487,316

Consumers with

only Retail

Credit

1,016,970

Consumers with

Retail Credit

and a Mortgage

commitment

3,138,393

Consumers with

Retail Credit

and access to

other

unsecured

credit



income



29% have access to


line

Consumers with open access mortgages and credit cards

have substitution options on retail spend


Retail account defaulters carry a high proportion of stress across

wallet but maintain a high portion of Personal Loan lines

5,085,251 consumers

defaulted on a

Retail Account

trade line

4,079,079defaulted on

all other

trade lines as

well

Personal

Loan

Credit

Card95.4% of consumers could not maintain a portfolio

including a Credit Card in satisfactory standing

post the default



Telco

Short-term

Insurance


including a Personal Loan in satisfactory standing

post the default



current

Retail


2019 till Mar 2020


• The economics of serving both new and existing consumers are getting worse but still in favor of focusing on

your current customer base

• Current risk distributions across unsecured portfolios already carry a high amount of expected default risk

• Consumers that hold these unsecured products are highly leveraged across the credit market

• When consumers fail to satisfy financial commitments on these unsecured portfolios the majority of their

wallet commitments follow into default across credit, insurance and telco accounts

• In these conditions it is vital to ensure a comprehensive view of your customer

What have we discovered about consumer credit behavior

with current access to credit


Regardless of income

segments, consumers that

increase debt levels

showed higher risk of

default

Consumers that self-

activate dormant accounts

in downturns are higher

risk

The use of a revolving

credit facility clearly

differentiates risk segments

as an indicator of a

consumer’s means to

settle financial obligations

Consumers that

consistently pay a higher

amount above minimum

monthly installments are

significantly lower levels of

default risk

2.0%

1.0%

3.8%

2.6%

Near Prime Prime

<$20,000

$20,000-$50,000

$50,000-$100,000

$100,000+

1.0%

0.5%

2.3%

1.0%

Near Prime Prime

Activated through LenderProgram

Self Activated

Transactors Revolvers

1.2%

1.3%

3.4%

3.9%

New loan

Existingloan

Above charts based on information obtained during 2008/2009

recession

0.19%

0.78%

1.84%

AEP ≥ $1,000

$200 ≤ AEP < $500

AEP < $5

Debt Runners Sleepwalkers Revolver Trap Settlement Snub

Previous global downturn events have provided tools to

assist in consumer risk monitoring


SME distress forces owners into savings that on average provides a

3-month buffer before impacting their personal debt

26%

18%

15%

12% 12%

9% 9%

0%

5%

10%

15%

20%

25%

30%

C1 C2 C3 C4 C5 C6 C7

Expecte

d D

efa

ult R

ate

Risk Bands

Population Probability of Default

26%

22%

16%

9%

13%

7% 8%

0%

5%

10%

15%

20%

25%

30%

35%

40%

C1 C2 C3 C4 C5 C6 C7

Expecte

d D

efa

ult R

ate

Risk Bands

Population Probability of Default

Self-Employed Risk Distribution SME Risk Distribution

Considering that these businesses are essentially consumers that trade and borrow through the business, the

correlated default risk of these businesses will filter down into consumer financial distress


SA Credit monitoring

consumers have 37% less

delinquency across all

risk tiers with the

exception of subprime.

SA Credit monitoring

consumers were 10x

more likely to improve

to prime plus or better

risk tiers over time.

Research demonstrates the positive impacts consumer credit

engagement through gamification has on credit health

-7.4%

15.1%

23.1%

0.7% 0.9%2.2%

Prime Prime plus Super prime

Monitoring Not Monitoring

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%


4.7%

43.2%

24.6%

16.0%

10.4%

14.1%

16.6%

30.3%

8.3%

4.4%

2.7%

3.5%

0

1 to 20

21 to 40

41 to 60

61 to 80

81+


More than 35% of SA

credit monitoring

consumers achieved

score improvements of

40 points or more.

Note: Consumers were analyzed over a period of 3 months. Consumers that self-monitored were used to determine the lookalikes

in the non-monitoring population by age, credit basket composition and risk which were then random sampled in these segments

for same volume comparison


ActionsActions


TransUnion Account Management Capability Map

• Bespoke clusters

• 360 view – Debt, Income

Payments & Wallet share

• Portfolio Analytics & Benchmarking

• Marketing uptake propensity

• Risk of default

• Pay date prediction

Maintain a loyal, highly engaged customer that portrays loyalty to you across their entire wallet

GrowCross / Up-sell best customers

ManagePrevent & Mitigate losses

RetainKeep the good, manage the bad

Understand your

customerOffer value for money Right offer, Right time

Differentiated E2E

Customer Experience

Analytics &

Segmentation

Customer management

Strategies

Collections

ManagementOptimized Engagement

TU Customer

Management

Solution

Requirements

Strategies

Objective

• Limit management

• Market activity

• Fraud authentication, detection &

prevention

• Payment profile

& affordability changes

• Behavioral Variables & Scoring

• Pre-delinquency

• Consumer Education

• Early / Late stage

• Post Write-off

• Contactability Updates

• Omni-channel

• Gamification

• Selection & Pre-qualification

• Call centre capacity

• Document collection


More frequent portfolio reviews and views of external credit profiles can help

lenders take action sooner

Upfront

segmentation to

identify appropriate

treatment

Consumer starts building

up unsecured credit in

market

Consumer portrays

negative behavior

attributes

Consumer shows

reduced disposable

income

Remove from positive

campaigns

Credit limit decrease

Internal

impairment risk

mitigated

Gamify decisions

through self-monitoring

Consumer credit

portfolio

stabilised

Consumer

Market Attributes

Lender Actions

Identify timely positive and

negative customer changes -

including those off your books

- to understand the impact and

improve treatment strategies.

Mar 20 Apr 20 May 20 Jun 20 Jul 20

960

910

870 870


• Increase customer communication and updates to allow them to reach out and provide a channel to identify

early distress

• Identify and treat consumers appropriately whom are merely distracted vs. those whom are truly struggling

• Increased the frequency of customer insights and analysis as conditions and circumstances change

drastically when in distress

• Understand a consumers total wallet and behavior as “off-book” behaviors severely influence your exposure

• Find the appropriate segmentation tools across a portfolio prior to strategic action. i.e. income does not

always segment and predict risk and profit

• Not all consumers are high risk in a downturn, there is still room and demand for credit growth. It is

important to be targeted and intentional with these segments of consumers once they are identified

Account management is a cyclical process which is constantly

evolving…yet there are some essential practices to adopt right now


Next-Up

• This is one in a series of webinars that we will be hosting around responses to the COVID-19 crisis – details to be

distributed via email and posted on our website

• Further Industry specific and client specific analyses are currently being prepared for the next iteration of the playbook and

will be announced in due course

• Today’s insights study and links to this webinar will be emailed out shortly and will also be available on our website:

https://www.transunion.co.za/insights-events

• For further information on this insights study, requests for specific analyses or more information on our solutions and

insights, please reach out to our team via email [email protected]

https://www.transunion.co.za/insights-events

account management best practice: how to flatten the … · cross / up-sell best customers manage...

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