the missing link to collections success: creating a … · healthcare, retail, telco – etc. •...

THE MISSING LINK TO COLLECTIONS SUCCESS: CREATING A 360 DEGREE VIEW OF YOUR

CUSTOMER’S WALLET

Presented By

Hugh Lloyd-ThomasGroup Vice President, Consumer Credit

November 3, 2011

2Confidential • © 2011 IXI Corporation • All Rights Reserved

Agenda

•

Current collections environment

•

360o View of the Customer

•

Differentiated Data–

Household wealth / assets –

Income–

Discretionary Spending Capacity–

Ability to Pay

•

Enhanced decisioning examples

•

Appendix–IXI Overview and Solutions


Volatile Collections/Recovery Environment

•

Unemployment

•

No safety net

•

“First time defaulters”

•

“Strategic Defaulters”

•

Bankruptcies

•

Payment priorities

•

Negotiators vs. collectors

Who Can Pay? When Can they Pay? Employment, Income, Asset/Wealth, Ability to Pay


Identifying a Households “Ability to Pay”

Capacity(Ability to Pay)

Character(Credit Reputation)Collateral

(Illiquid Assets)

Character,

Capacity and Collateral the “Three Cs" of risk

Consideration of a household’s ability to pay is fundamental in predicting payment behavior

Identify additional solutions e.g., Income , Discretionary Spending Capacity, Assets to supplement, complement and enhance existing data and tools

Understanding financial capacity in conjunction with other components of the Three C’s

enables a holistic, multidimensional view of a household’s financial profile


A Richer Understanding of the Consumers Financial Spectrum


Ingredients for a 360o view for based on the Full Financial Wallet

Assets and Investment

Style

Income

Spending

Credit

Demographics, Behaviors,

and Attitudes


Combine Market and Household Insights

Assets Income

Spending

CreditDemo-

graphicsAttitudes & Behaviors


Additional Market Intelligence and Insights

•

Adjust treatment strategies based on risk profile

•

Adjust strategies based on financial shifts:

•

Leverage 1, 3, and 5 year trends


Differentiate “Homogenous” Households

What You May Already Know

What You May Already What You May Already KnowKnow

What You Really Need to know

What You Really Need What You Really Need to knowto know

•

Assets @ Firm: $150K•

Income $100K-$125 +K•

Own Home•

Age 35-54•

Has Children

•

Assets @ Firm: $150K•

Income $100K-$125 +K•

Own Home•

Age 35-54•

Has Children

•

Assets @ Firm : $125K•

Income $100K-$125K•

Own Home•

Age 35-54•

Has Children

•

Assets @ Firm : $125K•

Income $100K-$125K•

Own Home•

Age 35-54•

Has Children

•

Total Assets: $950K•

Income $205,398•

High discretionary spending capacity

•

Low likelihood of default•

Credit active investor

•


Income $205,398•

High discretionary spending capacity

•

Low likelihood of default•

Credit active investor

•


Income $85,391•

Low discretionary spending capacity

•

Credit dependent

•


Income $85,391•

Low discretionary spending capacity

•

Credit dependent

10Confidential • © 2010 IXI Corporation • All Rights Reserved11/9/201110

Delinquent Consumer

PrioritizeSegmentation &

Strategy

MonitorMaximize Resources

LocateRight-Party Contact

Additional Differentiated Data & Analytics

Examples

•Wealth, Assets, & Income

•Ability to Pay & discretionary Spending Capacity and behaviors

•Verified Income and Employment data

•Employment Verification Services

•4506T (tax Return) data

•Credit Based scores, models and analytics services


Balance sheet view of the consumer

•

Credit data –

liabilities–

Performance on past and current obligations–

Derogatory information–

Public record–

Propensity to pay

•

Actual & Modeled income, spending and asset data

–

Early warning on likelihood to cure–

Ability to Pay•

Who’s likely to have means to pay?•

Who is likely to be totally tapped out?


Where could you use some help? •

Any portfolio . . . –

Mortgage, bankcard, auto deficiency–

Healthcare, retail, telco–

etc.•

Any stage of delinquency

. . .–

Collections–

Charge-off–

Recovery•

All solution components . . . –

Unique data ( ATP, DSI, Income 360)–

Unique custom solutions –

models, strategy engines–

Unique tools (Wallet Insight)


Predicting delinquency

Mortgage Portfolio, 2010

The “Ability to Pay”

consistently provides meaningful insight into delinquencies

Delinquency rate increases as ATP decreases

This lowest ATP band yields an almost 1 in 2 default rate

Similar predictability observed on this CC

portfolio

Credit Card Portfolio, 2011


Input Data ClassificationSupplement, complement and enhance - Combined Score Lift Example

19% lift in optimized score’s predictive capability

Accounting for 49% of the total collected amount


Understand Your Customers’ Ability To Pay

45-50 % increase in

$’s collected

Adding over $5 million to the

bottom line


Increasing collection success

Healthcare Portfolio, 2010

Differentiate between payers and non-payers. In this case, success was defined by % of payers, but similar analysis can be made of $ collected, payment

within a given time frame, payment amounts, etc


Owner Occupied (60+DPD) – ATP & FICO

60+DPDATP Decile < 559 560‐579 580‐599 600‐619 620‐639 640‐659 660‐679 680‐699 700‐719 720‐739 740‐759 760‐779 780‐799 800+ Total

<=200 47.4% 31.0% 23.7% 14.9% 11.1% 7.8% 6.3% 5.2% 4.4% 5.4% 3.9% 3.4% 1.8% 2.8%24.3%<=317 48.5% 31.4% 25.9% 18.4% 12.0% 8.3% 6.0% 5.2% 4.4% 5.2% 3.9% 2.6% 2.1% 3.1%23.4%<=416 47.7% 31.7% 28.1% 19.6% 12.7% 8.9% 5.9% 5.2% 3.7% 3.9% 2.0% 2.7% 2.7% 0.8%22.0%<=498 48.0% 32.9% 25.8% 20.3% 14.4% 7.6% 4.7% 4.1% 4.5% 3.3% 3.6% 2.7% 1.9% 0.7%20.9%<=571 47.3% 33.0% 25.4% 19.8% 13.4% 8.3% 5.8% 4.3% 3.9% 2.9% 2.2% 2.3% 1.6% 0.9%19.5%<=641 46.4% 30.4% 22.9% 18.3% 12.8% 8.2% 5.1% 3.7% 3.3% 3.1% 2.2% 2.2% 1.2% 1.5%17.5%<=713 44.6% 29.4% 22.8% 18.4% 13.0% 8.1% 5.4% 3.8% 2.6% 2.8% 1.6% 1.6% 2.0% 0.6%15.6%<=791 43.6% 29.5% 20.0% 14.8% 10.0% 7.5% 4.8% 3.0% 2.3% 1.8% 1.9% 1.4% 0.8% 0.3%12.9%<=883 43.2% 28.1% 22.5% 14.4% 9.7% 6.1% 4.0% 2.5% 2.5% 2.3% 1.4% 1.1% 0.8% 0.9%10.6%>883 39.6% 26.0% 15.4% 11.7% 8.6% 4.6% 3.1% 2.8% 1.9% 1.4% 1.3% 0.8% 0.6% 0.7%6.3%Total 46.5% 30.8% 23.8% 17.4% 11.9% 7.6% 5.1% 3.8% 3.1% 2.9% 2.2% 1.8% 1.3% 0.9% 17.3%

FICO Bands

For any given FICO band, the higher the Ability to Pay score the less likely a loan is to go 60+DPD

IXI enables differentiation among loans with similar

traditional risk profiles

Even though these loans are in different FICO bands their performance is very similar


Understanding Risk - Some ‘bads’ are better than ‘goods’!

Greatest Ability to PayLeast Ability to Pay

Mortgage Portfolio, 2010Estimated Current CLTV = Total Outstanding Real-estate Secured Debt / Most Recent Home Value

Negative Equity: Borrowers with the lowest ATP are 4x more likely to go 60+ DPD than highest ATP

> 42% Equity: Borrowers with the lowest ATP are 17x more likely to go 60+ DPD than highest ATP

You can differentiate between good accounts with –ve equity and bad accounts with +ve equity


How to improve decisioning?

Loan amount:•Low ATPs = keep mortgages low•High ATPs = don’t modify

Interest rates:•Whatever the ATP band, keep IR below 5.75!

Monthly payments:•Low ATP = keep payments low•High ATP= no need to modify

Key•20-29% bad•30-39% bad•40%+


Differentiated Income, Asset, Ability to Pay and Spending Capacity Data is Relevant for All Phases of the Account Lifecycle

AccountAcquisition

AccountOrigination

PortfolioLifecycle

Management

CollectionStrategies

Income Income Income AssetsAssetsAssets Debt Analysis

Debt Debt Analysis Analysis

Financial Capacity Measures (Scores)

Financial Capacity Financial Capacity Measures (Scores)Measures (Scores)ObligationsObligationsObligations

Apply data to multiple credit products including but not limited to Mortgage, HELOC, Credit Card, Consumer Finance, Auto

Financing , Small Business

Apply data to multiple credit products including but not limited to Mortgage, HELOC, Credit Card, Consumer Finance, Auto

Financing , Small Business


Conclusion

•

Simple to understand•

Unique perspective

•

Stand-alone solutions •

Combine with other models/strategies

•

Can use:•

to predict defaulters, rollers•

identify payers & amount paid•

to improve contact, modification and treatments decisions

•

Simple to implement


Thank you

If you would like more information regarding IXI products and solutions, please contact:

Hugh Lloyd-ThomasGroup Vice President, Consumer CreditOffice: 703.761.0403 |

Mobile: 917.716.5973Email: [email protected]

mailto:[email protected]


APPENDIX


About IXI


The Foundation of IXI’s Economic Insight

Retail BanksIncluding 8 of Top 10

Retail BanksRetail BanksIncluding 8 of Top 10Including 8 of Top 10 Discount BrokersDiscount BrokersDiscount Brokers Full Service

Brokers Full Service Full Service

Brokers Brokers Mutual Fund GroupsOver 25 Fund GroupsMutual Fund GroupsMutual Fund GroupsOver 25 Fund GroupsOver 25 Fund Groups

Insurance FirmsIncluding Top 15 Annuity

Issuers

Insurance FirmsInsurance FirmsIncluding Top 15 Annuity Including Top 15 Annuity

IssuersIssuers

~$10 Trillion FinancialAssets Database

Pooled Anonymous Asset Data Sourced from IXI Member Network

(Available to Members Only)

~$10 Trillion FinancialAssets Database

Pooled Anonymous Asset Data Sourced from IXI Member Network

(Available to Members Only)

Semi-Annual “Anonymized”

Data Feeds

Direct-Measured™

Retail Consumer Assets Database

Economic Insights

Publicly Available Data Sources are Paired With Factors Derived from IXI’s Proprietary Data Foundation

Access Granted Exclusively to

IXI Net™Member-Firms

•

Cost of Living Factors

•

Home Value & Housing

•

Factored Wealth Scores

•

Cost of Living Factors

•

Home Value & Housing

•

Factored Wealth Scores

•

Urbanization and Density

• Census Data

•

Demographic Data

•

Urbanization and Density

•

Census Data

•

Demographic Data

Members-Only Access


IXI’s Unique data and analytics

“Supplement, complement and enhance existing data, models and scores”ATP, DSI, Income 360

–

CollectionsEarly warning for loss mitigationTargeted strategies, settlement?

–

Charge-offAssignment – internal/externalPrioritization – optimize resources

–

Post charge-offPrioritization (with score, balance)Possible valuation tool for acquisitions


ATP (Ability to Pay) Overview

Composition

•Financial Behavior characteristics

•Socio-geographic characteristics

•Demographics

•Aggregated Credit attributes

What is it?

•Risk measure of HHs capacity to repay financial obligations

Client applications

•Predict payers and various levels of defaulters

•Identify accounts for treatment, modification or decision

•Combine with other calculations for more accurate risk measures


Combining with Credit Score

N= 550K First Mortgages, ~12% non-conforming

For any given credit score band, as ATP increases,the rate of delinquency decreases

Borrowers with the lowest Ability to Pay are 3.06x more

likely to go 60+ DPD





Differentiate between accounts that can’t pay from those that just haven’t


Additive when combined with other models

ATP combines unique data sources, yielding additive lift and improved performance and predictability when combined with client internal and/or 3rd

party data

Credit Card Portfolio, 2010


Income360 (i360)

What?

•A measure of a HH’s income

•Not typical ‘capped income ranges’

•Continuous value up to $2M

Composition

•

Take home pay (salary)

•

Other incomes from assets including capital gains, dividends and interest

Client applications

•Predict loss amounts and improve concessionary offers

•Augment internal risk measures such as DTI

•Often combined with ATP to augment predictability

National Income Distribution


I360 National Perspective - delinquency

•

Higher distribution of severe delinquency in lower incomes

Severe mortgage delinquency is

spread throughout the

income spectrum….

42% of the US have a combined

HH income of less than $75k,

this same income range accounts

for 51% of severe delinquencies


I360 combined with ATP = improved results

2010 Mortgage Portfolio, % going severely DLQ in 12m

When ATP is low, higher income actually indicates higher risk!


Discretionary Spend Index (DSI)

Composition

•Asset Information

•Disposable Income•

Incorporates life-stage, cost of living, age, etc)

•Home Equity

What is it?

•Indexed range of a HH’s

spending capabilities (spendable dollars)

Client applications

•Predict Payers and expected Payment Amounts

•Augment Risk measures


IXI Core Product SuiteInvestment Behavior

•Direct-Measured™: •Foundation of over 42% of U.S. investable assets: ~$10 Trillion•95+ Financial Services Firms

INVESTMENT STYLE

►Investyles®: Direct-

measured assets for modeling

►Investyles Investment Tendency Measures: Identifies investment style and product propensities

►Investyles.com: Online prospecting tool for FAs

MARKET SIZE AND SHARE

►MarketVision™: Assets and/or sales for peer group, market size, and share; versioned for Securities, and Annuities

Total Wallet•Projected:100% of U.S. investable assets: ~$23 Trillion

TOTAL HOUSEHOLD ASSETS

►WealthComplete®: Household level total assets to determine share of wallet

TOTAL MARKET ASSETS

►MarketMix™: Locates wealth; ZIP or block group market estimates and ground counts for total market

TOTAL MARKET ASSETS

►WalletIXInsights™: Tracks assets and credit for target markets and customer segments

Segmentation•Modeled: Uses proprietary IXI and external data

PROFILING, MESSAGING, MEDIA

►Financial Cohorts®: Asset-based segmentation

Economic Cohorts®: Economic-based segmentation

Cohorts®: Demographic and behavioral-based segmentation

Hispanic Cohorts®: Acculturation, demographic, and behavioral-based segmentation

IXI DIGITAL SOLUTIONSFinancially based online targeting

CLIENT DECISION PLATFORMS► Wallet Insights

Fin/Eco Behaviors•Modeled:Uses proprietary IXI Wealth Information and outside data to create high-powered targeting tools

INCOME, SPENDING, CREDIT, ABILITY TO PAY, PREMIUMS

Income360®: Total income measure (from assets & wages)

DSI® and DS$™: Identifies discretionary spending (rank and dollar amount)

CreditStyles®: Differentiates households based on availability and usage of credit

Ability to Pay Index™: Gauges ability to meet financal

obligations

Economic Spectrum™: Groups customers by income and spending


Thank you

If you would like more information regarding IXI products and solutions, please contact:

Hugh Lloyd-ThomasGroup Vice President, Consumer CreditOffice: 703.761.0403 |

Mobile: 917.716.5973Email: [email protected]

mailto:[email protected]

the missing link to collections success: creating a … · healthcare, retail, telco – etc. •...

Documents