Counterintuitive as it might seem, there's a group of consumers lenders should consider carefully for their profit potential: first-time defaulters.
Over the past two years, 22% of bank-related customers experienced a negative credit situation, and for 11% this was a new experience, according to the results of a survey from the Deloitte Center for Financial Services, part of Deloitte LLP. The survey was conducted in August, sampling 5,142 bank customers. The results were released this week.
This group presents a number of technology challenges for the banks and mortgage firms: How to identify them before they default and how to determine which ones might be profitable in the future.
Scoring technology and consumer data exist to do both, with vendors such as GDS Link LLC and Zoot Enterprises Inc. selling software that helps pull consumer data from numerous sources and helps make credit decisions in real time.
The question is whether banks will actually use it to create new customer models. "Banks are gun-shy once they have a default population. If they dip their toes back in these waters, it is fraught with dangers," said Andy Laing, a senior manager in Deloitte's banking group. Some of "these customers can provide value and a great relationship going forward, and there is a lot of pent-up demand on the consumer side, and [banks] could profit from this," he said.
Typically, banks use information from a limited universe of data sources, such as credit bureaus and FICO scores, to predict customer behavior. But the economic crisis and regulatory focus on risk has put more emphasis on expanding the sources from which banks pull, experts said.
Banks should look to data that casts a wider net to determine other causes for defaults and delinquencies, Laing said. For example, demographic data might reveal that a customer lives in a particularly hard-hit region, such as Florida or Arizona.
