Isis has had a slew of announcements – about an impending national rollout and further assertion by both Amex and Chase of their intent to continue their partnership. Surprisingly (or not) Capital One has stayed mum about its plans, and neither has Barclays or Discover shown any interest. And much ink has been spilled at how resolute (and isolationist) Isis has been – including here on this blog. So does the launch reflect a maturity in the JV to tackle a national rollout, or is it being forced to show its hands? Wait..I have more questions... What about the missing partner? I have no reason to believe that CapitalOne will continue its relationship with Isis – as I doubt they learnt anything new from the Isis pilot – apart from the excruciatingly difficult orchestration required to balance multiple TSMs, Carriers, Handsets and the Secure Element. Further, there are no new FI launch partners – no BofA, no WellsFargo, no Citi – who each are capable of paying the upfront cost to be on Isis. But, even to those who can afford it – the requisite capital and operating expenditures stemming from a national rollout, should give pause when compared against the lift Isis can provide to incremental revenue via Isis wallet consumers. This is the biggest qualm for Issuers today – that Isis has all the capability to drive distribution and do secure provisioning – but none of the capacity to drive incremental card revenue. And Isis opting to profit from simply delivering merchant offers based on store proximity, with no visibility in to past payment behavior and no transactional marketing capabilities – is hardly different or better than what FourSquare already does for Amex, for example. So why bother? *Updated* There is also a total misalignment of objectives between Isis and its Issuing partners around customer acquisition. Isis charges for provisioning credentials to the wallet regardless of how many transactions that may follow. So Isis has an incentive to push its wallet to everyone with a phone even if that person never completes a contactless transaction. Where as its Issuers have an incentive to get most bang for the buck by targeting the folks most likely to use a smartphone to pay after activation. See a problem? *End Update* How much more runway does Isis have? This is the question that has been around most. How much more capital is Isis’s parents willing to plow in to the JV before they come calling? The rumored quarter a billion pot holds enough to power a national rollout, but is it enough to sustain that momentum post-launch? If those $100 Amazon Gift cards they were handing out in Austin/SLC to boost consumer adoption (a final push just prior to reporting overall usage numbers) were any indication, Isis needs to invest in a smarter go-to-market strategy. It wouldn’t be surprising if Isis had to go back to its parents for mo’ money so that it can continue to run – while standing absolutely still. Who has a recognizable brand – Isis or Amex/Chase? Isis once boasted about buying a billion impressions in their pilot markets across various marketing channels. I shudder to see the ROI on that ad spend – especially when all the Ads in the world could not help if a customer still had to get a new phone, or get a new SIM by visiting the carrier store – to do what a plastic card can do effortlessly. It’s FI partners (Chase, Amex and CapitalOne) have so far kept any Isis branding outside of their ads, and I doubt if that would change. After all, why would Amex and Chase who collectively spent about $4.2B in advertising last year care about giving Isis any visibility, when a Chase or an Amex customer still has to fire up an Isis app to use a Chase or an Amex card? Why would Amex and Chase dilute its brand by including Isis messaging – when they themselves are pitted against each other inside the wallet? For some inexplicable reason – Isis made a conscious decision to become a consumer brand instead of a white label identity, provisioning and payment platform. (And for all of the faults attributable to Google – they are a consumer brand and yet – look at all the trouble it had to make its payments efforts scale.) I believe that until Isis displays a willingness to let its Issuing partners play front and center, any support they in turn provide to Isis is bound to be non-committal. Have you counted the Point-of-Sale registers? MCX proved to be the sand in mobile payments gears since the announcement. It has had “quite the intended” effect of killing any kind of forward movement on in-store payment initiatives that required a conventional point-of-sale upgrade. Contactless upgrades at point-of-sale which have long been tied to the EMV roadmap has had a series of setbacks, not the least of which is the continuing ambiguity around Issuer readiness, merchant apathy, and roadblocks such as the recent ruling. More so, the ruling injected more ambiguity in to how proximity payments would function, which payment apps must be supported for the same debit or credit transaction etc. With retailers, Isis brings nothing new that others are unable to claim, and infact it brings even less – as there is no new context outside of store-customer-proximity that it can bring to deliver discounts and coupons to customer prospects. And it’s cringeworthy when someone claims to “help” retailers in driving incremental traffic to stores, simply because they are able to pair context and proximity among other factors. These claims are hugely suspect due to how limited their “contexts” are – and no one can blend intent, past behavior, location and other factors better than Google – and even they churned out an inferior product called Google Offers. Transactional data is uniquely valuable – but Banks have been negligent in their role to do anything meaningful. But I digress. Coming full circle: Will we ever see proximity payments realized in a way that does not include the SE? The UICC based Secure Element model has been the favored approach by Carriers, which allows device portability and to exert control on the proximity payments ecosystem. We have seen deviations from the norm – in the form of Bankinter, and the recent RBC/BellID Secure cloud – which reject the notion of an onboard Secure Element, and opts to replace it with credentials on TEE, in memory or on the cloud. There is much interest around this topic, but predicting which way this will turn out is difficult owing to where the power to effect change resides – in the hands of OEMs, Ecosystem owners, Carriers etc. And don’t forget that Networks need to subscribe to this notion of credentials outside of SE, as well. But what about an Isis wallet that decouples itself from NFC/SE? Google has toyed with such an approach, but it clearly has the assets (Gmail, Android et al) to build itself a long runway. What about an Isis that exists outside of NFC/SE? Well – why do you need Isis then? To be fair, such an approach would pale against MCX or Paydiant or a number of other wallets and offer even less reasons for merchants to adopt. Paydiant offers both a better point-of-sale integration and a quicker QR capture – which Isis will struggle to match. It’s abundantly clear – take away the SE – and just as easily, the Carrier value proposition collapses on its own like a pack of cards. That’s one risky bet. What are your thoughts about the future of Isis? I am on Twitter here, if you wish to connect. And you can find me on LinkedIn here.   This is a re-post from Cherian's original blog post "Isis: A JV at odds."

According to the Q2 2013 Experian Automotive State of the Automotive Finance Market report, vehicle repossessions reached their lowest rate in seven years, with only 0.36 percent of all vehicle loans reaching repossession. This change is a drop of 14.8 percent over the previous quarter and a 10.4 percent decrease from the previous low of 0.41 percent in Q2 2006.

By: Reggie Whitley After spending years working in bank fraud, one of the most difficult conversations to have with a consumer is “We can no longer successfully protect your accounts.” Identity theft is shockingly easy to commit.  In most cases consumers are able to recover successfully from compromises thanks to the diligence of their financial institutions, the cooperation of retailers, and credit reporting services that assist in recovery from compromises. Problems arise when you have consumers who become attractive targets for various reasons – these could be relationships to others, high net worth, extensive products, or business ownership.  These targets aren’t ‘one and done’ consumers for an identity criminal.  For these consumers identity thieves will continue accessing their identities for months or even years.  These consumers are often forced to migrate from banks or credit card companies because the identity crimes follow them and they become too expensive to protect.  For these consumers, identity theft is a true nightmare. In the past year, fraud protection strategies and tools have emerged that will begin to reduce the risk of continued compromise these consumers face.  Real time identity alerting tools have emerged to offer consumers a way to receive notification when their identities are being used, not just at a single institution, but across the financial landscape. Consumers now have the ability to receive SMS, Email, or Web notifications whenever their identity has been verified.  If the consumer receives an alert on an banking account they just opened, they simply move on, no action is required.  In the event that the alert is NOT something they generated, the consumer calls in, discusses with a fraud specialist and is connected to the generating bank or retailer to file a fraud report. Obviously, this service benefits any consumer who would like to monitor usage of their identity and detect fraud, but knowing first hand the horror stories extensively compromised consumers get caught in, tools like start to open a level of REAL TIME protection that hasn’t before existed. The benefit is truly across the board.  Banks and retailers begin to realize savings when consumers engage them within minutes of fraud.  This reduces the success of identity thieves, discouraging additional attempts.  Finally, detecting this fraud reduces the extensive efforts needed to help a consumer clear up credit reports and file fraud reports. Perhaps in the near future instead of turning high risk consumers away, we can provide them with the ability to protect themselves and the industry from the nightmare situations that are still too frequent today.

The $478 billion in Q2 2013 mortgage originations is a 10 percent increase over a year ago ($436 billion) but a 7 percent decrease from the previous quarter ($515 billion) — primarily as a result of the slowdown in refinancing activity.

The average bankcard balance per consumer in Q2 2013 was $3,831, a 1.3 percent decline from the previous year. Consumers in the VantageScore® near prime and subprime credit tiers carried the largest average bankcard balances at $5,883 and $5,903 respectively. The super prime tier carried the smallest average balance at $1,881.

The June release of the S&P/Experian Consumer Credit Default Indices showed default rates continued to fall across all categories. The national composite* and the first mortgage default rate both hit new post-recession lows (1.34 percent and 1.23 percent, respectively). The table below summarizes the June 2013 results for the S&P/Experian Consumer Credit Default Indices.

Using data from IntelliViewSM, Credit.com recently compiled a list of states with the highest average bankcard utilization rates. Alaska took first place, with an average utilization ratio of 27.73 percent. This should come as no surprise since Alaska has recently topped lists for highest credit card balances and highest revolving debt.

By: Maria Moynihan Government organizations that handle debt collection have similar business challenges regardless of agency focus and mission. Let’s face it, debtors can be elusive. They are often hard to find and even more difficult to collect from when information and processes are lacking. To accelerate debt recovery, governments must focus on optimization--particularly, streamlining how resources get used in the debt collection process.  While the perception may be that it’s difficult to implement change given limited budgets, staffing constraints or archaic systems, minimal investment in improved data, tools and technology can make a big difference. Governments most often express the below as their top concerns in debt collection: Difficulty in finding debtors to collect on late tax submissions, fines or fees. Prioritizing collection activities--outbound letters, phone calls, and added steps in decisioning. Difficulty in incorporating new tools or technology to reduce backlogs or accelerate current processes. By simply utilizing right party contact data and tools for improved decisioning, agencies can immediately expose areas of greater possible ROI over others. Credit and demographic data elements like address, income models, assets, and past payment behavior can all be brought together to create a holistic view of an individual or business at a point in time or over time. Collections tools for improved monitoring, segmentation and scoring could be incorporated into current systems to improve resource allotment. Staffing can then be better allocated to not only focus on which accounts to pursue by size, but by likelihood to make contact and payment. Find additional best practices to optimize debt recovery in this guide to Maximizing Revenue Potential in the Public Sector. Be sure to check out our other blog posts on debt collection.

I don’t know about your neighborhood this past Fourth of July, but mine contained an interesting mix of different types of fireworks. From our front porch, we watched a variety of displays simultaneously: an organized professional fireworks show several miles away, our next-door neighbor setting off the “Safe and Sane” variety and the guy at the end of the street with clearly illegal ones. This made me think about how our local police approach this night. There’s no way they can investigate every report or observance of illegal fireworks as well as all of the other increased activity that occurs on a holiday. So it must come down to prioritization, resources and risk assessment. When it comes to fraud prevention, compliance and risk, businesses — much the same as the police — have a lot of ground to cover and limited resources. Consider the bureau alerts (aka high-risk conditions) on a credit report. They’re an easy, quick tool that can help mitigate risk and save money cost-effectively. When considering bureau alerts, clients commonly ask the following questions: How do I investigate all of the alerts with the limited resources I have? How should I prioritize the ones I am able to review? I usually recommend that, if possible, they incorporate a fraud risk score into their evaluation process. The job of the fraud risk score is to take a very large amount of data and put it into an easy-to-understand and actionable form. It is built to evaluate negative or risky information (at Experian, this includes bureau alerts and many other items) as well as positive or low-risk information (analysis of address, Social Security number, date of birth, and other current and historical personal information). The result is a holistic assessment rather than a binary flag, which can be tuned to resource levels, risk tolerance or other drivers. That’s always where I start. If a fraud score is not an option, then I suggest prioritizing the alerts by the most risk and the frequency of occurrence. With some light analysis, you’ll typically see that the frequency of the most risky alerts is often low, so you can be sure to review each one — or as many as possible. As the frequency of occurrence increases, you then can make decisions about which ones to review or how many of them you can handle. For example, I worked with a client recently to prioritize high-risk but low-frequency alerts. Almost all involved the Social Security number (SSN): The inquiry SSN was recorded as deceased The report contained a security statement There was a high probability that the SSN belongs to another person The best on-file SSN was recorded as deceased  I would expect other organizations to have a similar prioritized risk-to-frequency ratio. However, it’s always good (and pretty easy) to make sure your data backs this up. That way, you’re making the most of your limited resources and your tools.

A recent survey of government benefit agencies shows an increased need for fraud detection technology to prevent eligibility fraud. Only 26 percent of respondents currently use fraud detection technology, and 57 percent cite false income reporting as the leading cause of fraud. Insufficient resources and difficulty integrating multiple data sources were the greatest challenges in preventing eligibility fraud.

The desire to return to portfolio growth is a clear trend in mature credit markets, such as the US and Canada. Historically, credit unions and banks have driven portfolio growth with aggressive out-bound marketing offers designed to attract new customers and members through loan acquisitions. These offers were typically aligned to a particular product with no strategy alignment between multiple divisions within the organization.  Further, when existing customers submitted a new request for credit, they were treated the same as incoming new customers with no reference to the overall value of the existing relationship. Today, however, financial institutions are looking to create more value from existing customer relationships to drive sustained portfolio growth by increasing customer retention, loyalty and wallet share. Let’s consider this idea further. By identifying the needs of existing customers and matching them to individual credit risk and affordability, effective cross-sell strategies that link the needs of the individual to risk and affordability can ensure that portfolio growth can be achieved while simultaneously increasing customer satisfaction and promoting loyalty. The need to optimize customer touch-points and provide the best possible customer experience is paramount to future performance, as measured by market share and long-term customer profitability. By also responding rapidly to changing customer credit needs, you can further build trust, increase wallet share and profitably grow your loan portfolios.  In the simplest sense, the more of your products a customer uses, the less likely the customer is to leave you for the competition. With these objectives in mind, financial organizations are turning towards the practice of setting holistic, customer-level credit lending parameters. These parameters often referred to as umbrella, or customer lending, limits. The challenges Although the benefits for enhancing existing relationships are clear, there are a number of challenges that bear to mind some important questions to consider: ·     How do you balance the competing objectives of portfolio loan growth while managing future losses? ·     How do you know how much your customer can afford? ·     How do you ensure that customers have access to the products they need when they need them ·     What is the appropriate communication method to position the offer? Few credit unions or banks have lending strategies that differentiate between new and existing customers.  In the most cases, new credit requests are processed identically for both customer groups. The problem with this approach is that it fails to capture and use the power of existing customer data, which will inevitably lead  to suboptimal decisions. Similarly, financial institutions frequently provide inconsistent lending messages to their clients. The following scenarios can potentially arise when institutions fail to look across all relationships to support their core lending and collections processes: 1.     Customer is refused for additional credit on the facility of their choice, whilst simultaneously offered an increase in their credit line on another. 2.     Customer is extended credit on a new facility whilst being seriously delinquent on another. 3.     Customer receives marketing solicitation for three different products from the same institution, in the same week, through three different channels. Essentials for customer lending limits and successful cross-selling By evaluating existing customers on a periodic (monthly) basis, financial institutions can assess holistically the customer’s existing exposure, risk and affordability. By setting customer level lending limits in accordance with these parameters, core lending processes can be rendered more efficient, with superior results and enhanced customer satisfaction. This approach can be extended to consider a fast-track application process for existing relationships with high value, low risk customers. Traditionally, business processes have not identified loan applications from such individuals to provide preferential treatment. The core fundamentals of the approach necessary for the setting of holistic customer lending (umbrella) limits include: ·     The accurate evaluation of credit and default risk ·     The calculation of additional lending capacity and affordability ·     Appropriate product offerings for cross-sell ·     Operational deployment Follow my blog series over the next few months as we explore the essentials for customer lending limits and successful cross-selling.

There are two core fundamentals of evaluating loan loss performance to consider when generating organic portfolio growth through the setting of customer lending limits.  Neither of which can be discussed without first considering what defines a “customer.” Definition of a customer The approach used to define a customer is critical for successful customer management and is directly correlated to how joint accounts are managed. Definitions may vary by how joint accounts are allocated and used in risk evaluation. It is important to acknowledge: Legal restrictions for data usage related to joint account holders throughout the relationship Impact on predictive model performance and reporting where there are two financially linked individuals with differently assigned exposures Complexities of multiple relationships with customers within the same household – consumer and small business Typical customer definitions used by financial services organizations: Checking account holders: This definition groups together accounts that are “fed” by the same checking account. If an individual holds two checking accounts, then she will be treated as two different and unique customers. Physical persons: Joint accounts allocated to each individual. If Mr. Jones has sole accounts and holds joint accounts with Ms. Smith who also has sole accounts, the joint accounts would be allocated to both Mr. Jones and Ms. Smith. Consistent entities: If Mr Jones has sole accounts and holds joint accounts with Ms. Smith who also has sole accounts, then 3 “customers” are defined: Jones, Jones & Smith, Smith. Financially-linked individuals: Whereas consistent entities are considered three separate customers, financially-linked individuals would be considered one customer: “Mr. Jones & Ms. Smith”. When multiple and complex relationships exist, taking a pragmatic approach to define your customers as financially-linked will lead to a better evaluation of predicted loan performance. Evaluation of credit and default risk Most financial institutions calculate a loan default probability on a periodic basis (monthly) for existing loans, in the format of either a custom behavior score or a generic risk score, supplied by a credit bureau. For new loan requests, financial institutions often calculate an application risk score, sometimes used in conjunction with a credit bureau score, often in a matrix-based decision. This approach is challenging for new credit requests where the presence and nature of the existing relationship is not factored into the decision. In most cases, customers with existing relationships are treated in an identical manner to those new applicants with no relationship – the power and value of the organization’s internal data goes overlooked whereby customer satisfaction and profits suffer as a result.   One way to overcome this challenge is to use a Strength of Relationship (SOR) indicator. Strength of Relationship (SOR) indicator The Strength of Relationship (SOR) indicator is a single-digit value used to define the nature of the relationship of the customer with financial institution. Traditional approaches for the assignment of a SOR are based upon the following factors  Existence of a primary banking relationship (salary deposits)  Number of transactional products held (DDA, credit cards)  Volume of transactions  Number of loan products held  Length of time with bank The SOR has a critical role in the calculation of customer level risk grades and strategies and is used to point us to the data that will be the most predictive for each customer. Typically the stronger the relationship, the more we know about our customer, and the more robust will be predictive models of consumer behavior. The more information we have on our customer, the more our models will lean towards internal data as the primary source. For weaker relationships, internal data may not be robust enough alone to be used to calculate customer level limits and there will be a greater dependency to augment internal data with external third party data (credit bureau attributes.) As such, the SOR can be used as a tool to select the type and frequency of external data purchase. Customer Risk Grade (CRG) A customer-level risk grade or behavior score is a periodic (monthly) statistical assessment of the default risk of an existing customer. This probability uses the assumption that past performance is the best possible indicator of future performance. The predictive model is calibrated to provide the probability (or odds) that an individual will incur a “default” on one or more of their accounts. The customer risk grade requires a common definition of a customer across the enterprise. This is required to establish a methodology for treating joint accounts. A unique customer reference number is assigned to those customers defined as “financially-linked individuals”.  Account behavior is aggregated on a monthly basis and this information is subsequently combined with information from savings accounts and third party sources to formulate our customer view. Using historical customer information, the behavior score can accurately differentiate between good and bad credit risk individuals. The behavior score is often translated into a Customer Risk Grade (CRG). The purpose of the CRG is to simplify the behavior score for operational purposes making it easier for noncredit/ risk individuals to interpret a grade more easily than a mathematical probability. Different methods for evaluating credit risk will yield different results and an important aspect in the setting of customer exposure thresholds is the ability to perform analytical tests of different strategies in a controlled environment. In my next post, I’ll dive deeper into adaptive control, champion challenger techniques and strategy design fundamentals.  Related content: White paper: Improving decisions across the Customer Life Cycle

Small-business credit conditions improved in Q1 2013, reversing much of the deterioration seen during Q4 2012. The Q1 rise was fueled primarily by falling delinquency rates in every segment compared with a year earlier. The total share of delinquent dollars was 11.2 percent for Q1 2013 - 1.4 percentage points lower than a year ago.

A recent Experian credit trends analysis of new mortgages and bankcards from Q1 2013 shows a 16 percent year-over-year increase in mortgage origination volume and a 20 percent increase in bankcard limits. Providing further evidence of continued economic recovery throughout the nation, mortgage delinquency rates reached multi-year lows and bankcard delinquency rates reached near-record lows.

Despite the improving real-estate market, financial institutions are concerned about lending to consumers who have pursued strategic defaults. In a recent VantageScore Solutions survey, 85 percent of respondents believe that consumers who have pursued strategic defaults pose increased risk, even if they meet the institution’s other lending criteria. More than half of those surveyed said they are not likely to approve strategic defaulters for a mortgage loan in the next 12 months. Source: The Score: Short sales and foreclosures make lenders wary VantageScore® is a registered trademark of VantageScore Solutions, LLC.