Portfolio risk forecasting and management isn’t new, but credit bureau data is often delayed, which means lenders might be making decisions based on stale data. Unfortunately, a customer can be up to 90 days late for a payment with another lender before their primary financial institution can see that late payment on credit bureaus.
To make matters worse, the same customer might have taken on more lending products in the interim. A lot can happen in 90 days.
Bud’s real-time transactional intelligence helps financial institutions identify potential risk before a borrower misses a payment. Now banks and credit unions can be proactive about customer relationship management, swapping assumptions for data-driven insights based on real events, patterns and activities.
Banking is a reactive industry. Most banks and credit unions don’t know their customers. They don’t notice when someone changes jobs. They don’t know when they’re experiencing life-changing events.
When I was a banker, I’d be greeted by a weekly fax of all my customers who were 30 days late for their payments. Because we were in the dark for an entire month, we never had any insights that would help us understand customers’ cash flow issues. Now financial institutions can harness Bud’s real-time transactional intelligence to help detect signs of potential delinquency early on. They can understand real-time events to help spot active cash flow issues and potential risks. This changes everything.
There are a few issues with credit data. Financial institutions use credit bureau data to calculate debt-to-income ratios (DTI), but it isn’t necessarily a fair way to assess affordability for underwriting as it’s generally based on gross income. If you set a 43% maximum DTI, for example, it can give you a clearer idea of a customer’s taxes and living expenses. Unfortunately, they would still be loose assumptions. However, by using transactional data in conjunction with bureau data, a lender can gain a better understanding of a borrower’s available cash to service debt and their true expenses.
Then there’s the fact that some alternative lenders do not report to the credit bureaus. This makes it even more difficult to gain an accurate picture of a borrower’s debts. Thankfully, lenders can use Bud’s real-time intelligence to see payments for “off-bureau” debts. This helps them make accurate calculations regarding a borrower’s ability to repay a debt.
Consumer loan delinquencies are on the rise, and we’ll eventually see delinquencies in the small business and commercial sectors too. Deep, real-time insights are especially meaningful in this economic downturn of high inflation, mass layoffs and impacted businesses.
Early delinquency monitoring goes beyond major bills and loans, such as mortgages, rental payments and car loans/leases. This is important because customers will typically do anything within their power to pay for these key expenses on time. These expenses keep the roofs over their heads and help them get to work. Instead, early warning signs will typically emerge among secondary priorities, such as cell phone bills and utilities.
Of course, sometimes a customer is in great financial health but simply forgets to pay a bill on time. Bud offers financial institutions deeper insights and more robust customer profiles to help them identify one customer from another. For example, a customer might miss payments and look bad on paper, but our data tells a deeper story. You can see their transactional data and cash flow to immediately confirm their financial health is actually strong.
Real-time transactional intelligence can also signal real-time events so financial institutions can think differently, offering timely, personalized products to their customers. For example, if a customer is visiting their mechanic on a regular basis, can their bank offer a car loan for a monthly payment that would cost less than those ongoing repairs?
Or imagine if that same customer received a large windfall. Could their bank reach out with wealth management or mortgage products to provide support while increasing the institution’s deposits? Deep, real-time data and insights present countless opportunities for financial institutions to deepen relationships with customers while growing wallet share and boosting their loyalty.
Finally, this innovative approach to risk management has opened the door to a new way for banks and credit unions to serve their communities. They can use Bud to provide better service and support while expanding financial literacy.
Financial institutions have started to provide textbook-style education to their customers. It’s a great start, but it’s not enough. There’s really nothing as effective as real-world, personally-relevant guidance. Bud makes it possible to help educate customers on the state of their finances as they are today, rather than waiting for defaults, bankruptcies or other consequences that harm customers and shareholders alike. It’s the right thing to do, all around.
I’m proud of Bud’s impact on financial literacy – it’s one of the primary reasons that I joined this incredible team.
It’s time to change the future…in real time!