The insights every lender needs to get the US credit market lending again

Our Aire Talks panelists shared their insights for our title discussion: ‘strategies for expanding the credit box’. Here’s your summary.

The first event in our brand new digital series, Aire Talks, started with an opportunity to assess the market.

How did US lenders respond to the worst public health crisis of the last hundred years? First by severely curbing lending and preparing for recession, and now through their active interest in rebuilding and expanding their customer base.

But what really happened, what have we learned — and most importantly, how do we now safely expand the credit box?

We’ve categorized the best of the discussion into the succinct learnings below:

1. On Covid-19

With some economic and public health uncertainty still lingering, panelists showed caution towards the idea of lenders entering into an expansionary state for credit.

They do however see many ecosystem players starting to probe how to prudently open up credit access.

2. On the lender response

The pandemic brought in a unique set of challenges for Chief Risk Officers (CROs).

‘Before covid, there was a playbook for recessions. However, there was no such playbook for a pandemic. Because of that absence, lenders took a very standard conservative view to tighten the credit box.’ — Manik Chawla

The real estate business was highlighted as having been best prepared because they had developed tools after the Great Recession, e.g. loan modifications. Many other products didn’t have them and suffered more because of it.

‘I remain positive but also extremely cautious.’ — Manik Chawla

3. On US government stimulus packages

As government stimulus support ends, panelists agreed there would be some fallout: foreclosures, evictions, an escalation in delinquency and some losses will be felt by lenders.

Lower consumer spending due to lockdowns and consistent government support has also created a situation where credit scores have become partially inflated. This has motivated an adjustment in strategies by lenders who can no longer rely on them alone to assess their customers for credit.

4. On digital adoption

Covid-19 has accelerated digital adoption by many years — those financial institutions that are not leading with digital are going to be left behind.

‘Digital gives you the ability to have and to manage data at every step of the process — that’s something that a normal, traditional in person credit process can’t’. — Kevin Moss

5. On what this means for the consumer

A more flexible mindset around servicing and working with customers that has emerged during the pandemic, will in the long-run benefit more consumers.

The market is now more open to using extensions and forbearances, as well as pricing and rate modifications and referring consumers to credit counselling.

6. On alternative data

There’s no doubt that Covid-19 has accelerated the need to look for other sources of data to make better and longer-term credit decisions.

While it’s use is not new (traditional lenders have been using this for more than a decade), the nature of the data is changing.

‘For those that are still focused on traditional credit bureau data, you’ve got to focus on trended data: when you think about behaviour, trended data really tells you more: you can see how behaviors are changing, whereas a normal credit bureau is just a point in time.’ — Kevin Moss

7. On solutions for expanding the credit box

• Aire Talks host, Tom Oscherwitz, highlighted the benefits of first-party data. A data source Aire has looked at for almost a decade and holds particular value for lenders in its broad population coverage and its leveraging of the granular, unique information it provides lenders on their consumers.
• Kevin Moss spoke to the opportunity for fintechs in re-defining the overdraft model, citing an opportunity to create more access for consumers who would traditionally go to payday loans: ‘fintechs have a great chance to provide small dollar credit for very reasonable fees’.
• Manik Chawla spoke about the launch of Prism, Petal’s transaction categorization tool and latest offering to the market. Used in combination with bureau data, he explained the strong signals it provides in proving a more holistic view of the consumer: ‘Prism is not just for Petal, it allows other businesses to take advantage of all the work we’ve done in the space’.

And for the last word from our panelists? Check out how they summarised their view on how to safely expand the credit box here.

Aire Talks is a digital event series from Aire that brings together leading industry experts to debate the big issues in consumer credit. To request the recording, email talks@aire.io.