The Flexibility to Recover
This movement toward adaptable models and technologies is one of the keys to thriving in the recovery phase and beyond, according to SAS's Abraham. "The technology to give banks flexibility to work around data deficiencies will provide huge competitive advantage," he says.
Abraham is a believer in the use of alternative credit data, such as utility bill payment history, in gauging the creditworthiness of borrowers. After all, he contends, the subprime market won't disappear. "The alternative area for consumers is a growing, untapped market," he says. "In some geographies, there is a lack of reliable data. By using a hybrid approach where you start with rules and collect other data on these segments, you do the data development. This is adaptive credit scoring."
Eric Lindeen, marketing director with Bozeman, Mont.-based Zoot Enterprises, a company that provides credit-decisioning and other lending solutions, says lenders cannot continue to take a one-size-fits-all approach to how they lend credit in different markets. "If an institution has coverage in Florida and Montana, the economies in these states are very different," he notes. "So financial institutions now have to look at their overall territory to make credit policies that are in line with what they're seeing in other parts of the country. The geography issue hasn't really been considered much since the downturn."
First Interstate Bank offers a case in point. The financial institution serves Montana and Wyoming -- areas that haven't quite felt the sting of the lending mess as badly as other regions. According to John Pannell, VP, risk/finance, in First Interstate Bank's credit card division, "We just haven't seen the same economic crisis as the rest of the country in our geography."
No matter where in the country a lender operates, however, it still will face many of the same challenges around granting credit, only in a more risk-aware climate. As such, decisioning and analytics technology, for example, will continue to be at the forefront of First Interstate's lending practice, according to the bank's Guenthner, who notes that the institution is a Zoot client.
"If you look historically at what the industry has done, decisioning an applicant was a very burdensome and judgment-laden process. With analytics, we're now able to compare the person to our rules-based lending system and decide if we should issue credit to him," Guenthner explains. "We want to make sure people match our criteria for lending. We use prescreening capabilities and go through our existing accounts to identify who meets our criteria."