Time to Sharpen Our Pencils

“Time to sharpen our pencils.”

That was one of the key messages from Dr. Emre Sahingur, VantageScore Solutions’ Senior Vice President of Predictive Analytics, at a standing-room-only breakfast presentation at CBA LIVE, the annual meeting and conference of the Consumer Bankers Association (CBA).

We are proud, longtime sponsors of the CBA. Many of its members are users of our credit scores.

Emre’s message keyed in on the fact that while recent years have been kind to the consumer lending industry, it would be wise to acknowledge the possible headwinds the industry is likely to be facing in the future.

Americans are carrying more consumer debt than ever before, with non-mortgage debt expected to top $4 trillion in 2019 and mortgage debt to exceed $10 trillion.

Credit card balances continue to grow; having surpassed $1 trillion in 2018. Unsecured personal loans have shown a significant resurgence, with balances estimated to be around $160 billion by the end of 2019.

While new originations have been healthy, we also have observed that originations have been moving toward riskier segments in recent periods, and that trend is expected to continue.

The impact of new competition from FinTechs is another important factor. I attended the Marketplace Lending Association CEO meeting in Washington, D.C., and came away highly impressed with their ability to nimbly adopt new underwriting and platform approaches.

As of late 2017, FinTechs had about 30% of the market, up from 3% just 5 years ago.

Such offers have become a significant alternative to credit cards, for debt consolidation or other purposes, with millennials being an obvious target.

And then there’s the possibility of a cycle change. It is not a question of “if.” It’s a question of “when” the next credit downturn will occur.

In this environment, lenders need to focus on credit quality, find safe and profitable business opportunities and have the ability to respond to changes in credit use behaviors.

As Emre stated during his CBA LIVE presentation, the key to remaining competitive in this environment will be to use better data and predictive analytics to target the best borrowers and fine-tune credit decisions. Emre closed with a question that I posit to you:

Are your current risk assessment tools addressing these needs and realities?

VantageScore 4.0 scores more consumers with greater accuracy. The model expands a lender’s universe of borrowers and fine-tunes lending decisions with trended credit data.

We’d be happy to provide the proof. Just ask!


Barrett Burns

CEO and President, VantageScore Solutions

Did You Know:
Thin-File Millennials Aren’t as Risky as You Thought?

Due to student loans, many millennials carry high amounts of debt. As a result, they are reluctant to acquire more debt and have fewer revolving credit accounts. While this type of credit activity can be deemed as less financially risky, it also results in millennials having a “thin file” (i.e., those with three or fewer credit accounts). In fact, many thin-file millennials have average income levels and assets similar to their thicker-file counterparts. And because they do have the income, they actually have the capacity to handle new accounts. Even millennial bankcard balances average half of the balances maintained by older members of the workforce. All of these factors make millennials a population worthy of credit consideration.

Below is a detailed infographic of who is defined as a “thin-file millennial” and the opportunities for credit within this population. If you’d like to share this infographic amongst your constituents, social media channels, etc., please contact us on LinkedIn

Scoring the Conventionally Unscorable

Criteria for conventional scoring models were established over 30 years ago, obviously reflecting data and methods of that time. Today, you wouldn’t use a payphone over a cell phone to make a phone call, would you? So why use an old scoring tool in modern times? Advanced technology and credit scoring methods have evolved over time, making it possible to score more people with more accuracy.

Using trended credit data allows more modern credit scoring models like VantageScore 4.0 to analyze credit behavior over time, providing deeper insights into borrowing and payment patterns. By leveraging machine learning, VantageScore 4.0 also has been able to strengthen its performance levels and provide it with the ability to score approximately 40 million more consumers than conventional models, without sacrificing predictability.

Let’s see what this breakdown of consumers looks like below.

Based on the U.S. Census, the aggregate U.S. population was 325 million people in 2018:

Of which, 252 million are credit-eligible, meaning they are 18 years old or older:

However, conventional scoring models can only score about 201 million consumers. Meaning 51 million consumers are currently unable to get a score from conventional models because they do not meet conventional scoring criteria (i.e., these consumers have not had an update or report on their credit files in the past 6 months and they do not have an account that is at least 6 months old):

Are you getting the picture? The universe of borrowers is getting smaller and smaller, especially when they are scored with credit scoring models that simply haven’t gotten with the times.

On the other hand, by using modern credit score modeling methods, VantageScore can accurately score 40 million more consumers, expanding the scoreable population of consumers to 241 million:

The point of this visual representation is to show potential lender portfolio gain when using the right credit scoring model (and loss when using the wrong one). If that didn’t sell you, let’s put it another way:

40 million consumers — who can be scored using more innovative scoring methodologies  is about the same amount of the entire population of California…the most populous and biggest state in the U.S. Is your business willing to give up that many people?

5 Questions with…Dan Simon

Dan Simon is founder and CEO of Vested, a communications firm specializing in the fintech industry, and author of a forthcoming book on the recent history and explosion of the FinTech industry. With over 15 years’ experience in PR, Marketing and Advertising, he has led campaigns for some of the biggest brands in finance and FinTech, including Bloomberg LP, J.P.Morgan, and Citigroup. Dan is a regular columnist for Forbes, Markets Media and Coin Telegraph and he co-chairs the Museum of American Finance Communications Advisory Board.

1. FinTech has only become a household word in the last 10 years. Was there a particular moment or company that made FinTech a commonly understood and relatable concept?


The short answer is yes, but it’s important to give it some context. The date we chose for the book is 2008, which was significant for a number of reasons. First, there was a little thing called the 2008 financial crisis; banks, as we understood them, were put under an enormous amount of pressure. Stand-alone investment banks like Bear Stearns and Lehman Brothers went under, while others were was forced to merge. This was coupled with exponential oversight in financial services through Dodd-Frank and the formation of the Consumer Financial Protection Bureau (CFPB). Quickly, innovation became a dirty word inside banking because it was associated with complex derivatives that nobody could understand.

At the same time that banks were retrenching, Facebook had just hit a billion users and launched its app store. Meanwhile, Apple had sold 100 million phones and launched the app store. It was those inventions that spurred much of the tech, and subsequently FinTech, world as we know it today. That combination of a banking vacuum coupled with rapid tech innovation created the conditions for FinTech to thrive. This is when PayPal goes mobile and really takes off, later buying Venmo. It’s when Credit Karma and LendingClub launch. There was, of course, FinTech before 2008, but if you had to pick a moment in time and a place in history, it would be the coinciding of the financial crisis and the explosion of innovation.

2. In those 10 years, financial technology has advanced and taken off significantly.
How has it changed since first being introduced to the mass market?

It’s changed in a myriad of ways. I’d say the most obvious answer would be to talk about how 2008 created an explosion of banking, both literally and figuratively. By this, we mean things that you traditionally went to a bank for were being split into separate apps. So, if you’d previously gone to the bank to access your checking account, or your savings account, to get a mortgage, or to look at lending options, you could now do those things individually through apps. It’s a bit of an oversimplification, but when the app store came out, that “app mentality” migrated to finance, and over the last 10 years, it’s been all about unbundling the bank. All of those services above that a bank offers were siloed and there were dozens of mobile apps to help you invest or save, or cut down on credit card debt, among other services.

I think what’s changed in those 10 years is that now, after totally dis-assembling a bank, FinTech is trying to put the bank back together. So the next 10 years will be defined as the rebundling of the bank. Apps like Robinhood, MoneyLion, Elevate…they’re all offering different parts of that continuum.

3. To the point above, there have been some FinTechs like Venmo that have been wildly successful, while others have fallen flat. In some ways, the “unicorns” have been identified — so what’s next for the industry?

Last year was a record investment year for FinTechs. Over $40 billion of venture capitalist money was invested in FinTech, but it was also at a five-year-low for early-stage investing. If you put those two stats together, it shows venture capitalists have basically decided that we’ve run out of new areas to discover, and it’s time to start backing your winners and consolidating your markets.

FinTech is good at stripping the costs out of banking. However, it also means FinTechs are operating on razor-thin margins and have to achieve scale in the longterm in order to be successful. This is what will drive greater and more rapid consolidation and, as we were discussing before, the “rebundling” of the bank.

4. Despite the success we looked at above, there’s been a very low rate of acquisition of big banks buying FinTechs. Why do you think that is?

I think there are quite a few possible reasons, the first being that banks’ instincts have been to just build these apps themselves. Much like the robo-advisors through Schwab and Morgan Stanley, I think there are plenty of financial institutions who believe it may be a better cultural fit for their company to create their own as opposed to acquiring a different one. Secondly, many banks have chosen to partner with FinTechs, which is affording them the benefits of innovation without the costs of acquisition.

Finally, I think it could be strategic on the banks’ part. They could just be holding out to see who the “winners” are before making their moves. I think we’ll see more activity after this period of consolidation. So for now, it’s a bit of a waiting game.

5. For the big banks that have acquired financial technology platforms, is there an opportunity to use this as a way to shift their culture?

Absolutely. Is it a coincidence that Goldman Sachs — which bought Honest Dollar and Clarity Money — recently changed its dress code? I think FinTechs are helping banks appeal to a younger demographic as both a service and as a potential employer. I think FinTechs can help traditional financial institutions push the envelope in reimagining their brand and image, and we’ll see more of that going forward. 

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