I'm here in Vegas at the Mobile2020 conference and I am fascinated by my room key. This is not the usual “insert in to the slot, wait for it turn green or hear it chime” key cards, these are “tap and hold to a door scanner till the door opens” RFID key card. It is befitting the event I am about to attend – Money2020 – the largest of its kind bringing together over 2000 mobile money aficionados, strategists and technologists from world over for a couple of days to talk about how payment modalities are shifting and the impact of these shifts to existing and emerging players. Away from all the excitement of product launches, I hope some will be talking about one of the major barriers for consumer adoption towards alternate payment modalities such as mobile – security and fraud.  I was in Costa Mesa last week and in the process of buying something for my wife with my credit card, triggered the card fraud alert. My card was declined and I had to use a different card to complete my transaction. As I was walking out, my smartphone registers a text alert from the card issuer – asking me to confirm that it was actually I who attempted the transaction. And If so, Respond by texting 1 – if Yes Or 2 – if No. All good and proper up till this point. If someone had stolen my card or my identity, this would have been enough to stop fraud from re-occurring. In this scenario the payment instrument and the communication device were separate – my plastic credit card and my Verizon smartphone. In the next couple of years, these two will converge, as my payment instrument and my smartphone will become one. At that point, will the card issuer continue to send me text alerts asking for confirmation? If instead of my wallet, my phone was stolen – what good will a text alert to that phone be of any use to prevent the re-occurrence of fraud? Further if one card was shut down, the thief could move to other cards with in the wallet – if, just as today, there are no frameworks for fraud warnings to permeate across other cards with in the wallet. Further, fraud liability is about to shift to the merchant with the 2013 EMV Mandate. In the recent years, there has been significant innovation in payments – to the extent that we have a number of OTT (Over the Top) players, unencumbered by regulation, who has been able to sidestep existing players – issuers and card networks, in positioning mobile as the next stage in the evolution of payments. Google, PayPal, Square, Isis (a Carrier consortium formed by Verizon, T-Mobile and AT&T), and a number of others have competing solutions vying for customer mind share in this emerging space. But when it comes to security, they all revert to a 4 digit PIN – what I call as the proverbial fig leaf in security. Here we have a device that offers a real-time context – whether it be temporal, social or geo-spatial – all inherently valuable in determining customer intent and fraud, and yet we feel its adequate to stay with the PIN, a relic as old as the payment rails these newer solutions are attempting to displace. Imagine what could have been – in the previous scenario where instead of reaching for my card, I reach for my mobile wallet. Upon launching it, the wallet, leveraging the device context, determines that it is thousands of miles away from the customer’s home and should score the fraud risk and appropriately ask the customer to answer one or more “out-of-wallet” questions that must be correctly answered. If the customer fails, or prefers not to, the wallet can suggest alternate ways to authenticate – including IVR. Based on the likelihood of fraud, the challenge/response scenario could include questions about open trade lines or simply the color of her car. Will the customer appreciate this level of pro-activeness on the issuer’s part to verify the legality of the transaction? Absolutely. Merchants, who so far has been on the sidelines of the mobile payment euphoria, but for whom fraud is a real issue affecting their bottom-line, will also see the value. The race to mobile payments has been all about quickly shifting spend from plastic to mobile, and incenting that by enabling smartphones to store and deliver loyalty cards and coupons. The focus need to shift, or to include, how smartphones can be leveraged to address and reduce fraud at the point-of-sale – by bringing together context of the device and a real-time channel for multi-factor authentication. It’s relevant to talk about Google Wallet (in its revised form) and Fraud in this context. Issuers have been up in arms privately and publicly, in how Google displaces the issuer from the transaction by inserting itself in the middle and settles with the merchant prior to firing off an authorization request to the issuer on the merchant’s behalf. Issuers are worried that this could wreak havoc with their inbuilt fraud measures as the authorization request will be masked by Google and could potentially result in issuer failing to catch fraudulent transactions. Google has been assuaging issuer’s fears on this front, but has yet to offer something substantial – as it clearly does not intent to revert to where it was prior – having no visibility in to the payment transaction (read my post here). This is clearly shaping up to be an interesting showdown – would issuers start declining transactions where Google is the merchant of record? And how much more risk is Google willing to take, to become the entity in the middle? This content is a re-post from Cherian's personal blog: http://www.droplabs.co/?p=625

Part 2:  Common myths about credit risk scores and how to educate consumers In light of what I've heard in the marketplace through the years, I wanted to provide some information to help 'debunk' some common myths about credit scores. Myth: There is only one credit score Reality: There are multiple credit scores that lenders can use to evaluate consumer credit worthiness. As noted in a recent New York Times article, there are 49 FICO score models. Make sure your customers know that an underwriting decision is based on more than just a credit score—multiple factors are evaluated to make a lending decision. The most important thing a consumer can do is ensure their credit report is accurate. Myth:  The probability of default remains constant for a credit score over time Reality:  The probability of default can shift dramatically based on macro-economic conditions. In 2005, a score of 700 in any given model, may have had a probability of default of 2 percent, while in 2009, the same score could have had a probability of default of 8 percent. This underscores the value of conducting an annual validation of the credit model you are using to ensure your institution is making the most accurate lending decisions based on your risk tolerance. One of the benefits of utilizing the VantageScore® model, is that VantageScore® Solutions, LLC, produces an annual validation so you can ensure your institution is adjusting your strategies to meet changing economic conditions. Myth:  If the underlying credit report is the same at each credit reporting company, I will have the same score at each company Reality:  Traditional credit scoring models are completely different at each credit reporting company, which leads to vastly different scores or probabilities of default based on the same information. As a risk manager, this is very frustrating, as I may not understand which score most accurately assess the consumer’s probability of default. The only model that is the same across all credit reporting agencies is the VantageScore® model, where this is a patented feature that ensures the lender receives a consistent score (probability of default) across all bureau platforms. I hope these brief examples help clear up some confusion about credit scores. In Part 3 of this series, I will outline how to evaluate the risk of traditionally unscoreable consumers. If you have any thoughts or experiences from a lending perspective, please feel free to share them below.   Courtesy Why You Have 49 Different FICO Scores in the August 27, 2012 issue of the New York Times

By: Kyle Aiman Let’s face it, debt collectors often get a bad rap.  Sure, some of it is deserved, but the majority of the nation’s estimated 157,000 collectors strive to do their job in a way that will satisfy both their employer and the debtor.  One way to improve collector/debtor interaction is for the collector to be trained in consumer credit and counseling. In a recent article published on Collectionsandcreditrisk.com, Trevor Carone, Vice President of Portfolio and Collection Solutions at Experian, explored the concept of using credit education to help debt collectors function more like advisors instead of accusers.  If collectors gain a better understanding of consumer credit – how to read a credit report, how items may affect a credit score, how a credit score is compiled and what factors influence the score – perhaps they can offer suggestions for improvement. Will providing past-due consumers with a plan to help improve their credit increase payments?  Read the article and let us know what you think!

The August 2012 edition of the S&P/Experian Consumer Credit Default Indices showed that bankcard, first-mortgage and second-mortgage default rates hit new post recession lows. The first mortgage default rate decreased slightly, from 1.41 percent in July to 1.40 percent in August, and has been down or flat for eight consecutive months. The second-mortgage default rate fell to the lowest in its eight-plus-year history, reaching 0.72 percent. Bankcard default rates fell the most in August, from July's 3.83 percent to 3.77 percent, the lowest rate in five years. Source: Press release: Consumer Credit Default Rates Remain Near Recent Lows in August 2012.

By: Mike Horrocks It has been over a year that in Zuccotti Park the Occupy Wall Street crowd made their voices heard.  At the anniversary point of that movement, there has been a lot of debate on if the protest has fizzled away or is still alive and planning its next step.  Either way, it cannot be ignored that it did raise a voice in how consumers view their financial institutions and what actions they are willing to take i.e. “Bank Transfer Day”. In today’s market customer risk management must be balanced with retention strategies.  For example, here at Experian we value the voice of our clients and prospects and I personally lead our win/loss analysis efforts.  The feedback we get from our customers is priceless.   In a recent American Banker article, some great examples were given on how tuning into the voice of the consumer can turn into new business and an expanded market footprint. Some consumers however will do their talking by looking at other financial institutions or by slowly (or maybe rapidly) using your institution’s services less and less.   Technology Credit Union saw great results when they utilized retention triggers off of the credit data to get back out in front of their members with meaningful offers.     Maximizing the impact of internal data and spotting the customer-focused trends that can help with retention is even a better approach, since that data is taken at the “account on-us” level and can help stop risks before the customer starts to walk out the door. Phillip Knight, the founder of Nike once said, “My job is to listen to ideas”.  Your customers have some of the best ideas on how they can be retained and not lost to the competitors.  So, think how you can listen to the voice and the actions of your customers better, before they leave and take a walk in the park.

By: Maria Moynihan State and local governments responsible for growth may be missing out on an immediate and sizeable revenue opportunity if their data and processes for collections are not up to par. The Experian Public Sector team recently partnered with Governing Magazine to conduct a nationwide survey with state and local government professionals to better understand how their debt collections efforts are helping to address current revenue gaps. Interestingly enough, 81% stated that the economic climate has negatively impacted their collections efforts, either through reduced staff or reduced budgets, while 30% of respondents are actively looking for new technologies to aid in their debt collections processes. New technologies are always a worthwhile investment. Operational efficiencies will ultimately ensue, but those government organizations who are coupling this investment with improved data and analytics are even better positioned to optimize collections processes and benefit from growth in revenue streams. No longer does the public sector need to lag behind the private sector in debt recovery. With the total outstanding debt among the 50 states reaching an astounding size of approximately $631 billion dollars, why delay? Check out Experian's guide to improving debt collections efforts in the public sector. What is your agency doing to capitalize on revenue from overdue obligations?

In Experian's recent State of Credit study which analyzes credit scores in more than 100 cities, Minneapolis took the number one spot, with an average VantageScore® credit score of 787. The Midwest dominated the top 10 spots in the rankings and Wisconsin consumers continue to demonstrate their credit savvy, with four of the state's metropolitan areas making the top 10 list for the second year in a row. Top 10 highest average credit scores by city VantageScore® credit score rank City State Average VantageScore® credit score 1 Minneapolis MN 787 2 Madison WI 786 3 Wausau WI 785 4 Sioux Falls SD 784 5 Cedar Rapids IA 783 6 San Francisco CA 783 7 Green Bay WI 781 8 La Crosse WI 779 9 Boston MA 778 10 Duluth MN 777   View an interactive map and read the complete results of the State of Credit 2012 study. Source: Experian's State of Credit 2012 study VantageScore® is owned by VantageScore Solutions, LLC.

The average bankcard balance per consumer in Q2 2012 was $4,170, which is 4 percent higher when compared to the same quarter of the previous year. VantageScore A and VantageScore B tiers (super prime and prime) saw bankcard balances increase by 31 percent and 11 percent respectively, while all other VantageScore® tiers experienced annual balance decreases during the same timeframe. Listen to our recorded Webinar on consumer credit trends from the Q2 2012 Market Intelligence Reports, including bankcard trends and an in-depth look at the current state of the U.S. real estate market. Source: Experian Oliver-Wyman Market Intelligence Reports VantageScore® is owned by VantageScore Solutions, LLC.

By: Teri Tassara Negative liquidity, or owing more on your home than its value, has become a much too common theme in the past few years.  According to CoreLogic, 11 million consumers are underwater, representing 1 out of 4 homeowners in the nation.  The irony is with mortgage rates remaining at historic lows, consumers who can benefit the most from refinancing can’t qualify due to their negative liquidity situation. Mortgage Banker’s Association recently reported that approximately 74% of home loan volumes were mortgage re-finances in 2Q 2012.  Consumers who have been able to refinance to take advantage of the low interest rates already have, some even several times over.  But there is a segment of underwater consumers who are paying more than their scheduled amount in order to qualify for refinancing – which translates to growth opportunity in mortgage loan volume. Based on an Experian analysis of actual payment amount on mortgages, actual payment amount was reported on about 65% of open mortgages (actual payment amount is the amount the consumer paid the prior month).  And when the actual payment is reported, the study found that 82% of the consumers pay within their $100 of scheduled payment and 18% pay more than their scheduled amount. Actual payment amount information as reported on the credit file, used in combination with other analytics, can be a powerful tool to identify viable candidates for a mortgage refinance, versus those who may benefit from a loan modification offer.  Consumers methodically paying more than the scheduled payment amount may indicate that the consumer is trying to qualify for refinancing.  Conversely, if the consumer is not able to pay the scheduled payment about, that consumer may be an ideal candidate for a loan modification program.   Either way, actual payment amount can provide insight that can create a favorable situation for both the consumer and the lender, mitigating additional and unnecessary risk while providing growth opportunity. Find other related blog posts on credit and housing market trends.

What does the mortgage interest rate, currently at an all time low of 3.55% (for 30 yr. fixed), mean for financial institutions? According to the latest Experian-Oliver Wyman Market Intelligence Report, 75% of the mortgage originations are refinancing vs. purchasing loans. As mortgage rates decrease, financial institutions face losing mortgage loans to other lenders in the refinance climate. Consumers are looking to save money and mortgage payments are generally the largest monthly expense.  Economic indicators, such as decreasing credit card and mortgage delinquency rates, reveal that consumers are more watchful of their spending and more closely managing their debt. Overall consumer debt has come down 11% from the peak in 2008, with a majority coming from the lowest VantageScore® model credit populations. Consumer confidence continues to drop, indicating consumer pessimism due to increasing gas prices and declining job growth. Given the mixed trends in the economic landscape, we can conclude that some consumers are still doubtful on economic recovery and will seek ways to save more and pay down their debt. Consumers with existing mortgages will most likely take advantage of the lower mortgage rates and refinance. So how can financial institutions help prevent attrition? With the current economic situation, managing retention efforts on a daily basis is imperative to retaining consumers. By monitoring their portfolio and receiving information daily, financial institutions are quickly informed if an existing mortgage client is shopping for a new mortgage with another lender, enabling them to act swiftly to retain the business. Information obtained from daily monitoring of accounts helps financial institutions speak with customers more intelligently about their needs. Because of this competitive environment, and often irrelevance of brand loyalty, financial institutions need to build relationships and increase customer loyalty by quickly meeting the financial needs of their most profitable customers. To demonstrate how taking daily actions can help boost loyalty, reduce attrition, and increase profitability, the Technology Credit Union recently revealed how they obtained a 788% ROI. Access the case study here. What efforts has your institution taken to reduce attrition over the past year?   VantageScore is a registered trademark of VantageScore Solutions, LLC.

Loans to customers in the nonprime, subprime and deep-subprime credit risk tiers accounted for more than one in four new vehicle loans in Q2 2012. With 25.41 percent of all new vehicle loans opened by customers in the nonprime, subprime and deep-subprime credit risk tiers, loans for this group were up 14 percent when compared with Q2 2011. Listen to our recent Webinar on Q2 2012 automotive credit trends Source: Experian Automotive's quarterly credit trend analysis

By: Kyle Aiman For more than 20 years, creditors have been using scores in their lending operations.  They use risk models such as the VantageScore® credit score, FICO or others to predict what kind of risk to expect before making credit-granting decisions. Risk models like these do a great job of separating the “goods” from the “bads.” Debt recovery models are built differently-their job is to predict who is likely to pay once they have already become delinquent. While recovery models have not been around as long as risk models, recent improvements in analytics are producing great results.  In fact, the latest generation of recovery models can even predict who will pay the most. Hopefully, you are not using a risk model in your debt collection operations.  If you are, or if you are not using a model at all, here are five reasons to start using a recovery model: Increase debt recovery rates – Segmenting and prioritizing your portfolios will help increase recovery rates by allowing you to place emphasis on those accounts most likely to pay. Manage and reduce debt recovery costs – Develop treatment strategies of varying costs and apply appropriately. Do not waste time and money on uncollectible accounts. Outsource accounts to third party collection agencies – If you use outside agencies, use recovery scoring to identify accounts best suited for assignment; take the cream off the top to keep in house. Send accounts to legal – Identify accounts that would be better served using a legal strategy versus spending time and money using traditional treatments. Price accounts appropriately for sale – If you are in a position to sell accounts, recovery scoring can help you develop a pricing strategy based on expected collectibility. What recovery scoring tools are you using to optimize your company's debt collection efforts? Feel free to ask questions or share your thoughts below.   VantageScore® is a registered trademark of VantageScore Solutions, LLC.

Mortgage delinquencies continued to reach multi-year lows with the delinquency rate for those 60 plus days past due falling to 4.68 percent in Q2 2012 compared to 5.04 percent for the same quarter last year. The decline may be the result of lenders further tightening their criteria, as the average VantageScore® credit score for consumers who opened a new mortgage trade in Q1 2012 was seven points higher when compared to the same quarter in 2011 - 878 versus 871. Sign up now for a detailed overview of consumer credit trends from the Q2 2012 Experian-Oliver Wyman Market Intelligence Reports and an in-depth look at the current state of the U.S. real estate market. Source: Experian-Oliver Wyman Market Intelligence Reports. VantageScore® is owned by VantageScore Solutions, LLC.

With mortgage interest rates at historic lows, the risk of attrition and its impact on ongoing revenue has become a paramount concern for credit unions. By implementing an automated trigger program as part of its member retention efforts, one credit union was able to improve retention rates and grow its portfolio – achieving a return on investment of 788 percent. Find out how implementing a daily triggers program can help you improve retention rates and alert you when members are looking for new credit. Source: Notification Services Case Study.

When it comes to short sales, a status of "account paid in full for less than full balance" or "settled" will still have a negative impact on a credit score because it means the debt was not paid in full as agreed. According to VantageScore® Solutions LLC, a mortgage loan settled through a short sale typically results in a change of 120 to 130 points to the VantageScore® credit score. A foreclosure generally causes a decline of 130 to 140 points. The impact of the short sale or foreclosure will vary since scores take into account the individual's overall credit history. VantageScore® is owned by VantageScore Solutions, LLC. Register now for a detailed overview of consumer credit trends from the Q2 2012 Market Intelligence Reports. Also during this event, we'll take an in-depth look at understanding the current state of the U.S. real estate market. Source: The Ask Experian team advice blog.