Tag: covid

Today, Experian and Oliver Wyman launched the Ascend Portfolio Loss ForecasterTM, a solution built to help lenders make better decisions – during COVID-19 and beyond – with customized forecasts and macroeconomic data. Phrases like “the new normal,” “unprecedented times,” and “extreme economic volatility” have flooded not only media for the last few months, but also financial institutions’ strategic discussions regarding plans to move forward. What has largely been crisis response is quickly shifting to an urgent need to answer the many questions around “Will we survive this crisis?,” let alone “What’s next?” And arguably, we’ve entered a new era of loss forecasting. After the longest period of economic growth in post-war U.S. history, previously built models are not sufficient for the unprecedented and sudden changes in economic conditions due to COVID-19. Lenders need instant insights to assess impact and losses to their portfolios. The Ascend Portfolio Loss Forecaster combines advanced modeling from Oliver Wyman,  pandemic-specific insights and macroeconomic scenarios from Oxford Economics, and Experian’s quality data to analyze and produce accurate loan loss forecasts. Additionally, all of the data, including the forecasts and models, are regularly updated as macroeconomic conditions change. “Experian’s agility and innovative technologies allow us to help lenders make informed decisions in real time to mitigate future risk,” said Greg Wright, chief product officer of Experian’s Consumer Information Services, in a recent press release. “We’re proud to work with our partners, Oxford Economics and Oliver Wyman, to bring lenders a product powered by machine learning, comprehensive data and macroeconomic forecast scenarios.” Built using advanced modeling and expert scenarios, the web-based application maximizes the more than 15 years of Experian’s loan-level data, including VantageScore® credit score, bankruptcy scores and customer-level attributes.  Financial institutions can gauge loan portfolio performance under various scenarios. “It is important that the banks take into account the evolving credit behaviors due to the COVID-19 pandemic, in addition to the robust modeling technique for their loss forecasting and strategic decisioning,” said Anshul Verma, senior director of products at Oliver Wyman, also in the release. “With the Ascend Portfolio Loss Forecaster, lenders get robust models that work in the current conditions and take into account evolving consumer behaviors,” Verma said. To watch Experian’s webinar on portfolio loss forecasting, please click here and to learn more about the Ascend Portfolio Loss Forecaster, click the button below. Learn More

Rays of hope are beginning to shine in the economy that suggest the U.S. may have moved beyond the most acute phase of the economic crisis. The housing sector, in particular, looks poised to regain momentum and perhaps lead the path towards stabilization in the second half of 2020. A “V-Shaped” rebound in mortgage applications Despite record levels of unemployment and widespread economic uncertainty, homebuyers have returned to the market with conviction. After shelter-in-place restrictions curtailed open-house visits and crimped buyer demand in early April, applications to purchase a home have risen for six consecutive weeks, according to the Mortgage Bankers Association. The latest data for the week of May 22nd, indicate that purchase applications were 9% higher than during the same period in 2019. If this trend continues, it will show that significant pent-up demand exists in the housing market that may be able to offset some of the lost spring buying season. April new home sales far exceed expectations After declining by 13.7% in March, new home sales rose a modest 0.6% in April. While this was only a slight gain, it was considerably above economists’ projections of a fall of 20% and may mark the turning point in the downtrend. Since the recording of new home sales data occurs when the purchase contract is signed or a deposit is accepted – and is typically for a house that hasn’t been built yet or is currently under construction – it provides a gauge of how buyers feel about their future economic prospects. Building a home also requires hiring new construction workers, buying building supplies, and supporting a host of ancillary industries, thus making it an indicator of further economic activity. Some of the increase in demand for new homes may have been driven by coronavirus quirks. The number of existing homes on the market is at record lows and many people may have been reluctant to put their home up for sale and have buyers tour as health concerns remain. Buyers, as well, may have preferred to steer clear of occupied homes or were unable to make in-person visits due to shelter-in-place restrictions. This lack of options for home buyers, coupled with record-low mortgage rates, likely drove sales of new homes higher. However, for the same reasons why new home sales rose, pending sales for existing homes fell sharply. In April, the National Association of Realtors reported that sales declined by 21.8%, which is the largest drop in ten years. Home prices continue to gain ground Even with shelter-in-place restrictions dampening buyer demand in early April, home values have continued to rise. This is because the supply of homes on the market also contracted, resulting in a simultaneous drop of demand and supply.  According to Zillow Research, the total inventory of homes for sale is down roughly 20% from this time last year. With fewer competing homes on the market, sellers have been reluctant to slash prices and are betting that the lack of options and low mortgage rates will keep buyers on the hook. In April, U.S. home values rose 4.3% from the year before. The states with the strongest growth were Idaho (9.8%), Arizona (8.5%), Maine (7.6%), and Washington (7.4%). It will be interesting to see if this pattern of growth changes as newly implemented work from home policies may shift where people prefer to live and work. Why it matters The housing market has an outsized influence on the overall direction of the U.S. economy. Housing is not only is a big contributor to economic growth, but many owners have a large portion of their wealth tied up in their home. If the housing market can find its footing in the second half of 2020, then it could set the stage for an eventual economic recovery. Learn more

The largest industry disruptor was a surprise to everyone. Where bets may have been placed on digital transformation, automated decisioning, or better omnichannel programs, no one foresaw the global pandemic of COVID-19 and the corresponding economic fall out that ensued. As financial institutions have spent the past two months scattered and then regrouping, whether with pivoted downturn contingency strategies or with a business-focused Hail Mary, some might argue that the dust is beginning to settle. While the world and the majority of businesses are working to manage and stabilize a new normal against a background of some form of chaos, once federal and state regulations are loosened, the world – and financial institutions in particular – will need a plan forward. So, what comes after COVID-19? With stimulus checks and what everyone hopes will soon be a re-stimulating of the economy, consumers will seek credit. And when that influx comes, there will be a need to strategize what is the right offer for the right consumer. How do you take on more customers while minimizing risk? Non-existent and/or shrinking budgets Many marketing budgets were already small prior to the global pandemic, so coming out of it, to say every marketing dollar counts is an understatement. Traditional prescreen, while a pillar in acquisition operations, is an antiquated strategy. Using hyper-segmentation via a true end-to-end marketing service, pumped up by the right data for decision making, enables financial institutions to not only build the right audience but tailor quality experiences that increase engagement and loyalty. That means ultimately reducing operating costs while improving experiences and take rates. Work from home turned life from home Going virtual has gone viral. Seemingly overnight, most brick and mortar operations went online. Some versions of digital transformation became a need to have, versus a nice to have, and the gap between the financial institutions who were equipped to pivot online, versus those who were not, spread further. As the vast majority of consumers are at home – whether by way of work from home or furlough – our society has quickly embraced everything being online. Reach your consumers where they are, in the digital-first channels to which they have become familiar with and accustomed. As consumers are at the center of every marketing strategy, engaging omnichannel delivery enhances reach across critical touchpoints. Inclusive of social media, email, direct mail, TV, and more, the campaign should provide a seamless experience, all working together in a synchronized fashion. Consistency has always been key, but especially during these volatile times, to reflect stability, empathy and constant messaging is an undertone that can only help strengthen consumers’ view of your organization. Learn fast, grow faster For marketing financial products, it’s a matter of connecting the dots between consumer touchpoints and results data. By making these critical connections, financial institutions will be better positioned to identify the most effective elements in the campaign. By gleaning more insights from campaign performance, organizations can optimize future campaigns and minimize wasted ad spend. These key learnings, delivered at the end of every campaign cycle, help your organization to remain nimble, pivot quickly and execute campaigns that get increasingly better ROI as you hone in on the nuances revealed by data on consumer behavior, preferences, motivations and more. Changing times and even faster-changing needs There’s always been a need for faster decisioning and more results with increasingly fewer resources. The need for speed has been put on hyperdrive as the economy has entered the current environment. How do you keep up with the changing needs of your consumers? Get your marketing right from the start and see results through to the end. Incorporating the right data, advanced analytics and constant access ultimately enable more strategic focus and shorter campaign cycles. As we all navigate the ever-changing “normal,” offering the right support to your consumers is the right thing to do for them and for you. Managing rising consumer needs, while also minimizing risk to your bottom line, is also the right thing to do for your business. Once plans move from managing business operations through the crisis to moving forward, make sure your marketing – how you are reaching out to existing customers and prospective customers for the next steps in their financial journey – is data-driven. To learn more about how Experian can help you execute data-driven marketing that fuels customer acquisition, visit our website. Learn More

There is no doubt that there will be many headlines published about the latest Bureau of Labor Statistics (BLS) jobs report. The official unemployment rate spiked to 14.7%, the highest level since the Great Depression, and employers shed an unprecedented 20.5 million jobs. However, given the scale and pace that businesses around the country are adjusting their workforces, these headline numbers – especially the official unemployment rate – fall short in capturing the nuances and internal dynamics of the crisis. To get a better picture of labor market health in the coming months, there are three other components reported in BLS’s employment release that require close attention: the underemployment rate, the labor force participation rate, and the employment-population ratio. Tracking underemployment The BLS reports six unemployment figures in its monthly employment release, U1 – U6. The most cited is the “official” unemployment rate, which is U3. However, in the current crisis, the more salient measure of unemployment is U6, which is often known as the “underemployment” rate. This is because the underemployment (U6) rate takes the unemployed and adds on part-time workers who want a full-time job (BLS calls this segment “part time for economic reasons”), plus marginally attached and discouraged workers (those who don’t think they can find work). Viewing the employment landscape through this lens provides greater insight into the pain points within the labor market. In April, the underemployment rose from 8.7% to 22.8% - the largest jump on record. A large contributor to the rise was a doubling of the number of part-time workers that wanted a full-time job. Mirroring what happened in previous downturns, the rise in this segment was caused by employers downshifting workers into part-time roles. The official unemployment rate will miss this insight as it classifies everyone who is working as “employed”, regardless if they worked one hour or 100 hours. Trends in the underemployment rate will be especially important to watch as the recovery gets underway. If employers are doubtful of a strong rebound, they may keep employees on as part time and forgo filling any full-time positions. Who’s in and who’s out of the labor force The labor force participation rate is the percentage of the working-age population (aged 16+) that is employed or searching for a job. A decline in the labor force participation rate means that people are leaving the workforce and are no longer looking for employment. April’s employment report showed labor force participation declining from 62.7% to 60.2%. Teenage participation was especially hard hit, dropping from 35.5% to 30.8% - the lowest level since the government started collecting the data in 1948. During the recovery phase, tracking what happens with labor force participation will provide insight into how potential workers perceive their chances of landing a job and if it is safe to return. A healthy (or improving) labor market will bring people off the sidelines in search of work, while a weak labor market will do the opposite. Get a clearer view with the employment-population ratio In the current environment where people are bouncing rapidly between employed, unemployed, underemployed, and out of the labor force, tracking the employment-population ratio provides a more stable baseline to view the economic environment. The latest data shows that the employment-population ratio dropped to the lowest level on record of 51.3% in April. This means that only half of people who are of working age in the U.S. are currently employed in some form. Unlike the unemployment rate, which is calculated by dividing the number of unemployed workers by the labor force and thus subject to more variation as people start and stop looking for work, the employment to population ratio is the percentage of the total working-age population that is currently employed. By having a more stable baseline, it is easier to locate trends and see through the market gyrations. And finally, why it matters The labor market is the backbone of the economy and is the engine that powers the US consumer. But the ongoing crisis and rapid reallocation of the workforce has made it difficult to get a clear picture on what is happening at the ground level. By going beyond the headlines, businesses and financial institutions can glean nuanced insights that provide a better view of where the opportunities lie and how the recovery is likely to unfold. Learn more

Amid the fallout of COVID-19, I often find myself thinking about the impact the pandemic has had and will have on businesses in the coming months—particularly those within the automotive industry. The impact has reached all facets of the industry, leaving dealerships to take unprecedented action. Some have temporarily closed, while many have shifted business priorities to focus on maintenance and repair. Like everyone, we in the automotive industry are concerned about the health and safety of our family, friends and communities.  Much like the rest of small business owners, those that oversee dealerships are also concerned about the wellbeing of their work families. The automotive industry is a pillar of our economy, and dealerships are staples within our local communities. Experian has an unwavering commitment to help the industry navigate these uncertain times and address challenges as they arise. The pandemic has impacted groups of people differently and at different times. It’s important for those within the automotive industry to understand how consumer sentiment and priorities will shift over the coming months, in order to address their most pressing needs. As such, Experian launched a daily survey of the general population to gain insight into shifting consumer sentiment as a result of the pandemic. The survey reveals how consumers are dealing with the outbreak across key industries, including automotive. As of May 4, 2020, only 20 percent of Americans plan on buying a new car, truck, van or motorcycle within the next few months, and of those, only 50 percent plan to continue the purchase as planned. 26 percent plan to delay the purchase a few months. While car shopping may not be a priority for most in the coming months, there are consumers who will need to replace their vehicle sooner rather than later—perhaps their lease is set to expire, or they’ve experienced car trouble. In these instances, it’s important for dealers to be able to connect with these consumers to help them understand the options available to them. With this urgency in mind, Experian is providing dealers with complimentary access to nationwide and local automotive market trends. The information will be updated weekly to help dealers gain insight into current sales trends and website traffic, better understand in-market car shoppers and identify the most effective communications channels. For instance, during the week of April 27, dealer website traffic was down 11 percent from the same time last year. That said, web site traffic has picked back up over the past few weeks.. With the short- and long-term impacts of the pandemic largely unknown, dealerships must adapt quickly. Consumers' vehicle needs will shift based on circumstance, and it’s important for dealers to continually assess the market. We are all adapting to our new environment, and will need to collaborate to find ways to combat the fallout—it’s a difficult time for many, including dealers. The automotive market will recover, and Experian is committed to helping the automotive industry navigate the recovery and ensure car shoppers can find vehicles that meet their needs. To view the Automotive Trends & Marketing Insights and sign up to receive your complimentary local market trends, click here. To view the Consumer Sentiment Index, click here.

After two consecutive emergency meetings in March and numerous stimulus announcements, the Federal Open Market Committee (FOMC) finally got back on track and wrapped up their standard two-day meeting on April 29th. While Fed officials did not make any changes to the federal funds rate – which is currently sitting near zero - or to the level of purchases of treasuries and mortgage-backed securities, they did provide a glimpse into how long rates are likely to remain at their current levels. Hint: It is going to be a while. Understanding the Fed’s statement   In order to get a clearer picture of what the Fed is thinking, skip the headlines and go straight to the source – the post-meeting press release. Here is the most important paragraph from their statement (with the key components underlined): “The ongoing public health crisis will weigh heavily on economic activity, employment, and inflation in the near term, and poses considerable risks to the economic outlook over the medium term. In light of these developments, the Committee decided to maintain the target range for the federal funds rate at 0 to 1/4 percent. The Committee expects to maintain this target range until it is confident that the economy has weathered recent events and is on track to achieve its maximum employment and price stability goals.” Just by taking the statement at face value, it is clear the Fed is going to keep rates where they are for some time, but for how long? That depends on how the key phrases are interpreted. The first, “over the medium term”, seems simple but requires some detective work. What does “medium term” mean? In the post-meeting press conference, the Fed Chairman was asked this question and he alluded that it likely means a year or more. So, there is part 1 - the Fed expects to keep rates near zero for at least a year. That is not all that surprising, but it does provide a floor: a minimum timeframe. Key phrase 2, however, requires a bit more effort but is where the real story lives. The dual mandate is no longer a balancing act “The Committee expects to maintain this target range until it is confident that the economy has weathered recent events and is on track to achieve its maximum employment and price stability goals.” There is a lot of economics in that sentence. The Fed has been mandated by Congress to achieve two primary goals – maximum employment and price stability (inflation near 2%). These two goals, or the “dual mandate” as they are often referred to, seem simple but have historically been at odds. The thinking went that if the Fed kept interest rates low to support employment, then inflation would rise. And if the Fed increased interest rates to control inflation, then employment would decline. A delicate balance - at least it was thought. Somewhere in the last couple of years Fed officials have realized that even after a decade of near-zero interest rates following the financial crisis and very-low levels of unemployment, inflation has remained persistently below their 2% target. Something has broken in the relationship. This is key, because it means that the Fed now feels free to keep interest rates exceptionally low in order to get employment back on track, without having to worry about inflation; and may in fact need to keep rates lower for longer in order to boost inflation. Both sides of the dual mandate now appear to require low rates. Chasing “maximum employment” With inflation no longer a priority for Fed officials at the moment, their sights are set squarely on achieving the maximum employment portion of the mandate. But what does it mean to achieve “maximum employment”? Well, it is an elusive target, but in general, it is the point at which rising wages leads to higher inflation – the result of businesses increasing pay to compete for a shrinking supply of workers. What is known is that even when the unemployment rate was at a 50-year low of 3.5% in early 2020, wages were not rising much. Which indicates that the economy may have been near maximum employment but was not quite there yet. So, to achieve maximum employment, unemployment needs to be somewhere near 3.5% and that could take some time, a long time. Current range estimates show the unemployment rate rising to anywhere between 12 – 30% in the coming months. And a recent report out of the Congressional Budget Office projected that unemployment will still be around 9.5% at the end of 2021. The last time the unemployment rate was at 9.5% was right after the financial crisis, and from that point it took nearly a decade for the rate to fall to 3.5%. And while it is not expected that the current crisis will be as prolonged as the previous one, it still provides a reference point as to how long it can take to recover job losses. So how long does the Fed expect to keep rates near zero? One year at the very minimum, easily two years, and perhaps up to a decade.

  Many small businesses in the hardest-hit states missed out on the first round of federal relief through the recently created Paycheck Protection Program (PPP). The Coronavirus Aid, Relief, and Economic Security (CARES) Act established the PPP in order to disburse $349 billion in forgivable loans to small businesses hurt by the COVID-19 outbreak. However, the program’s funding limit and first-come, first-serve method for accepting loan applications put an immense strain on the financial institutions tasked with getting the money out the door. This resulted in many small businesses unable to get their applications submitted, approved, and funded before the program ran out of money after only two weeks. Where did the money go? The latest data from the Small Business Administration shows that the most populous states received the largest number of PPP loans. This is unsurprising, as states with higher populations tend to have a greater number of small businesses. One way to get a better picture of the impact of PPP loans on communities is to examine what percentage of a state’s small businesses received PPP loans (Figure 1). When viewed through this lens, the results are a quite striking - many of the coastal areas and larger markets missed out, while the rural, north-central states won out. Less than 4% of small businesses in California, Florida, and New York – three of the top five largest markets – were approved for PPP loans. While more than 12% of small businesses in North Dakota, Nebraska, and South Dakota received support.       What happened? There are several factors that could have played a part in the uneven distribution of PPP loans. One explanation may be that some financial institutions in highly populated urban areas did not have the capacity to process such a large volume of loan applications in such a short amount of time. There may also be an urban-rural divide to how relationship banking occurs. Rural communities and small businesses with close-knit ties to area financial institutions may have had easier access to getting their PPP applications submitted and approved. In line with this, Figure 2 shows the top five and bottom five states in terms of financial institutions (banks and credit unions) per 100,000 people. The states with the highest prevalence of financial institutions were also the top states for PPP small business loan share. While the states with the lowest prevalence of financial institutions were the states with the smallest share. Another factor may have been the extent that shelter-in-place rules were being enforced. North Dakota, Nebraska, and South Dakota – the three top states for loan share – are part of the handful of states that still do not have statewide lockdowns. California, on the other hand, was the first state in the country to issue shelter-in-place measures. Why it matters The first round of stimulus through the Paycheck Protection Program provided relief for many small businesses around the country. However, the first-come, first-serve method of distributing loans may have resulted in some small business communities having easier access to the program than others. Insights as to why these differences occurred and why small businesses in the larger markets received a lower share of PPP loans can inform future stimulus efforts and ensure that recovery among the states is as even and broad as possible.   Figure 1 Sources: Small Business Administration Paycheck Protection Program Report 4/16/2020, Census Bureau SUSB and NES Statistics. Author’s calculations. Figure 2 Sources: Experian data on financial institutions, Census Bureau population estimates. Author's calculations.

The response to the coronavirus (COVID-19) health crisis requires a brand-new mindset from businesses across the country. As part of our recently launched Q&A perspective series, Jim Bander, Market Lead of Analytics and Optimization and Kathleen Peters, Senior Vice President of Fraud and Identity, provided insight into how businesses can work to mitigate fraud and portfolio risk. Q: How can financial institutions mitigate fraud risk while monitoring portfolios? JB: The most important shift in portfolio monitoring is the view of the customer, because it’s very different during times of crisis than it is during expansionary periods. Financial institutions need to take a holistic view of their customers and use additional credit dimensions to understand consumers’ reactions to stress. While many businesses were preparing for a recession, the economic downturn caused by the coronavirus has already surpassed the stress-testing that most businesses performed. To help mitigate the increased risk, businesses need to understand how their stress testing was performed in the past and run new stress tests to understand how financially sound their institution is. KP: Most businesses—and particularly financial institutions—have suspended or relaxed many of their usual risk mitigation tools and strategies, in an effort to help support customers during this time of uncertainty. Many financial institutions are offering debt and late fee forgiveness, credit extensions, and more to help consumers bridge the financial gaps caused by the economic downturn. Unfortunately, the same actions that help consumers can hamstring fraud prevention efforts because they impact the usual risk indicators. To weather this storm, financial institutions need to pivot from standard risk mitigation strategies to more targeted fraud and identity strategies. Q: How can financial institutions’ exposure to risk be managed? JB: Financial institutions are trying to extend as much credit as is reasonably possible—per government guidelines—but when the first stage of this crisis passes, they need to be prepared to deal with the consequences. Specifically, which borrowers will actually repay their loans. Financial institutions should monitor consumer health and use proactive outreach to offer assistance while keeping a finger on the pulse of their customers’ financial health. For the foreseeable future, the focus will be on extending credit, not collecting on debt, but now is the time to start preparing for the economic aftermath. Consumer health monitoring is key, and it must include a strategy to differentiate credit abusers and other fraudsters from overall good consumers who are just financially stressed. KP: As financial institutions work to get all of their customers set up with online and mobile banking and account access, there’s an influx of new requests that all require consumer authentication, device identification, and sometimes even underwriting. All of this puts pressure on already strained resources which means increased fraud risk. To manage this risk, businesses need to balance customer experience—particularly minimizing friction—with vigilance against fraudsters and reputational risk. It will require a robust and flexible fraud strategy that utilizes automated tools as much as possible to free up personnel to follow up on the riskiest users and transactions.   Experian is closely monitoring the updates around the coronavirus outbreak and its widespread impact on both consumers and businesses. We will continue to share industry-leading insights to help financial institutions manage their portfolios and protect against losses. Learn more About Our Experts: [avatar user="jim.bander" /] Jim Bander, Market Lead, Analytics and Optimization, Experian Decision Analytics, North America Jim joined Experian in April 2018 and is responsible for solutions and value propositions applying analytics for financial institutions and other Experian business-to-business clients throughout North America. He has over 20 years of analytics, software, engineering and risk management experience across a variety of industries and disciplines. Jim has applied decision science to many industries, including banking, transportation and the public sector. [avatar user="kathleen.peters" /] Kathleen Peters, Vice President, Fraud and Identity, Experian Decision Analytics, North America Kathleen joined Experian in 2013 to lead business development and international sales for the recently acquired 41st Parameter business in San Jose, Calif. She went on to lead product management for Experian’s fraud and identity group within the global Decision Analytics organization, launching Experian’s CrossCore® platform in 2016, a groundbreaking and award-winning new offering for the fraud and identity market. The last two years, Kathleen has been named a “Top 100 Influencer in Identity” by One World Identity (OWI), an exclusive list that annually recognizes influencers and leaders from across the globe, showcasing a who’s who of people to know in the identity space.