Equifax® White Paper

Nancy Conner
Senior Director, Product Marketing
Financial Services

Originally published June 2015

About Equifax
Equifax is a global leader in consumer and commercial information solutions, providing businesses of all sizes and consumers with information they can trust. We organize and assimilate data on more than 600 million consumers and 81 million businesses worldwide, and use advanced analytics and proprietary technology to create and deliver customized insights that enrich both the performance of businesses and the lives of consumers. For more information, please visit Equifax.com.

Retail Banking: The Future of Demand
The market for Demand Deposit Accounts (DDAs) is changing. Tight regulatory oversight is curtailing fee income and tough economic conditions mean fewer consumers are shopping around their financial services. The result is less profit potential for retail banks. To adjust for these shifting conditions, retail banks must rethink how they acquire and evaluate DDAs at the point of sale in order to create profitable household accounts and lasting customer relationships.

This brief white paper explores how the alternative data used in the Equifax Insight Score for Retail Banking can help banks more accurately assess DDA risk and opportunity in this new environment by offering a more comprehensive view of a consumer’s financial obligations.

New demand for new data
The credit report has long been the standard measure of a consumer’s financial capacity, responsibility and risk potential. But, two gaping holes in its coverage are becoming big issues in today’s DDA market.

First, credit files only show a partial picture of a consumer’s monthly financial obligations, and exclude information on vital bills such as cable, phone and utilities. An individual’s payment history on any of these obligations can enhance your understanding of their ability to pay, and level of financial responsibility.

Second, a massive population of Americans—roughly 70 million consumers—simply don’t have a traditional credit file due to a variety of circumstances such as age, marital status and immigration status.1 Without a credit file, consumers are all too often turned away by retail banks.

This lack of coverage is causing banks to overlook a wide swath of quality customers who could positively impact their bottom line now and well into the future.

Alternative data and why it’s the future of profitable retail banking
Alternative data can take many forms and deliver varying degrees of insights. In the broadest sense, alternative data refers to any non-financial payment reporting information such as public records, rental records or payment history from the utility, pay TV, wireline and wireless industries not found on the credit file.

The Equifax NCTUE database is a powerful alternative data source that consists of payment information provided by a range of reliable sources, such as utilities and telecommunications providers, that is not available in the credit file.

Due to the nature of the industries included, the NCTUE database also captures payment information about millions of unbanked and underbanked consumers that cannot be found elsewhere.

Many banking thought leaders consider alternative data like Equifax’s NCTUE database the future of profitable retail banking because it provides insight into those building or repairing credit as well as supplying net new information on the roughly 64 million consumers who do not have traditional credit.

When combined with credit sources, NCTUE data can be a powerful indicator of both the risk and potential of consumer demand deposit accounts.

Insight Score for Retail Banking (ISRB)—the right alternative data score for right now decisions
As the only DDA-specific score that utilizes proprietary alternative data along with the positive and negative data from the traditional Equifax credit file, ISRB can help retail banks identify and serve more households.

According to extensive Equifax data testing, ISRB scores 10 percent to 11 percent more DDA accounts than a traditional risk score alone. Likewise, it captures more bads (frequency) and charge-off dollars (amount) than a generic credit score alone. (Figure 1)

Effectively rank ordering DDA risk enables significant flexibility in new account treatment strategies, allowing financial institutions to align solutions with potential risk. (Figure 2)

In addition to supporting more dynamic and flexible account treatment strategies that help expand DDA portfolios, increase profits and protect against risk, ISRB also produces incremental benefits in overdraft and non-sufficient funds decisioning by providing insight into the customer’s credit and payment history, enabling better decisions across all new account opening channels.

Conclusion: the future starts now
As Brad Jones, Vice President and Retail Banking Vertical Leader at Equifax, so aptly put it, “It’s not about opening as many accounts as possible and simply avoiding the worst of the worst, it’s about opening the right accounts and engaging households immediately. And that means having more and better data available immediately.”

While traditional credit file attributes remain relevant for many consumers, expanded insight is needed now, and preferably at the point of sale, in order to maximize DDA account values, grow portfolios and mitigate risk. The alternative data included within ISRB significantly strengthens the predictive decisioning power of traditional credit scores by drawing on highly relevant consumer payment history for Telco and utility services. By incorporating ISRB at the point of sale, retail banks are immediately empowered to refresh and realign their DDA acquisition and evaluation strategies with evolving market conditions, reach a wider audience of lucrative household customers and securely grow account revenues now and well into the future.

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