Account growth has become the number one priority for lenders as they cautiously begin to grant more credit to consumers. However, with a limited pool of potential customers and a desire to avoid taking on too much risk this is not an easy task.
Lenders are falling behind on the methods they use to approve credit. Many financial institutions are not aware that there is a new generation of prescreen capabilities that helps lenders grant credit to more consumers without changing their risk tolerance.
This is possible because the new methods for prescreening provide a more comprehensive evaluation of consumers. To understand the significance of the next generation of prescreen, it is essential to know its evolution.
Batch Prescreen
Most financial institutions are very familiar with the first version of prescreen, called batch prescreen, which involves printing and mailing thousands or millions of either generic or custom mass credit offers.
Using this process, FIs prescreen “batches” of prospective customers for a specific credit product and then send direct mail offers for that product to qualifying prospective customers. This method is still widely used, but it comes with large financial and environmental costs and only a slight return.
In addition, batch prescreen offers often need to be decisioned again when a consumer responds, further adding to the cost and creating a poor customer experience.
Instant Prescreen
In the early 90s instant prescreen, also known as prescreen-of-one, was introduced as a more effective way to gain new customers for credit products. This method became more successful than batch prescreen as consumers have a greater propensity to accept offers when they initiate an interaction with their bank and are in the purchasing mind frame (the average acceptance rate for a mature realtime prescreened credit card program is roughly 20%, while the industry average for batch prescreen acceptance rates is approximately 0.6%). With instant prescreen lenders do not need to further screen the customer; the credit criteria established provides the final credit offer.
With instant prescreen, institutions are able to make realtime offers to customers through any channel. This is a more efficient way to extend offers of credit because it eliminates traditional processes that require consumers to fill out an application and wait, sometimes for days, to find out if they have been approved.
Instant prescreen can also allow customers to begin using their new account immediately. Booking an initial balance on the card increases long term utilization and the profitability of the relationship. Even though instant prescreen is a big leap forward, many banks are still not taking advantage of the improved results over batch and now an even more sophisticated prescreening process is available.
The Next Generation Of Prescreen
The next generation of prescreen provides lenders with information that broadens the use and appeal of instant prescreen to more effectively manage the credit environment today. This further evolution takes the existing instant prescreen model and improves its accuracy and predictability by integrating new types of data into the prescreen environment.
Lenders are able to grant credit to a greater number of consumers, without changing their risk tolerance, and gain insight regarding the most appropriate credit product to offer. The result; a better customer experience and increased acceptance rates (not to mention increased profits) for creditors.
The new model gives lenders a more complete view of full file consumers and enables sound decisions for thin and no file consumers that may have otherwise been declined or perhaps not even considered as viable credit customers. Recent testing of consumer credit files using alternative data for instant prescreen by one of our data partners has shown a 60% lift in approvals for consumers with thin files and a 15% lift for full file consumers.
These tests also found that the majority of consumers that are returned as a “no hit” can be scored based on demographic data not available in a traditional credit bureau file (i.e. professional licenses, asset information, education, utility records, rent payments, fraud data, address changes, collections data, pay day lending, lien information, etc.). Supplementing traditional credit bureau data with more complete consumer information also helps lenders lower their screening costs by ruling out less qualified credit applicants sooner in the process.
While the evolution of instant prescreen is not yet fully understood by the entire financial industry, it brings business benefits that cannot be overlooked. The new capabilities strengthen the underwriting process, help lenders segment customers for marketing campaigns and integrate easily with other technology capabilities including offer repositories, propensity scoring and cross-sell.
Incorporating new types of data into the instant prescreen process gives lenders more flexibility to comply with new regulations, improve credit risk evaluation and enhance the customer experience. Those that use it are gaining a wise advantage over the rest of the market.
Eric Lindeen is director of marketing for Zoot Enterprises in Bozeman, Mont. His e-mail is eric@zootweb.com.
Editor’s Note:
Instant prescreen is a process that allows banks to assess a consumer’s creditworthiness from credit report data in certain limited circumstances without the consumer’s advance consent.
There are a few companies that can act as agents to a number of established bureaus, providing the ability for banks to facilitate this type of prescreen processing. Under FCRA rules, banks are not permitted in a prescreen transaction to actually see a consumer’s credit data in the decisioning process, and for any consumer passing the prescreen filter, the bank must make a “firm offer of credit”.
