Headlines

Morocco signs up Experian to provide new credit bureau

A credit bureau is a crucial step for the future of Morocco's banking system.

New Business SM, Collect SM and Hunter from Experian reduce
operational costs, facilitate decision making and improve the bank’s credit portfolio.

Features

Scorecard series - Reject inferences

The fifth article in a series relating to scorecard development.

Fraud Focus

LV case study

Cutting credit card losses by 90% by combating application fraud.

Industry Insight

Introducing CPA 700 - the new CPA data submission lay-out

This is an enhancement to the existing CPA 500 lay-out and aims to support the dynamics of South Africa's changing credit landscape.

Debt Counsellors and NCR move a step closer to limit excessive fees for consumers

The guidelines are an interim measure aimed at setting maximum fees that Debt Counsellors may charge in order to limit exploitation of over-indebted consumers.

Solution Focus

The Origination Solution for SME

This solution brings together robust application processing, data connectivity, decisioning technology, predictive analytics and expert consulting.

 

Headlines

Morocco signs up Experian to provide new credit bureau

The Moroccan Central Bank, Bank Al-Maghrib, has signed a 25 year agreement with Experian, the global information services company, to upgrade and run its Credit Bureau facilities in Morocco.

The agreement was signed during a press conference in Rabat on 11 February by Mr. Abdellatif Jouahri, Governor of the Central Bank, and Mr. Luciano Manzo, President of Experian Morocco and Senior Vice President of Experian.

Mr. Jouahri said that the Credit Bureau is a crucial step for the future of Morocco's banking system: “The Credit Bureau is a first in the region. It will help Morocco maintain its substantial lead in the credit industry and will contribute significantly to the development of credit, especially in the SME segment. The Credit Bureau will provide credit institutions with objective, reliable and pertinent data to assist them in the underwriting process.”

Mr Manzo stressed the importance of Morocco in the international development strategy of Experian: “This operation fits our strategic expansion objectives in the region. We have a clear focus in the region and we wish to strengthen our position in supplying risk management services to the banking and telecoms sectors. Experian is one of the world's largest and most successful providers of credit bureau services, operating credit bureaux in 15 markets around the world, including in highly developed areas such as the UK and USA.”

Beyond the Credit Bureau, it is Experian's intention to provide solutions and software from its other lines of business.

Mr Manzo continued: The demand for fast, accurate information in decision making is growing rapidly in financial markets around the world, and Morocco is no exception. Financial institutions need to base their decisions on relevant information, so automated and sophisticated credit information retrieval systems are key to managing credit risk. The predictive power of decision making systems is enhanced by the sharing of credit information via credit bureaux, resulting in better risk management, and plays a critical role in countries' economic growth .”

The Credit Bureau will be developed and managed by Experian Morocco through EXP Services Maroc, a newly created subsidiary. The operation will use best practice software, solutions, added value products and Credit Bureau scores from Experian to enhance credit vetting procedures in the country and, as a result help banks and other finance institutions control risk in a fast growing credit market.

Some of the most important financial institutions in Morocco have taken stakes in Experian Morocco, including Attijari Wafa bank, BMCE, BMCI, SGBM and CNIA, a leading insurance company. Other important banking institutions are expected to follow suit.

The Credit Bureau is expected to launch operations on 1 January 2009.

 

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Experian helps VTB 24 to significantly reduce costs and boost operating efficiency

Bank VTB 24, part of VTB Group, one of the fastest growing Russian credit institutions serving individuals, entrepreneurs and small businesses, has reported a substantial increase in efficiency across its operations following the introduction of a series of products from Experian®, including New Business SM, Collect SM and Hunter.

Since July 2006, VTB 24 has been using scorecards for all of its retail products (credit cards, consumer loans, autoloans and mortgages), which are part of New Business SM software module. New Business SM enables the bank to develop strategies for working with customers based on scoring models and information received from credit history bureaux. According to Vadim Kulik, VTB 24 Senior Vice President, “the system enabled the bank to move from an expert-based model of assessing borrowers and warranters to a model based on statistical probability derived from statistical data. Implementation of the system has enabled us to simplify solvency assessment, reducing the time needed for lending decisions from three hours to 30 seconds, reduce operating risks by preventing internal fraud through customer data, use mathematical and statistical methods to determine limit sizes, which helped us grow the credit portfolio to 4 billion rubles or 360 million rubles in additional annual revenue, and reduce 30-day delinquencies (FPD) by half (in consumer financing).”

New Business SM enabled the bank to centralise its decision making processes to its Moscow headquarters, serving the bank’s expanded network across the country. As a result, VTB 24 increased productivity in application processing and decisioning by 28 times.

VTB 24 also implemented Collect SM, a system designed for collections. According to V.Kulik, “the system enables us to take into account all measures taken in respect to customers with delinquency and apply various strategies depending on the loan amount, term and behavioural characteristics of the borrower. This enabled us to increase efficiency in collections of under-30 day delinquencies (FPD) by 13% and 90 day plus delinquencies by 50%.”

As part of its initiatives to reduce risks and minimise losses from fraud, VTB 24 is implementing Hunter, a specialist Experian solution used by organisations in over 30 countries worldwide to prevent credit fraud during application processing. Hunter will be implemented in a real-time environment, integrated with the bank’s application processing system. As a result, decisions on genuine customer applications can be made automatically and new business rapidly accepted, while suspect fraudulent applications are highlighted, investigated and can then be declined, preventing fraud losses from occurring in the first place.

Daniel Zelenski, Head of Experian’s Decision Analytics division in Russia and CIS, said: “We are very pleased that one of Russia’s leading credit institutions is benefiting from our solutions as a result of the partnership between our two organisations. By implementing risk management tools, such as New Business SM, Collect SM and Hunter, provided by Experian’s Decision Analytics division, VTB 24 has put its trust in these tools to be the most efficient available, and we, in turn, expect that these tools will be used by VTB 24 with maximum effect. Experian has all necessary resources to further our co-operation to VTB 24’s advantage.”

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Features

Scorecard series - Reject inferences

This article is the fifth in the scorecard series, which is a follow on from the previous Credinews which focused on building and testing a model in the scorecard development process.

 

Reject Inference aims to identify customers a business would have liked to have on their books if the business had known at time of application what they know now.

 

The aim of reject inference is to try and estimate what would have happened to the rejects had they been accepted; in other words would they have turned out to be good or bad repayers. As these applicants have been previously rejected, it is likely that more of them would have become bad repayers when compared to the accepted applicants (or accepts) .It is however likely that some of the rejected applicants would have turned out to be good repayers should they been accepted.

 

To try and estimate how the rejects would have performed had they been accepted, a scorecard model should firstly be based on the accepted applicants. This model to then used to make an initial estimate of the performance of the rejects by assigning a probability of good to each of the rejects. A model can then be created based on both the accepted and rejected applications. This is done by plotting the bad rate by score distributions for the accepted and rejected applications. These are then compared, and the process is repeated until the two distributions closely resemble each other, this is then an indication that an accurate estimation has been achieved on how the rejected applicants would have behaved.

 

Why perform rejected inference?

Unless the previous decision process was random the accepted population will not reflect the overall population. Ignoring the potential behaviour of the rejects will mean that the scorecard development sample will be biased. A scorecard based only on accepts will not discriminate optimally for all applicants – although it will be very successful at separating previous accepts.

 

Therefore, the overall through-the-door population needs to be recreated, via the process of reject inference, combining art, experience and science to determine the performance of the rejects had they been accepted. Having recreated the overall population, a scorecard can then be developed on all applicants, with the aim of ‘swapping' previous accepts who turned out to be bad repayers for those rejects who would have been an acceptable risk. All this will improve the decision process and profitability – but only if the rejects have been inferred correctly.

 

In summary reject inference ensures that the scorecard development is based on an objective view of the actual through-the-door population and is therefore a crucial stage in the scorecard development process.

 

Next months Credinews will feature deliverables which will be the last article on our series relating to scorecards.

 

Written by Ben Maseko, Scoring Analyst for Experian Decision Analytics.

 

For further information on Experian's Scoring Solutions, please contact Marlize Brits on 011 799 3400.	Top

Fraud Focus

LV case study

LV is one of the UK's leading financial services companies, renowned for top performing products and an enviable record in customer services.

 

Business challenge

LV’s banking business had gone through a period of significant growth, both in the products offered and the size of its portfolio. The increasing
applications meant that the potential for fraud was increased so the Bank needed to review its fraud protection.

It undertook review of its operational processes in order to streamline the lending process in the realtime online environment but without sacrificing fraud protection. A full review of the fraud management function was undertaken, reevaluating training, processes and staffing levels. It was recognised that a robust and effective automated fraud prevention system integrated with the application process, could have a significant impact on the levels of fraud losses and associated costs and therefore the profitability of the company.

 

The solution

The bank evaluated a number of fraud prevention products that are available in the market. LV had seen the market leading application fraud solution, Hunter, in operation at another financial services
organisation and was aware of its reputation in the industry.

The success of this system for other organisations, combined with the experience and expertise in fraud prevention offered by Experian Decision Analytics, led to the decision of the Bank to choose the Hunter system for their fraud protection. Hunter offered the right combination of fraud detection power and flexibility backed by the support and delivery capabilities of Experian Decision Analytics. It offered the best return on
investment with unparalleled data matching and sharing capabilities.

 

The benefits

• 90% reduction in application fraud on the Bank’s credit card portfolio in the first 18 months of operation.
• 82% reduction in financial losses on cases proved as fraudulent
• Reduction in case and costs of loading data to the national fraud scheme CIFAS.
• Improved service and productivity of the fraud investigation team with more effective working and reducing manual processes.
• Maintained service levels with a reduced turnaround time for cases maintaining customer services levels.
• Higher risk applications targeted to focus on cases with more risk of fraud and losses.
• Apply fraud profile across the business to identify fraudsters in other portfolios more effectively.

 

“Hunter is a cutting-edge fraud prevention tool that continues to redefine the boundaries of fraud detection.” Commented Natalie Finlayson, Bank Fraud Manager at LV. “Hunter has become a vital
part of LV’s fraud detection processes. The system also promises to be at the forefront of leading technologies for many years to come and LV hopes to be right there next to them. We have continued to develop the effectiveness of our detection methods by moving onto the next generation solution, Hunter II. The standard of service offered by Experian Decision Analytics proves that if you invest in a quality company that prides itself on excellent service and deliver, you can expect a quality reward at the end of it.”

 

For further information on Experian's fraud solutions, please contact Tracey Dent on 011 799 3400.	Top

Industry Insight

Introducing CPA 700 - the new CPA data submission lay-out

After a long period of engagement with its members and the credit bureaux, the Credit Providers' Association (CPA) has released its final version of the new data lay-out, CPA 700, that defines what data is submitted to a credit bureau by its members as well as prescribing the format of data submission.

 

The new CPA 700 lay-out is an enhancement to the existing CPA 500 lay-out and aims to support the dynamics of South Africa 's changing credit landscape.

 

Experian is committed to support CPA members to:

• Understand the CPA 700 lay-out requirements

• Interpret its requirements as appropriate to individual business needs

• Evaluate its impact on existing products and scoring models

• Test new data submissions

As a first step, this article highlights the key changes and benefits of the new data lay-out.

 

Key benefits of the CPA 700 data lay-out

 

Improved matching of address information

The CPA 700 lay-out requires that address information be split across 4 lines with the postal code in the 5 th line.

 

For example, the following street address:

 

1 Any Street, Rand

burg, Johannesburg ,2000

 

Becomes

 

Line 1: 1 Any Street

Line 2: Randburg

Line 3: Johannesburg

Line 4: <Leave Blank>

Line 5: 2000

 

Better detail on home loans

The CPA 700 data lay-out supports the reporting of joint home loan account holders. In addition, the new data lay-out is able to cope with values greater than R999,999 which is a significant limitation of the existing format for home loans.

 

New account types

The CPA 700 lay-out facilitates the identification of a number of new account types that better supports deferred payments.

 

These include:

• Garage Card

• Single credit facility

• Utilities

• Overdrafts

• Pension backed loan

• Building loan

• Student loan

• Micro loans

• Debt recovery

• Open accounts (to reflect accounts such as Telecommunications)

Improved status and repayment reporting

The CPA 700 lay-out provides improved status code definition. For example, the status code ‘x' denotes a previously adverse account that is now paid up. In addition, repayment cycles support, weekly, fortnightly, monthly, quarterly, bi-annually and annually. However, the information will still be reported on a monthly basis.

 

Submission of income data

The CPA 700 lay-out facilitates the submission of income data to the credit bureaux and will support affordability assessment efforts throughout the customer life-cycle.

 

Other developments

Additional enhancements to the CPA 500 lay-out, include:

• Extended account numbers

• Additional titles

• Identification of sole proprietors

• Loan reason codes

• Cell phone number

• Sale to 3rd party

The way forward

 

It has been agreed that the credit bureaux must be in a position to receive the new data lay-out as of 1 July 2008. To support the effective migration to the CPA 700 lay-out, Experian will soon be hosting workshop sessions with CPA members.

 

If you have any queries relating to the CPA 700 please contact your Experian Account Manager on 011 799 3400 or send you query to CPA 700@experian.co.za	Top

Debt Counsellors and NCR move a step closer to limit excessive fees for consumers

In a bid to curb the exploitation of consumers the National Credit Regulator has agreed to guidelines proposed by the Debt Counsellors' Association of South Africa (DCASA), together with other debt counsellors. The guidelines are an interim measure aimed at setting maximum fees that Debt Counsellors may charge in order to limit exploitation of over-indebted consumers, pending the finalisation of the fee regulations by the Department of Trade and Industry.

 

The guidelines cover consumers earning more than R2500 (individual gross income). Consumers earning below R2500 will be subsidised by the National Credit Regulator (NCR).

 

Peter Setou, Senior Manager: Education and Strategy at the NCR, says the NCR has reviewed the guidelines and welcome initiatives by the industry to curb the charging of excessive fees by Debt Counsellors. Setou says Debt Counsellors are encouraged to use these as a guideline and charge less where appropriate.

 

Setou also reminded debt counsellors that as per the conditions of registration it is a requirement for such fees to be disclosed upfront to consumers before they can be accepted for debt counselling.

 

He warned: “The NCR will not hesitate to take action in instances where consumer abuse in relation to fees is detected. In taking such action we will take these industry guidelines into consideration.”

 

In terms of the guidelines, a debt counsellor may receive the following amounts in respect of consumers with an individual gross income of more than R2 500.00 per month or household income of more than R3 500.00 per month:

 

1.1 An application fee, recoverable directly from the consumer upon receiving an application for debt review, limited to R50 as prescribed by the Act

 

1.2. A rejection fee of R300.00 in respect of consumers whose applications have been rejected in terms of section 86(7) (a);

 

1.3. A restructuring fee of the lesser of the first installment of the debt re-arrangement plan or R3000.00 (excluding Vat), in respect of a consumer whose applications have been accepted in terms of sections 86(7) (b) or 86(7) (c). (Should a joint application be required the fee can be increased to R4000.00 (excluding Vat)).

 

1.4. Should a Debt Counsellor fail to summit proposals to Credit Providers or refer the matter to a Tribunal or a Magistrate Court within 60 business days from date of the debt review application the Debt Counsellor has to refund 100% percent of the fee paid by the consumer.

 

1.5. A monthly after-care fee of 5 percent (excluding Vat) of the monthly insta l ment of the debt re-arrangement plan up to a maximum of R300 (excluding Vat), for a period of 24 months, thereafter reducing to 3 percent (excluding Vat) of the monthly instalment, to a maximum of R300 (excluding Vat), for the remaining period of the debt re-arrangement plan.

 

1.6. Should the consumer wish to withdraw from the process after the debt counselor has completed the restructuring negotiations a fee equal to 75 percent of the restructuring fee as per 1.3 above is payable by the consumer;

 

1.7. Legal fees, if and when they occur, may be recovered from the consumer provided the amount of such fees are disclosed up-front to the consumer and agreed to in writing by the consumer.

 

1.8. The fee structure will be reviewed in January 2009.

 

(Source: Bullion PR and Communications on behalf of NCR)

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Solution Focus

The Origination Solution for SME

Lenders in the SME market face unique challenges, often needing to make lending decisions with limited financial data and market information. Traditional SME credit assessment processes are expensive in time and resources, often relying on face-to-face interviews and manual checks. SME customers are also now demanding the speed of service they receive as consumers, including virtually instant decisions.

 

As a result, lenders are turning to automation to achieve a consistent lending policy, reduce administration time and costs and meet customer expectations. However, automation has to be a balance between the ability to accurately assess an SME's status and potential and achieving financial and customer service targets.

 

The answer to these challenges is the Origination solution for SME from Experian Decision Analytics. The solution brings together robust application processing, data connectivity, decisioning technology, predictive analytics and expert consulting.

 

The solution can automate the application process and control lending policy to implement accurate credit risk and fraud management and streamline the process for a smooth application experience for the customer. The solution enables a lender to automate and manage the application process from the point of the first customer contact through to the final decision. Data capture screens allow the accurate input and validation of application data, which is then enriched with additional data from internal and external sources including commercial and personal credit bureaux information, to give the required level of data for decisioning.

 

Workflow functionality throughout the solution drives the application automatically through the process, with integral fraud detection, checking the application against known frauds, previous applications and other data sources. Using this data the solution can apply tailored policy rules and calculate multiple scores for different objectives including credit risk, risk-based pricing, affordability and Basel II. The scores can be calculated at customer level, consolidating both commercial and personal data to build a comprehensive picture of the company, and the individual behind the company.

 

Once a decision is made to accept an application, segmentation enables appropriate terms of business to be assigned such as price, maximum loan amount and duration and credit limits. Final conditions can be set, such as the need to request identification, accounts or to carry out a face-to-face meeting.

 

In the small number of cases where a manual review may be required, the workflow routes the application to the appropriate level of underwriter with all the information presented for rapid resolution.

 

For further information on the Origination solution, please contact Tracey Dent on 011 799 3400.	Top

About Experian

Experian is a global leader in providing information, analytical and marketing services to organisations and consumers to help manage the risk and reward of commercial and financial decisions. Combining its unique information tools and deep understanding of individuals, markets and economies, Experian partners with organisations around the world to establish and strengthen customer relationships and provide their businesses with competitive advantage. For consumers, Experian delivers critical information that enables them to make financial and purchasing decisions with greater control and confidence. Clients include organisations from financial services, retail and catalogue, telecommunications, utilities, media, insurance, automotive, leisure, e-commerce, manufacturing, property and government sectors. Experian Group Limited is listed on the London Stock Exchange (EXPN) and is a constituent of the FTSE 100 index. It has corporate headquarters in Dublin , Ireland , and operational headquarters in Costa Mesa , California and Nottingham , UK . Experian employs around 15,500 people in 36 countries worldwide, supporting clients in more than 65 countries. Annual sales are in excess of $3.8 billion.