When a company employs a data-driven approach, it means decisions are made on the basis of data analysis and interpretation. This approach enables the companies to flourish in the area of specialization and achieving the goal of better serving their customers and consumers. Technology, people, and process all work together to make a financial institution a “Data-Driven Institution”.
A session was conducted by CULytics in which Jaynel Christensen (VP of Lending at Commonwealth CU) shared her version of the transformation journey. The followings are the key points:
- Every journey- small or big – starts with a challenge. For them, it was in 2017-2018, when their Unsecured Personal Loans grew 2.1% annually and Credit Card growth was .3% annually. They identified challenges with the loan application process. It was lengthy for the members and the team.
- To make the transformation fruitful, Commonwealth CU started with identifying Goals and Methods to attain those goals. The aim was to find an efficient process for loan processing, making member process digitally focused and grow loans organically. But the question remains, how to find software with a quick implementation process to achieve these organizational goals and support to make changes of this level.
- The transformation was not different and underwriting changes to be more aggressive. They modeled another CU and implemented the same software and saw success with minimal change in Delinquency and Charge Off ratios. These delinquencies were closely monitored throughout the process. Also, they aligned their internal Auto Approval model to mimic the software setup. For this, the minimum income for any offer was $ 30,000 annually. Members received multiple product offers and this created the Amazon experience; when the member needed a product; it was available for them. They had a total ratio of a maximum of 40% for any offer to be received and members with a credit score of 600 or higher received a firm offer of credit.
- To make Data-Driven Changes, it is necessary to Review and Analyse Data Frequently. At Commonwealth CU, they did weekly decision review meetings to determine campaign criteria based on their risk cover. This helped in determining what needed to be adjusted. For example: lowering the unsecured max limit offered due to the growth during the 1st campaign. They also used Static Pool Analysis to determine the success and risk of each campaign and overall net yield.
- Challenges make the transformation journey more pleasant. For Commonwealth CU, challenges were concerned with the unsecured growth rate and future delinquency as Unsecured Portfolio balances increased over 25% from August 2018 to August 2019 and Credit Cards portfolio balances increased 12.6% over the same time period. But, the efforts gave the right result and at the end of the year, the program was maintaining delinquency and charge-off ratios within their acceptable range.
- Another concern was from Examiners. How they have achieved that level of success in one year was a big question. But, they were prepared and answered well. They provided examiners a 3-inch binder full of reports on how the program was monitored throughout each campaign based on data reviewed. This binder included:
- Campaign production reports
- Deep dives into decisions
- Static Pool Analysis for Campaign comparison
- Net Yields by Loan Type
- Program ROI
It was impressive for examiners and they left complimenting Commonwealth for the innovative way it was servicing the members.
- A dedicated investment of time, resources, and efforts pay off the best with great learning. At Commonwealth, they got to that the growth was based on Organizational Support of the program and Data Analytics for program refinement. With organizational buy-in and data analytics, they achieved the following results:–
- Over 4,500 new loans added to the books
- Over $40M new Original Loan Balances
- 9.6% average rate
- Delinquency within our acceptable range
- Charge off % well below our average charge off rate
- Average Credit Score was 700
- Over 7% net yield on program
- Besides, they learned to make changes when needed based on your data. If you have data and you don’t use it; there is no means to keep it. So, they finely tuned Total Ratio acceptance based on risk tolerance and lowered it from 40 % to 35 %.
- They Limited member new loan exposure-
- If a member accepts an offer in 1 campaign, they were removed from the future campaign for 6 months
- Members can only accept 1 Secured and 1 unsecured offer per campaign
- They implemented a Complete Income Validation test to fine-tune appropriate minimum income-
- Minimum income raised to $35,000 annually
- They adjusted limits to manage growth rates-
- Unsecured Limits lowered by 40%; maximum limit offered $12,000
- They found ways to get more information on Competitor balances-
- Auto Balances over $5,000 at other FI’s added
- Credit Card Balances at other FI’s added
- They Limited member new loan exposure-
Also, if the member has a mortgage, we give offers and target them for strategic loan consolidation. The journey of the Commonwealth to become a data-driven company was a long term process. The implementation of the amazon lending experience for our members through the Cunexus software was another step in the journey.
This was the Transformation journey of Commonwealth Credit Union. Use a visible, productive, and transformative approach to make your journey.
To know more about the Journey, get the full video by clicking here