Transaction scoring offers the most significant enhancement to data-driven risk management since the introduction of Comprehensive Credit Reporting. By providing a fresh and unique insight into consumer behaviour, both lenders and consumers stand to profit significantly through better credit underwriting, more effective loan pricing and more tailored lending terms and conditions.
In reflection of this, illion has prepared this paper to help organisations better understand
the economic benefits gained from using this novel behavioural data together with the
traditional and advanced modelling techniques that drive transaction scores. In particular,
we include a detailed empirical analysis that quantifies this derived value, when integrating
transaction scores with traditional credit risk scores.
Key technical and economic benefits highlighted include:
i) 10+ Gini-point improvement in model prediction
ii) 20% improvement in portfolio profit, with this comprising a,
– 14% reduction in credit defaults
– 2.5% increase in credit approvals
While highlighting its benefits, illion also makes mention of the perils faced by lenders that
attempt to build and deploy an in-house transaction scoring capability. In so doing, we also
discuss cost effective alternatives that are already available locally to lenders.
In concluding the paper, we present a brief summary of the opportunities that transaction
scoring presents for industries beyond the traditional credit sector. We list industries that
can benefit from having a better understanding of consumer credit risk and how transaction
scoring can help them gain this insight.