Consumer debt and credit delinquency rates are trending up—posing a dramatically increased risk for lenders. U.S. household debt is on the rise and credit delinquencies are following suit. How can lenders manage credit risk and still retain their customers?
Total U.S. household debt is on the rise. Our research reveals it was $13.7T as of Q1 2019, marking the 20th consecutive quarter it had risen. As we are writing this post, the Federal Reserve Bank of New York revealed household debt had jumped to $13.95T in Q3 2019. These skyrocketing figures indicate credit risk that puts both the American economy and U.S. lenders in jeopardy of consumer delinquency and a potential recession.
Traditional approaches to credit risk tend to be reactive, waiting until delinquency occurs, then reaching out to the customer. Often, it’s too late to fully recover the debt and salvage the relationship.
AI predicts future credit delinquency
Artificial intelligence (AI) solutions provide proactive tools to predict and prevent delinquency and default. Using supervised and unsupervised learning, AI can track borrowers’ purchasing and payment trends to predict future problems. Based on lenders’ actual data, the system will send notifications when customers’ behaviors show negative change—late payments, making only minimum payments, and so on. Lenders have increased opportunities to reach out to their customers to offer solutions.
And yet, according to our 2019 research project with PYMNTS.com, only 5.5 percent of the 200 banking industry executives we surveyed use real AI. Here’s a sample of what they told us:
- 64% report fewer instances of manual review, reduced manual exception management and fewer charge-offs
- 55% report fewer false positives
- 36% report improved anti-money laundering abilities
- 27% report decreased credit and portfolio risk, and improved borrower identification
So what’s holding the rest back?
Just last month, Amyn Dhala, was interviewed by PYMNTS on this pressing issue. Amyn is one of our AI Innovators and the Vice President of Global Products, AI Express at Mastercard. Amyn talked about proactively using AI to prevent delinquency. He cites one customer, a global issuer, who has decreased delinquent accounts by 76 percent.
We’ve crunched the numbers for you
At Brighterion, we’ve spent several months pulling together the data and research behind credit risk and delinquency. We’ve assembled a package of resources to help you understand the indicators and recent trends, and which lending streams are at highest risk of delinquency. We’ve also broken down the demographics of users. We invite you to download our resource package to benefit from the latest news.
The resource package includes:
- An Ebook that outlines the current credit risk environment and ways to prepare for potential delinquencies
- The exclusive PYMNTS interview with Amyn Dhala on using AI to predict and prevent delinquencies
- An infographic with some of the top indicators
- Brighterion credit risk datasheet that discusses our AI solution that monitors and assesses credit risk transaction by transaction in real time
In the next few weeks, we’ll be sharing new research and updating information for 2020 as it is reported. We are staying on top of this growing risk to the financial industry so you can too.