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Balancing lending terms can be a complex calculation.
Get the mix right and it can be rewarding for both you as an organisation, and the customer. As time changes, so does business appetite and customer circumstances; as such, a continual review of lending policies can be pivotal to the on-going success and return of your strategy. Having a holistic and rounded view of the right customers to approach for new lending, or the right customers to maintain and grow within your portfolio can often be challenging. To start understanding the intricate details of your lending policy, it is often easier to break it down into:
How do I identify the right people to lend to?
Making decisions on which customer or customer groups to approach can have a significant impact on your risk and operational objectives. In order to effectively approach lending, various factors should be considered. The mix may evolve over time as lending policies are re-assessed in line with new product launches, or a change in risk appetite.
Tools are available to help you understand more about customer demographics, prioritise and align your policy needs with potential customers. In addition, overlaying economic foresight can help pre-empt future changes in customer demographics – helping you understand how their circumstances or needs may change over time.
Should I increase lending terms, or decrease?
Once you know which customers to approach, effectively managing them over time can be critical to the on-going development and success of any relationship. In addition, having a thorough knowledge of their circumstances can help you understand whether a review of their lending terms if necessary. For example, a missed payment may simply be the result of a technical glitch, or genuine mistake for some – while for others it can be one of the first signs of financial strain.
As time evolves so do customers’ needs and situations. As seen in Joe’s story, circumstances change – marriage, kids, employment – various daily factors and evolving milestones of life.
Extending lending terms to some can be beneficial in providing a low-risk return for both parties. For others, you may want to consider reducing their exposure.
- Ensure scorecards are up-to-date. Having out-dated scorecards may be giving you a misrepresentation of ‘today’s customer. Reviewing your lending criteria, with a view of today, can ensure you are offering the right terms to the right people
- Optimise credit limits. Balance opportunities with lending strategies – offer the right credit limits to the right customers.
- Understand the market, its customers and its future. Having a thorough understanding of customer demographics and the market, whether new or current, can help balance opportunities and prioritise your lending strategy. Access a wealth of data via our Bureau Scores. Control bad debt, business risk and exposure by gaining a true 'customer view' by incorporating shared data from other lenders and receive accurate predictive scores for real-time decision-making.
- Understand customer’s affordability. There is no doubt that making prudent lending decisions is more important than ever, not only on a regulatory perspective but to enable you to assess the affordability and suitability of lending terms.
- Authenticate your customers. To build trusted relationships with legitimate customers, it is vital that you can establish the identity of your customer with confidence.
- Understand the future needs of your customers. Use propensity scores to understand more about who may want what, and when, to underpin future lending strategies.