Rethinking First Payment Default: The new era of predictive analytics in non-bank lending
For non-bank lenders, it’s been the go-to benchmark for years: First Payment Default (FPD). And for years it made sense. If you based your decision on which applicants are likely to be late making their first payment on a loan, you could assume you’d predict which applicants are likely to default on the entire loan. That’s how you lose money, and that’s what predictive analytics are designed to avoid.
But the marketplace has changed. So have predictive analytics.
An analysis of financial results at multiple non-bank lenders shows that FPD actually predicts account loss only about 50% of the time. That means that when it comes to predicting whether a loan will be profitable, FPD turns out to be no more predictive than a coin toss.
Meanwhile, 26% of accounts that incurred an FPD turned out to be profitable.
No matter how you flip the coin, that’s money left on the table.
Why not predict profitability?
Like we said, it’s a changing marketplace. Millions of thin-file, no-file, and non-traditional consumers are virtually invisible to conventional scoring methods, and many of those represent perfectly profitable accounts that you may be overlooking.
That’s where good fintech comes in. With unique expertise in AI-powered predictive analytics, alternative data, and real-time automation, Accelitas provides financial inclusion for non-traditional consumers, while giving lenders a safe way to access the new world of creditworthy customers.
Trade first impressions for lasting customers.
With all due respect to First Payment Defaults, first impressions don’t tell the whole story. Given the right tools and the bigger picture, you have a much easier way to make smarter credit decisions. Leading to more profitable accounts. Which, after all, is the ultimate goal of your business.
Ready to work together?
It gets even smarter when you work with a partner. Accelitas enjoys nothing better than developing optimized, customized, and fine-tuned solutions for your business.
