Credit Card Lending is Science; Collections is Art

by Brian Riley 0

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The perpetual claim of being able to open up the lending gates to customers neglected by banks continues but it still makes me wonder: how will they clean up after the mess? Will collection infrastructure be in place to curtail write-offs, or will accelerating risk mean that high pricing will need to offset risk.  Lending is fun, collections requires hard work, testing and strategy, not necessarily in that order.

Stable, mature markets like the U.S. and UK know this with foibles at Lending Club and Prosper.  Interesting potential but huge losses abound.  So, what happens when you try alternative lending models in immature markets?

Plenty of optimism; a little short on realism, I think.

  • (In India) Financial technology companies have partnered with credit scoring companies to enable faster and more efficient lending.
  • Online lending marketplaces …said their partnerships with credit information companies Experian and CIBL respectively, to offer free credit reports to customers making lending more efficient.

Quick loans for unestablished credits raise the hair on the back of your neck.  Similar to eyeglass companies that offer one-hour delivery.  You are going to wear those specs for years.  Do you really need them in an hour?  Same thing with loans.  It is the beginning of a multi-year relationship.  Quick is nice but do you need to answer them in a minute, particularly in an unpredictable market?

  • CreditVidya is able to provide alternative data using technology we have not developed so far.

Huh?

Better tap the brakes on this one and think about credit losses first.

Overview by Brian Riley, Director, Credit Advisory Service at Mercator Advisory Group

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