According to a global survey on credit risk decisioning, the duality can be addressed with AI-driven digital decisioning processes.
Shifts in the region’s financial circumstances in the past year due to global pandemic may comprise two opposing trends: consumers doing well and those that have hit difficulties.
According to Experian’s report on global decisioning for 2021, as the credit risk environment continues to evolve amidst the pandemic, lenders need to have a comprehensive understanding of the risk and opportunity of their portfolio, as well as visibility into changes to customer profiles.
The report involved nearly 9,000 consumers and 2,700 businesses, including those from India, Japan, Singapore and Australia in the APAC region to glean insights on how countries are stabilizing their finances to return to growth.
Some key findings were:
- Dual economy in the lending and credit landscape
The present lending and credit landscape is complicated by a dual economy:
• On one end, some respondents had more cash than they started out with at the beginning of the pandemic and were now ready to spend.
• On the other hand, there were those who continued to struggle financially and have not recovered from the effects of the pandemic.
Overall, almost half (46%) of APAC consumers surveyed said they had cut back spending, compared to 21% of higher-income households in the survey that had increased spending.
In a similar vein, 32% of APAC consumers surveyed said their household income had declined since the pandemic, while 23% of those from the highest-earning brackets reported discretionary income increases since the start of the pandemic due to having fewer areas to spend—such as dining out or going on holidays.
- A sharp rise in loan applications
Experian’s data shows that banks and financial institutions across the APAC region had seen a 74% increase in loan applications since the start of the pandemic. This increase in their studied data, in conjunction with the changing credit landscape, was linked to 63% of APAC businesses in the study expressing concern about customers’ credit worthiness, with broader economic uncertainties impacting customer behavior.
Banks surveyed in the report anticipated that when government stimulus packages and loan holidays end, there will be increased consumer demand for paying credit card bills and small business loans, with banks foreseeing 20% of demand for credit card bills and small business loans respectively in coming months.
Businesses in the study had begun to invest in resources to enhance analytics and machine learning solutions to evaluate and test new credit risk and forecasting models. Some 70% of APAC businesses surveyed had reported already having a plan in place to manage defaulting customers.
- Change in digital expectations of credit risk management
There is a shift in digital expectations, with only a third of APAC consumers surveyed willing to wait up to 30 seconds before abandoning an online transaction. Customers in the study were expecting to be able to apply for credit when and where they need it.
The study asserts that, to maintain a competitive edge, businesses need to transform their operations for digital decisioning in order to reach customers in real-time with the most relevant and contextual offers. The firm’s data showed that 91% of businesses in their survey had a strategy in place pertaining to their digital channels and customer journey, and 54% said that they had implemented this since the start of the pandemic.
Regional businesses and lenders in the survey were increasingly prioritizing initiatives focused on improving their understanding of customers and enhancing mobile or digital channels.
According to Ben Elliott, CEO (Asia Pacific), Experian: “In today’s environment, the credit environment is changing quickly, causing consumers and businesses to experience the financial impact of the pandemic on opposite ends of the spectrum. To cater to this duality, banks and financial institutions are adjusting their priorities, with at least a fifth of them increasing digital acquisition and digital engagement, automating and managing customer decisions, and making efforts to better understand their customer base.”
In light of this, Elliot said, a digital-first approach to the consumer experience and credit risk management process is crucial: “Prioritizing technology-driven solutions—in particular, data and analytics—will be key for businesses and lenders to respond effectively to this dual economy and remain relevant in the face of new challenges.”