We conclude our three-part series examining the massive changes in lending caused by the largest global pandemic in living memory. In Part 3, we examine the steps businesses must take in order to adapt and survive through this and any crisis.
by Thomas Brandenburger, ValidiFI Chief Data Scientist
America is headed back to work. That has become the consensus, however, there is great uncertainty as to how much and how fast. According to the U.S. Department of Labor’s May Job Report, there was an increase in payrolls in May of 2.5 million, though there has been a robust discussion as to data gathering and reporting inconsistencies. The COVID-19 virus has impacted every aspect of estimation including counting the unemployed. The first two blog posts in this 3-part series discussed the disruptive characteristics of the pandemic with respect to consumer credit underwriting payment risk. The two basic conclusions we arrived at are that:
- Traditional methods of underwriting and data are not sufficient to mitigate this systemic risk.
- Determining an individual’s employment status can be a crucial, mitigating source of information. This data is not just critical during the high-velocity millions of job losses, but also with the millions of workers returning to work each week.
While much has been made of the velocity of job loss, there has been little focus on the velocity of recovery. In our webinar, we covered this phenomenon. Consider as a small example that starting in mid-May, 51 automobile assembly plants abruptly opened back up, in addition to the hundreds of parts suppliers. The suddenness of this scenario demonstrates just how quickly these changes can happen.
As companies re-open, there are millions of workers who have regained employment as well as regaining means to pay their debts. A vacuum of demand for credit may result due to the cautiousness of lenders who have pulled back. We conclude this series with the tips to not only navigate the pandemic affects effectively but to move forward efficiently:
- Follow a measured approach: Utilize employment and payment data to address the rapidly fluctuating unemployment/employment risk. Knowing which areas are recovering and opening back up is useful but knowing employment types and rates is significant in determining risk.
- Identify individual risk: Understanding a consumer’s employment situation and ability to repay not only mitigates risk but allows companies a strategic advantage over competitors who are unable to act due to their Fear of Ignorance.
- Use better data: Companies can experience increased market share, higher credit quality mix of applicants, and reduced marketing costs due to the lack of market activity and ineffective data of their competitors. Many contractors and gig economy workers are currently thriving, but they are being overlooked as customers due to the lack of historically utilized data.
Companies that are able to adapt to change by utilizing alternative underwriting methods and data will navigate the unchartered waters, recover, and advance more successfully. Adopting the use of alternative methods and data attributes such as consumer’s payment instrument data and authoritative employment verification is necessary as the nation gets back to work and prepares you for whatever comes next. ValidiFI is committed to being a resource for companies both small and large during these times and urges you to Trust, but ValidiFI.
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