Abstract
This report examines the opportunities and tools available to credit card
issuers and a few alternative lenders in the very broad non-prime consumer
market. What emerges is a picture of an expanding frontier, with:
- subprime prospects well-covered by established decisioning and data tools
- thin credit bureau file prospects becoming increasingly well covered by
established alternative data sources and scoring tools
- "no file" prospects remaining on the frontier of specialized, sometimes
narrow data sources, specialized analytics, and alternative card products.
Competitively, the reasons for pursuing non-prime segments are readily
apparent. Subprime consumers, while possessing a high risk of default, will
likely bear a higher range of risk-based pricing (ARPs, fees) in order to gain
access to credit, and skilled issuers can manage the portfolios to a higher
overall return. Thin file or no-file consumers have less of a demonstrated
credit track record, and may prove to be either good or bad credit risks.
While some of these thin-file/no-file individuals can appropriately be called
credit-underserved (i.e. they collectively represent a backlog of prospects
who deserve credit consideration), these segments contain perennial new
prospects as well: students, first time credit users, immigrants, etc...
Highlights of the report include:
- 1. None-prime consumers, defined by multiple segments delimited by bureau
score ranges or lack of bureau files, represent 80 - 105 million credit
prospects.
- 2. Subprime credit card prospects, defined by a demonstrated history of
credit problems, are so far avoiding the drastic declines of subprime mortgage
holders.
- 3. Thin file credit underwriting tools are rapidly maturing, with an
ability to handle previously-unscorable individuals.
- 4. Remaining unscorable prospects with no bureau files reside on the
frontier of underwriting tools. Specialized data sources and analytics are
the tools of lenders wishing to address these remaining no-file prospects.
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