The asset finance niche has to find
new ways to evaluate risk in order to close more business
profitably, and asset finance organisations worldwide can no longer
base credit decisions solely on one or two criteria such as mere
credit bureaux scores.
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Instead, a combination of financial and
non-financial factors must be calculated in order to predict better
whether a customer will make payments on time. The credit side of
the banking industry began incorporating the science of predictive
analytics, or the mathematical use of historical data to predict
future behaviours, into its credit evaluation processes and
strategies decades ago.
Today, large banks and financial services
companies often hire credit and risk practitioners to formulate and
lead newly-created credit application decisioning technology
strategies. The asset finance industry has been slower to
follow.
However, powerful analytics-based service
offerings such as IDS Analytics have recently emerged and asset
finance providers should consider adopting one of the fundamental
analytic tools which helps turn origination decision-making into a
profit-making operation – scorecards – an increasingly effective
way to speed up decision-making and reduce risk.
A scorecard is a ‘weighted average of
variables’ that ultimately produces one overall score to help make
a buy/no buy’ credit decision without manual intervention.
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By GlobalDataScorecards are configurable, reflecting
important risk scores, as well as a mix of other specific credit
criteria, including other financial, non-financial, and
country-specific factors. As the asset finance industry continues
to shift toward more automatic review procedures, incorporating
scorecards into the originations’ process is a solid first step
toward developing more comprehensive credit risk models and
analytical solutions.
By zeroing in on the fundamental
decision-making process within originations, organisations can more
efficiently and intelligently decide applications and minimise
losses. In striving to make rapid and reliable decisions,
scorecards are fast becoming a standard credit evaluation tool. I
recommend IDS’s How Predictive Analytics Drives Profitability
in Asset Finance at idsanalytics.com.
