why lenders should focus on profitability, not first payment default
TRANSCRIPT
![Page 1: Why Lenders Should Focus on Profitability, Not First Payment Default](https://reader035.vdocuments.mx/reader035/viewer/2022070516/5872c0ba1a28ab0c718b5307/html5/thumbnails/1.jpg)
1® Dragnet Solutions. Confidential Information
Why Lenders Should Focus on Profitability, Not First Payment Default (FPD)Fall 2016
![Page 2: Why Lenders Should Focus on Profitability, Not First Payment Default](https://reader035.vdocuments.mx/reader035/viewer/2022070516/5872c0ba1a28ab0c718b5307/html5/thumbnails/2.jpg)
2 2® Dragnet Solutions. Confidential Information
Many Lenders Base Decisions on FPD> FPD = First Payment Default – the likelihood that a customer will
miss the due date for their first payment on a loan> Lenders assume that FPD is a reliable predictor of customers missing
future payments, too.> So they use to FPD to predict which accounts will turn out to be losses.> If the model predicts an FPD, the lender turns down that consumer.> To avoid loss, the lender rejects that consumer’s business.
FPD Limits Losses But Constrains Growth
![Page 3: Why Lenders Should Focus on Profitability, Not First Payment Default](https://reader035.vdocuments.mx/reader035/viewer/2022070516/5872c0ba1a28ab0c718b5307/html5/thumbnails/3.jpg)
3 3® Dragnet Solutions. Confidential Information
But FPD Turns Out to be Unreliable> Our analysis of business results from multiple lenders shows that FPD
predicts loss only about 50% of the time.
![Page 4: Why Lenders Should Focus on Profitability, Not First Payment Default](https://reader035.vdocuments.mx/reader035/viewer/2022070516/5872c0ba1a28ab0c718b5307/html5/thumbnails/4.jpg)
4 4® Dragnet Solutions. Confidential Information
A Better Strategy: Focus on Profitability> Make decisions based on
profitability, not FPD> Benefits:
– Open more accounts– Grow profits 20% or more– Avoid costly losses
> Fine-tune your data waterfallfor the mix of profitabilityand FPD that suits yourgrowth plans and risk model
![Page 5: Why Lenders Should Focus on Profitability, Not First Payment Default](https://reader035.vdocuments.mx/reader035/viewer/2022070516/5872c0ba1a28ab0c718b5307/html5/thumbnails/5.jpg)
5 5® Dragnet Solutions. Confidential Information
Case Study: Small-Dollar Loan Lender> WITHOUT DATA-DRIVEN INSIGHTS ABOUT PROFITABILITY
– Based lending decisions on FPD– FPD rate was low: only 9%– To achieve this low rate, accepted only 25% of applicants– Missed out on revenue from a large population of good accounts
> WITH DATA-DRIVEN INSIGHTS ABOUT PROFITABILITY– Switch to basing lending decisions on profitability, while controlling for FPD– FPD rate rose to 15%– Now able to accept nearly 70% of applicants– Profits go up nearly 50%
• Increase in profits more than compensates for increased FPD rate
![Page 6: Why Lenders Should Focus on Profitability, Not First Payment Default](https://reader035.vdocuments.mx/reader035/viewer/2022070516/5872c0ba1a28ab0c718b5307/html5/thumbnails/6.jpg)
66® Dragnet Solutions. Confidential Information
Our Mission at DSi
![Page 7: Why Lenders Should Focus on Profitability, Not First Payment Default](https://reader035.vdocuments.mx/reader035/viewer/2022070516/5872c0ba1a28ab0c718b5307/html5/thumbnails/7.jpg)
7 7® Dragnet Solutions. Confidential Information
Learn More
Get the FPD Solution Brief Get the FPD White Paper
![Page 8: Why Lenders Should Focus on Profitability, Not First Payment Default](https://reader035.vdocuments.mx/reader035/viewer/2022070516/5872c0ba1a28ab0c718b5307/html5/thumbnails/8.jpg)
88® Dragnet Solutions. Confidential Information
How Can DSi Help You?Craig Moore
SVP – Business [email protected]
(415) 842-7700 ext. 1