FICO Optimization Helps Toyota Keep Customers in Cars
In a recent post, my colleague Martin Germanis talked about the importance of optimization in collections. Toyota Financial Services has put this into practice with dramatic result…
In a recent post, my colleague Martin Germanis talked about the importance of optimization in collections. Toyota Financial Services has put this into practice with dramatic results.
Toyota’s Collections Treatment Optimization program integrates decision management, reporting and advanced analytics to provide a data-driven, scientific and customer-centric approach to collections. During its first year, the program helped more than 6,000 customers avoid repossession and stay in their cars, and prevented 50,000 customers from reaching a stage of delinquency that would affect their credit.
“Working with delinquent customers to keep them in their cars while working out payment options has helped Toyota avoid millions of dollars in losses,” said Jim Bander, national manager for decision science at Toyota Financial Services. “It’s a win for our customers, and a win for Toyota. Furthermore, it reduced our operating expense ratio by allowing Toyota to grow our portfolio by roughly nine percent, without adding collections headcount. This has also enabled us to tie future lending decisions to our collections abilities – putting more customers behind the wheel of a Toyota.”
Using FICO® Xpress® Optimization Suite and FICO® Model Builder, Toyota Financial Services was able to bring statistical modeling, forecasting, predictive modeling and optimization into a single framework that allows the rapid simulation of multiple scenarios and then the deployment of an optimal strategy into production. The implementation divides customers into micro-segments based on risk, ensuring that the collection treatments are delivered individually, one customer at a time.
For its efforts, Toyota Financial Services has been awarded the 2015 FICO Decision Management Award for Debt Management. “The panel of judges was impressed by how Toyota Financial Services aligned its collections program with its corporate customer service philosophy,” said Philip Alexander, editor, Global Risk Regulator, one of the judges for the FICO Decision Management Awards. “Rather than a tactical approach to collections, they are pursuing a long-term vision: to keep their customers in their cars.”
We’d like to thank Toyota for their submission, and our panel of independent judges:
- Philip Alexander, Editor, Global Risk Regulator Magazine
- Michael Versace, Global Research Director, IDC
- Joel Wells, Director Application Development, Discover Financial Services
- Michael Wu, Chief Scientist, Lithium Technologies
Jim Bander will discuss Toyota’s results at FICO™ World, which will be held in Washington, D.C., from April 26-29, 2016. Other award-winners will also be featured in conference activities.
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<p>FICO’s latest research on <a href="http://www.fico.com/en/blogs/risk-compliance/us-credit-quality-rising-the-beat-goes-on/" target="_blank">national FICO® Score distribution</a> shows that US credit quality continues to trend upwards, with an increasing number of consumers scoring in the highest scores ranges. Given that, we decided it was time to refresh our study on “<a href="http://www.fico.com/en/blogs/risk-compliance/infographic-what-does-a-high-credit-scorer-look-like/" target="_blank">FICO® Score high achievers</a>,” where we examine the credit behavioural profiles of consumers with higher credit scores.</p> <p>As expected, our latest study showed that older people generally have higher scores, as has been the case in our <a href="http://www.fico.com/en/blogs/risk-compliance/age-before-beauty-credit-worthiness-before-youth/" target="_blank">past research</a>. 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I further broke this down by looking at the characteristics of the youngest 15% in each group, which occurs at age 29 for the 750-799 group and 43 for the 800-850. We used FICO<strong>®</strong> Score 9 for our analysis, and examined typical variables of the categories that go into the make-up of the score.</p> <p><a href="http://www.fico.com/en/blogs/wp-content/uploads/2016/10/FICO-Score-High-Achiever-table.png"><img class="alignnone size-full wp-image-29367" src="http://www.fico.com/en/blogs/wp-content/uploads/2016/10/FICO-Score-High-Achiever-table.png" alt="fico-score-high-achiever-table" width="715" height="747" /></a></p> <p>Since there’s a lot to dissect in this chart, I’ll highlight a few findings that struck me: <ul> <li><strong>Credit history.</strong> Higher scores are undoubtedly associated with a longer time on file. What’s striking is the higher average time on file for the 800+ group, both overall and for revolving accounts (the most common trade line). 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While 23% of the national population have collection items greater than $99, the figures are only 0.5% for the 800+ group and 3% for the 750-799 group. It is clear that, in conjunction with starting a credit file early, paying on time is a key trait of the FICO® Score high achiever.</li> <li><strong>Balance and utilization.</strong> Finally, we look at how credit is being used, focusing on revolving product use. (Since most people only have one mortgage or one auto loan, variation in instalment product figures is minimal and driven by payment history, which is near perfect for high scorers, as we’ve seen.) FICO® Score high achievers tend to have more open revolving accounts. While the % active trades and utilization are generally lower, by no means do high scorers avoid the use of credit products. What drives the difference here is the amount of <u>available</u> revolving credit utilized. 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A huge takeaway is that high scorers don’t have too much in the way of serious delinquencies and negative public record data.</p> <p>In most respects, the young 800+ people are like their peer group. They really only differ markedly in their shorter credit history and higher non-mortgage balance, both of which are a function of life stage. Our results show that you don’t have to be a credit product hermit; these high scorers have more credit cards. The takeaway is to start credit activity early and maintain well-managed and moderate usage.</p> <p>In many ways, the young 750-799 people are more interesting because their age profile is much younger. Their credit characteristics differ more from their peer group, particularly in terms of length of credit history. They compensate by having almost pristine credit records and lower balances.</p> <p>Ultimately, 39% of US consumers are FICO® Score high achievers, which they accomplish by following common-sense credit practices. It ain’t rocket science!</p>
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