All posts by Andrew Jennings

Risk & Compliance FICO Research: Student Loan Debt Explodes Across Age Ranges

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Student loan debt in the United States has reached about $1.34 trillion.  It’s greater than the aggregate of credit card debt.  But surprisingly, we haven’t seen much in-depth analysis about the spread of this debt burden across the expanse of ages within the U.S. population.  Our latest research reveals that, over the last 10 years: The percentage of middle-aged and older population carrying student loans has doubled The average balance on those student loans has grown 40% Middle-aged and older populations are having a harder time making their student loan payments on time Student loans aren’t just an issue for the younger generation. Increasingly, they are a problem suffered by Americans of all ages.  Let’s look at the numbers. Figure 1.  More People Have Student Loans  Age Percentage of Population with Student Loans 2006 Oct 2011 Oct 2016 Oct %△ 2016 over 2006 18-24  39% 46% 49% 25% 25-34  29%... [Read More]

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Risk & Compliance Examining the Credit Cycle: Is This as Good as it Gets?


More than 70 straight months of US job growth, the official unemployment rate down below 5%, and average hourly earnings growing at a seven-year high of 2.9%. Signs of approaching full employment finally allowed the Fed to see enough stability to inch up rates without being seemingly blown off course by events elsewhere. There will be more rate hikes to come if the economy stays on this course, and in the event the deficits grow, it will pretty much guarantee what we already expect on the interest rate front. With all this in mind, it’s a good time to ask: Has the US credit cycle reached the top? Is it as good as it gets? Of course, we never know that for sure. This is all opinion (some would say speculation), especially on the economic policy front. But you have to feel that if it isn’t the top we are... [Read More]

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Risk & Compliance Millennials and Credit: Are We Missing the Real Story?

Millenials and Credit - I'm a Millennial Nametag

Our fascination with millennials and their like or dislike of credit continues to occupy its fair share of column inches – so much so that a while back I decided to take a look for myself. I shared results of that study in a prior blog post, where I revealed that millennial credit habits don’t look too different, at least directionally, from the rest of the population. Here’s what I found: Compared with 10 years ago, today’s 18-24 year olds have lower credit and store card balances, and while they have more auto loans, the value of these loans did not grow as much as inflation would suggest. By contrast, growth in student loan debts outpaced inflation, being both greater in number as well as balances; this undoubtedly creates a drag on capacity for other forms of consumer credit. Subsequently, I also looked at the 25-34 year age band, and... [Read More]

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Risk & Compliance FICO Research: Are Millennials Really Abandoning Credit?


Nothing fascinates us more in the world of demographics than what the Millennial generation think, do and how they act.  One thing for sure is that, as they vie with the Baby Boomers to be the largest demographic group here in the USA, what they do is important. And we don’t need to be statisticians to know that the Baby Boomer generation isn’t going to be getting any bigger. The question for many in financial service boils down to this: Are Millennials really abandoning us? The topic came to mind for me recently as I was asked to be part of a panel discussion on credit and the economy at an ABS East conference. Since much of what gets said about Millennials seems to be more opinion than fact, I decided to look at a few stats and see if we could cast any light on what might be happening.... [Read More]

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Risk & Compliance 2017 Predictions: 4 Trends that Will Shake Up Banking Next Year


If you follow the financial press, blogs and newsletters, you may have noticed a sea change in the topics du jour over the last 12 months. As we close out 2016, receding into the background are the never-ending stories of Big Data technology, as well as the hype of how P2P lending is taking over. Instead, the focus is on blockchain, open banking, AI, fintech beyond P2P lenders, cybersecurity, digitisation and customer experience. This shift is exciting because, as these topics all collide, it will shake up the very face of banking as we know it … although probably not quite as quickly as the technology talking heads would have us believe. I have one more to add to that list: financial inclusion must be central to the story of 2017 because it will be the beneficiary of many mainstream industry innovations. Here are some thoughts on just four of... [Read More]

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Risk & Compliance FICO® Score High Achievers: Is Age the Only Factor?


FICO’s latest research on national FICO® Score distribution 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 “FICO® Score high achievers,” where we examine the credit behavioural profiles of consumers with higher credit scores. As expected, our latest study showed that older people generally have higher scores, as has been the case in our past research. This is largely because they have trade lines that have been open longer, which leads to higher scores (assuming the trade lines are in good standing and all other things equal). The most credit savvy among you will remember that length of credit history accounts for roughly 15% of the overall FICO® Score calculation. But for younger consumers, it isn’t too helpful to say, “just wait until you are 50... [Read More]

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Risk & Compliance New Ways to Score Risk Can Improve Financial Inclusion

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The path to a better lifestyle includes access to credit. Unfortunately, an estimated 3 billion people worldwide fall outside the credit mainstream – they either don’t have a bank account or they have so little data at the credit bureau that lenders may skip over them, or classify them as very high risk. That’s why FICO has announced the FICO Financial Inclusion Initiative, a global effort to increase access to affordable credit for consumers and businesses with limited or no credit history. We’re using a combination of business partnerships, innovative new products, mobile platforms and cloud-based services to help credit grantors make affordable credit more accessible to unbanked and underbanked adults worldwide. The first international efforts of the initiative are: A partnership with EFL Global to expand credit scoring options for lenders and consumers in Turkey, Russia and Mexico using consumer-contributed psychometric scoring technology. A partnership with Lenddo to develop... [Read More]

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Risk & Compliance Will Fintech Risk Models Have “Unintended Consequences”?

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Last month the President of the San Francisco Federal Reserve Bank addressed the LendIt USA conference here in San Francisco. He talked about “unintended consequences” and the role regulators play in protecting wider economic interests. “I am excited for the changes to come, and I see the potency of the possible,” said John C. Williams. “But for fintech’s potential to be met, we need to make sure we don’t reinvent or exacerbate shortcomings that have plagued our financial system thus far. In that regard, well-designed regulation protects consumers, fosters inclusionary rather than exclusionary practices and enhances fairness and resilience of the financial system should help rather than hinder fintech’s contribution.” Since that speech, trouble with marketplace lenders such as Lending Club has led many in the industry to say the fintech bubble is bursting. Whether or not that turns out to be the case, it’s worth exploring this issue: What... [Read More]

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Risk & Compliance Why “Alternative Data” Isn’t an Alternative

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In the last few weeks I have been asked on several occasions to comment on the use of “alternative data” in credit scoring and risk assessment. Sometimes it seems I am being asked to defend using “traditional data” rather than the new, cool stuff. I’m going to share a few observations that I hope can put this in context. Here’s the first: There is value in what people call “alternative data.” It just isn’t alternative. People often talk about alternative data as if it is somehow magical and, to paraphrase a famous UK lager ad, able to reach places traditional data can’t. It reminds me of how fans talked about “alternative rock” bands like The Sex Pistols or Nirvana — they were just cooler than “classic rock” bands like The Rolling Stones. How often have you seen words like limited, narrow and restricted used to describe traditional data, and terms... [Read More]

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Risk & Compliance The 2016 Road Ahead: Top Banking Trends and Challenges


What does the road ahead hold for bank risk managers? As 2015 winds down, I’ve been visiting many banks all over the world. During these conversations, several themes keep recurring, suggesting both opportunity and challenges for banks in 2016. Here’s where I see things heading next year: Expanding the onramp to credit. Finding new ways to serve the “credit underserved” is top-of-mind at many institutions, particularly in the US. The growth of alternative lending, combined with the desire of more traditional lenders to find new customers in a saturated market, appears to have created momentum for expanding services to many people who have not utilized mainstream banking products in the past. Caution ahead: rising interest rates. I don’t think rates themselves will be a big deal because the rise will likely be gradual. The bigger concern is the impact of a stronger dollar. This will cause capital to flow into... [Read More]

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