Originally posted on SAS Institute Inc.’s Blog.

Guest post written by Wilson Raj, Global Customer Intelligence Director, SAS Institute Inc.

SAS Institute Inc. is the NAFCU Services Preferred Partner for Business Intelligence, Predictive Analytics Software & Risk Assessment.

In the last decade, CMOs have made great strides in elevating their stature. According to the latest SpencerStuart survey, CMO tenure has steadily climbed from 23 months in 2004 to 45 months in 2012. What are the reasons for this improved longevity? Marketers are becoming more strategic-minded, they’re taking a more expansive view of their customer, and they’re adding more sophistication and data-driven decisions in marketing campaigns and operations.

The swift adoption of mobile devices and the proliferation of digital channels have created opportunities for highly interactive, rich communications between consumers and brands. But those very same circumstances can be a double-edged sword as more consumers demonstrate little tolerance for irrelevant, ill-timed, and “creepy” communications.

Marketers may be on a positive trajectory as CMO tenure suggests, but the path is still fraught with uncertainly. CMOs are confronted daily with the challenges and opportunities of maximizing digital marketing, enabling dynamic multichannel interactions, enriching customer experience, utilizing marketing analytics, and—of course—harnessing Big Data.

These hot marketing topics are inextricably linked to each other, and also to the CMO’s ultimate goal of delivering sustainable business growth. To this end, CMOs must not lose sight of two imperatives for their marketing technologies:

1.      Ready accessibility to analytics

Marketers must be able to unleash the power of analytics throughout the marketing department and in all marketing processes (activities related to strategy and planning, campaign and interaction management, and customer experience management). Analytics, when highly accessible in a marketing system, allow marketers to create value for their customers, while giving businesses an instant edge for improving marketing performance and reducing costs.

For instance, marketing automation uses sophisticated analytics to automatically improve relevancy and responsiveness to individual prospects regardless of media or channel. Real-time analytics allow marketers to discover and react in real time to how consumers are interacting with your brand.

The upshot: greater agility; better targeting; personalized offers; coordinated campaigns; connected experiences.

2.     Alignment and accountability for growth

The analytics must provide ever clearer “line of sight” to revenue growth and profitability, especially as digital spend in marketing budgets continue to rise. CMOs must also insist that their enterprise-marketing platform enable a single point of marketing collaboration: one that aligns objectives, planning, and execution across various marketing roles in the organization for greater accountability.

A recent Econsultancy report indicated that 71 percent of businesses plan to increase digital marketing budgets. The average expected increase (of those increasing digital spend) is a significant 28 percent. The result: a higher degree of scrutiny by the C-suite for digital. Analytically powered marketing platforms provide more transparency to marketing personnel and helps the entire organization align resources to objectives, streamline production processes, track budgets and expenses, and improve overall collaboration.

The upshot: better collaboration; greater control of marketing spend; stronger marketing investment decisions – especially in digital; more CMO credibility among C-suite peers.

In the final view, marketers need demonstrable business results in their quest to maximize digital marketing impact and deliver sustainable growth. Are you evaluating your marketing technologies through the twin lenses of analytics accessibility and marketing accountability?

To learn more, please start by visiting the Digital Marketing Resource Center and discover why digital marketing requires the agility and collaboration enabled by analytics.

SAS Institute Inc. is the NAFCU Services Preferred Partner for Business Intelligence, Predictive Analytics Software & Risk Assessment.

For contact info and more educational resources, visit: www.nafcu.org/sas

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Guest post written by Jay Slagel, President and CEO, Allied Solutions.

Allied Solutions is the NAFCU Services Preferred Partner for Insurance—Bond, Creditor Placed (CPI), Guaranteed Auto Protection (GAP), and Mechanical Breakdown (MBP); iSolutions; rateGenius.

It is not surprising that fraud in the workplace increases during an economic crisis or recession and small businesses (including large and small credit unions) may be vulnerable. Internal fraud typically occurs when someone has an incentive, such as a financial or economic hardship, plus the opportunity. National statistics show that it typically takes two years from the time fraud begins to the time of discovery. As a result, while some entities have already discovered fraud born of the recession, many more are likely to uncover problems in the coming years.

Management staff may be wearing multiple hats to keep up with more work, giving them less time to monitor employees, keep an eye on expenses and oversee their internal operation. During these periods, there might be the potential for a credit union to drop the ball in areas of oversight. Below are several ways to help fight fraud:

Establish fraud controls. Conduct a quick assessment of your fraud controls and determine who is responsible for fraud detection and reported misconduct. Credit unions should clearly establish this oversight which could be assigned to a senior manager, an internal auditor or the supervisory committee. Basically, this individual or group would perform periodic reviews of employee accounts and other areas where fraud might occur so as to detect and act early if a problem surfaces.

Screen and monitor those who have access to money. A background check on each new employee is a necessity for financial business. Employees who have access to teller drawers, the night depository or cash deliveries, etc., all have the opportunity so this exposure must be controlled. Maintaining dual control on all internal processes involving cash is strongly suggested. Employees in this role should be forced to take vacations and during that time, someone should oversee or check their work, including their personal accounts. An employee involved in fraud will be reluctant to take time off because a substitute employee may quickly discover an employee’s fraudulent scheme.

Conduct basic fraud awareness training. Develop a formal Fraud Policy that is acknowledged and signed annually by each employee. This sets the tone from management as to all expectations on the conduct of employees. This is Awareness 101, and it lets employees know that management is watching. It serves as a detection element in and of itself.

Periodically remind employees to be vigilant. Setting forth an expectation of awareness and the need to report any suspicious activity is critical to early detection. This “whistle blower” policy should be part of your Employee Handbook and should include a defined process of how to report any suspicious activity, and to whom. Also, the policy should strongly prohibit any retaliation for reporting any questionable incidents. Basically, all employees are responsible for preventing and detecting fraud, including “blowing the whistle” if a problem is discovered.

Monitor your vendors. Managing and overseeing your vendors is very important and employees also need to be vigilant and report any questionable activity. Previous history has shown that some employees, especially those who are new, might not be as knowledgeable about what constitutes fraud. For instance, if a new employee receives an invoice, they may likely pay it without as much scrutiny as a more experienced employee. Training and awareness is important and helps to provide early detection.

Credit unions should approach fraud prevention with a critical eye and not take anything for granted. Always take a questioning view to help guide the internal audit process in the utilization of a risk-based analysis and probe broader and deeper into areas warranting closer scrutiny. In other words, if you smell smoke, there is probably a fire burning somewhere.

A regular discussion of known fraud risk factors, management override of internal controls, fraud risk assessments, results of employee surveys or hotline calls, and publicized fraudulent activities from other companies all lead to productive brainstorming sessions among the credit union Management Team, the Internal Auditor and Supervisory Committee. With good communication and teamwork, risk of loss through internal fraud can be minimized.

Allied Solutions is the NAFCU Services Preferred Partner for Insurance—Bond, Creditor Placed (CPI), Guaranteed Auto Protection (GAP), and Mechanical Breakdown (MBP); iSolutions; rateGenius.

For contact info and more educational resources, visit: www.nafcu.org/allied.

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Guest post written by Barrett Burns, President and CEO, VantageScore Solutions, LLC.

VantageScore Solutions, LLC is the NAFCU Services Preferred Partner for Credit Scoring.

Times have changed since a promise and handshake were all you needed to get a loan. Now credit scores speak to your character. Most credit unions primarily rely on credit scores to help make consumer lending decisions. Credit scoring models incorporate credit scores with other characteristics related to creditworthiness. In today’s market, there are dozens of different credit scoring models available, from generic models such as the VantageScore 3.0 model, to customized models that are generally expensive to build and maintain.

Even so, it’s a common misconception to think of credit scores as a commodity, or a “one-size-fits-all” risk management tool.  A credit score is the numerical representation of the likelihood that a consumer within a specific population will become 90 days or more past due on a debt obligation in a two-year timeframe. It’s important to remember that this propensity to default is assessed within the context of the population being scored. The most effective credit scoring models incorporate other relevant information, such as current economic factors, over a greater population. Choosing the right model for your credit union can help you in ways you might not expect, from saving time and expense to improving accuracy and applicant pools.

Here are five features your credit scoring model should offer:

1)      Expand your universe of applicants

According to Experian, 64 million U.S. adults have limited or no credit history. That’s an incredible opportunity for credit unions! Based on research commissioned by VantageScore Solutions and conducted by SourceMedia Research, almost 60% of lenders surveyed either never or rarely respond to loan applications from consumers without credit scores.

These consumers could become your members. A model that can provide scores to tens of millions of otherwise “unscoreable” consumers means they can be underwritten using your standard automated procedures instead of a manual underwriting approach, which can be costly.

2)      Take advantage of new data

It’s intuitive, but it’s a point worth driving home: A model built on post-Recession data will be more reflective of current conditions and more predictive of future credit behaviors. The credit market is entirely different than it was just a few years ago.

Indeed, developing a model over the extended window reduces the model’s sensitivity to behavioral volatility so be sure the model you are using has this advantage. For example, the data sample used to build the VantageScore 3.0 model was developed on consumer behavior from two different two-year timeframes:  2009–2011 and 2010–2012. Each performance timeframe contributed 50 percent of the model’s development. Developing the VantageScore 3.0 model over the extended window reduces the model’s sensitivity to consumer behavioral shifts over different volatile periods.

3)      Help your members understand risk-based pricing

As you are no doubt aware, credit unions are required to provide notices to any member who is denied a loan or offered credit terms other than the best available. As part of these notices, four or five “reason codes” must be also be provided to help explain how certain items in the member’s credit file impacted their credit score.

If your credit union uses the VantageScore model, take advantage of our new website, ReasonCode.org.  We built a search engine that lets members type in reason codes to find more detailed explanations of factors that lower their credit scores, and information about how they can improve their scores.

4)      Take the guesswork out of inconsistent scores

It can be frustrating for you as a lender, and equally if not more frustrating for the member, when a member’s credit score fluctuates when obtained from more than one credit reporting company (CRC), and there are no errors or other discernible differences in their credit files.  The VantageScore model is the only credit scoring model that avoids score deviations inherent in the use of models built specifically for each CRC database. The VantageScore model is identical for all three major CRCs, and it uses a patented process called characteristic leveling to help provide more consistent scores across all three CRCs.  If the member’s credit file is the same across all three CRCs, then the VantageScore credit score will be the same.

This translates into more consistent scores across Equifax, Experian and TransUnion, and more confidence that the credit score you’re looking at reflects a member’s true risk profile.

5)      Predictiveness – where the rubber meets the road

None of items 1 through 4 means a hill of beans unless the credit score you pull is highly predictive.  Across the entire population, in 99% of tests, the VantageScore 3.0 model improves upon the already strong performance of the VantageScore 2.0 model and outperforms all other benchmark models provided by the three credit reporting companies (Equifax, Experian, and TransUnion). Importantly, the model achieves up to 25% lift among Prime and near-Prime consumers, the population of borrowers that is often most desired by mainstream lenders, where lenders traditionally focus their credit score cut-offs.

On May 22, 2013 VantageScore Solutions will host an online webinar to provide lenders, regulators, and media an in-depth explanation of our newly introduced credit scoring model, VantageScore 3.0.

Register here.

VantageScore Solutions, LLC is the NAFCU Services Preferred Partner for Credit Scoring.

For contact info and more educational resources, visit: www.nafcu.org/vantagescore.

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Originally posted on CUInsight.com.

Guest post written by Nizar Hashlamon, EVP, Client Relations, Mortgage Cadence.

Mortgage Cadence, formerly Prime Alliance, is the NAFCU Services Preferred Partner for Credit Union Mortgage Solutions.

My colleagues and I talk frequently about the coming changes in mortgage lending. The 100-years refinance (exaggeration intended) cycle will end this year or next. In its place is likely to be the most sustained purchase-money market since the 1950s through the 1960s. There are signs of this already. One headline last week in Housingwire read ’75% of Americans would rather buy now than later’. No doubt they want to take full advantage of the lowest rates in history before home prices rise too much further.

You know this. Everyone knows this. Helping people finance home purchases for the next decade or so is some of the most rewarding work mortgage lenders will undertake during their careers. Many first-time homebuyers will get their homeownership start in the next few years. Our chances to work with them for a lifetime begin now.

There’s a potentially dark side to the coming market changes. Rates will rise. You know this, too. What you might not have thought much about, however, is how much they will rise or for how long, and more importantly, what will the impact be on your secondary marketing pipeline. Start with this fact: rates today are at their lowest point since 1941. Since 1941 rates trended upward until 1985 when the 10-year Treasury rate peaked above 14%. From that point rates began their downward trend, bringing us to where we are today, back to where we were 70 years ago.

History repeats itself. Looking way, way back in history rate trends are easy to spot. Since the late 1800s two 60-year rate cycles are apparent. Rates tend to rise for 25 to 30 years and then fall for the next 25 to 30 years. The cycle then starts all over again for the next six decades. No one can say for sure this will happen again, though the safe bet would be to assume a long-term upward trend is about to begin.

Why this is important and why this is the darker side of mortgage lending has to do with one of the ways we make our money as mortgage lenders. Recording secondary market profits, the gain made when mortgage loans are sold, relies on how well the vagaries of interest rate movements are managed. A secondary market truism is that it is relatively easy to make secondary market profits as rates trend downward. Hedging pipelines is seen as largely unnecessary. It’s also expensive and reduces profitability. Hedges protect against upward movements in rates. Rates haven’t moved consistently upward in a long time. What do many lenders do in these conditions? Not much. Take a lock from a borrower; float the rate with their investor. Chances have been rates will have moved down by the time the loan closes. This results in a bigger gain. Everyone is happy.

Everyone is not happy when rates spike up, which they will inevitably do. Start with the same scenario. Borrower locks their rate; lender floats the lock with their investor. Only this time rates spike up 100 basis points. Rather than a tidy profit the lender records a significant loss. Multiply that loss by the number of uncovered loans in the pipeline. The loss becomes a figure to be reckoned with, one that is easy to explain though impossible to defend. This very scenario played out on Black Monday in 1987. Mortgage companies racked up huge losses. Some closed their doors permanently. How did they get caught? Easy. Rates had been trending steeply downward for several years. Until they didn’t.

Call me Chicken Little. But the sky isn’t falling; it isn’t even a bit lower. Look at it this way. One of my colleagues is fond of reciting the 6Ps: Proper Preparation Prevents Pathetically Poor Performance. Be prepared for when rates rise. Look at your pipeline management practices, tools and hedging strategies now. Good secondary market professionals make money no matter which direction interest rates are trending. Good secondary market professionals practice the 6Ps.

Mortgage Cadence, formerly Prime Alliance,  is the NAFCU Services Preferred Partner for Credit Union Mortgage Solutions.

For contact info and more educational resources, visit: www.nafcu.org/mortgagecadence

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SAS is the NAFCU Services Preferred Partner for Business Intelligence, Predictive Analytics Software & Risk Assessment.

Sonoma. The backdrop for some of the nation’s most beautiful scenery and wine was also the backdrop for this year’s NAFCU CEOs and Senior Executives Conference.  And what a backdrop it was! With pristine rolling hills, deep green valleys, and row after row of immaculate vineyards, it was hard to not feel as if you had just stumbled upon pure heaven on earth.

As more than 120 of us gathered to discuss such topics as regulation and leadership, it was hard to suppress my excitement for the scheduled group activities at hand. On Day 2, several buses departed for the ever-so-popular wine tour. What was expected to be just a day sipping fine wines, turned into a day of unexpected education (coupled with a little wine-sipping of course).

One of the ideas my tour group seemed to get hung up on was aerating (or letting the wine “breath” to enhance flavors), and for my sake, I’m glad they did. As it turns out, many of us had been doing it all wrong! Our tour guide, Heather, was a wealth of knowledge on this subject matter. She enthusiastically walked us through our lesson on what makes for good aeration and why it is often a necessary step to enhance red wine.

Letting red wine aerate is simply allowing it to mix with air, enabling the wine to slowly “open up” and develop into what it is meant to be. Heather referred to this process as “maximizing the flavor profile.” Simply put, it is a necessary step in doing wine right.  It is an easy step to ensuring the final product reaches its fullest potential.

So, how in the world is this at all similar to implementing predictive analytics? Puzzling comparison indeed, but here’s my answer: Predictive analytics is but a step to further enhance the data that you already have in house. It is a step to make the best of the data and maximize on that data—using it as your greatest asset, or, again, ensuring that it reached its fullest potential. Much like aerating wine, taking the extra step to layer a predictive analytics solution into your decision making process is the necessary step to making a good credit union great, or a great credit union even more outstanding. Whether you are speaking in terms of Northern California wine or predictive analytics, the parallel end goal is to take the one extra step, the extra effort to make it become its best. 

Integrating predictive analytics into your credit union and decision making process is much easier and less expensive than you would imagine. There’s a shorter learning curve, which means more people in various departments can utilize the software. More aerating of the data, if you will. 

I work for SAS. We are taking our customers from the reactive way of thinking and asking, “what happened?” to a proactive way of doing and asking “what is the best possible outcome that can happen?”

Contact me at Kristin.locklear@sas.com or connect with me on LinkedIn at http://www.linkedin.com/pub/kristin-locklear/38/957/a50.

For more educational resources, visit www.nafcu.org/sas.

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