Portfolio Management
by kuberfinancial
As FinTech and online lenders figure out the acquisition portion of their business. The biggest issue becomes collections or default rates. Most believe that it’s mainly a human effort that causes the portfolios to perform or default at a rate that doesn’t meet expectation. We like to think that it is a combination of data analytics and human effort combined approach.

We believe that payments based reports are singularly important in managing your portfolio post-acquisition. From first payment default to pay0ff percentages. These, amongst many other key performance indicators, are critical for our investors and clients to understand their portfolio performance.

We help our investors and partners to publish monthly portfolio review reports from application volume to loan performances are clearly documented and recommendation are made to adjust marketing or operational related tasks. Most often, it will take a portfolio anywhere from 6 to 12 months to find its footing and “dial in” every aspect of the operations.

Portfolio Management is often the last aspect a fintech lender considers. Lenders shouldn’t leave this up to the customers to follow through with their obligations. There are payments, roll rate analysis, monthly credit report updates. Depending on the type of product, for example, in a Line of Credit product, we can build strategies to approve or decline draw requests with respect to existing loan performance.

Key aspects of portfolio management

First Payment Default

First Payment Default or FPD is the earliest indication of portfolio performance. Whether you are running a super prime (fraud issues) or a subprime (ability to pay or stacking) portfolio, FPD or First Payment Default is a big killer of any unmanaged portfolio. Of course, it is also with respect to the type of product and risk tolerance one may have. Nevertheless, controlling first payment default from a credit risk and fraud risk perspective is critical for your success.

Subsequent Payment Default

2nd, 3rd, 4th… payment defaults need to be tracked diligently. If you have the ability to re-pull credit on a monthly basis for your active portfolio, you can see if your existing population is inquiring for additional credit that might hurt their ability to pay and thus might cause negative consequences. In a line of credit or credit card product, you can use this information to decline draws or transactions to protect your debt facility. We have strategies and algorithms that can help you make those decisions.

Early Payment & Charge Offs

Early Pre-payment, although from a risk perspective is good, but from an overall profitability perspective, its a revenue killer. Depending on the portfolio and product, if your portfolio is paying off at 1% of greater per month, the early pay off speed might be too fast and eroding profit.

In addition, depending on the portfolio or product, there are well established charged off curve over time, if your portfolio is charging off faster than industry standards at 6, 9, 12, 24 months, you might need to reexamine your pricing and loan amount assignment or there might issue with your acquisition channel.

Portfolio Management 101

 Volume

We get this question all the time. How many loans should I do to consider viable and enough to get investors attention to raise a bigger debt facility. The answer varies but if you have a couple hundred loans and have been agitating for over 3-6 month and that each vintage has at least 3 to 6 months worth of performance, then that’s probably enough to get started to raise a bigger round of debt facility with a matured loan tape in hand.

A/B Testing

Once you’ve baselined yourself with a portfolio performing at a certain pace, it is now important to constantly learn from your experience and better your underwriting, pricing and line assignment model. We recommend that you always have an A/B strategy testing constantly. This is the best way to test out alternate strategies and can help you course correct. A correctly designed A/B testing strategy will produce wonderful results and help you learn faster.

Line of Credit vs Installment Loans

Portfolio Mangement activity varies base on the types of products you are managing. Some of the more traditional products are installment loans and line of credit products. Depending on your product type, there are many strategies and techniques which you can use to control your losses and manage your customer retention rate. For example, one of the most difficult and critical strategies is to get your customers to use the appropriate usage level of the line of credit approved at the time of origination. We would love to talk to you about your strategies.