I owe it to my primary financial institution for helping guide me through the highs and lows of my financial journey. When I was fresh out of college they helped me set up a sustainable plan to tackle mounds of student loan debt, they assisted me and my husband when we bought our first home together, and when our family doubled in size they showed us how to budget accordingly. They listen as I discuss my financial goals and I feel they always have my best interest in mind.
Recently I heard a conversation where an industry mentor matter-of-factly stated that when it comes to metrics, growth, retention, and penetration are all that matter. I replayed this statement over and over in my mind and couldn’t help but ask myself if there could be more.
What if growth, retention, and penetration were not all that mattered? What if more financial institutions created thoughtful metrics that focus on the financial health of their borrowers, helping them improve their capacity to save, spend, borrow, and plan? Imagine the ripple effect this would have throughout the entire industry and the economy.
Using simple data, let’s discuss a few ideas to see if Americans are headed to financial freedom or financial agony.
1. No Credit Score Borrowers with No Previous Credit History
These individuals are at your front door (or digital banking page) to take out their first loan through you. Statistics show that many of these individuals are younger in age, perhaps millennials, and are relying on their financial institution to set them up for a successful future. In these cases, clear financial education and guidance is critical and success can be tracked easily by watching the credit score migration of these no credit score borrowers.
2. Credit Card Usage – Transactors or Revolvers?
While paying bills on time is one goal, paying bills (including balances of credit cards) in full every month is an even better one. Slicing and dicing your end-cycle credit card balances can suggest borrowers who tend to be transactors, consumers who pay their balance in full each month, versus revolvers, those who carry balances month over month. In opportune conditions revolving balances drive interest income, but what if more financial institutions encouraged their borrowers with incentives to pay balances in full whenever possible, creating engagement, stickiness, and financial soundness?
3. Sustainable Debt Loads
When attempting to gauge the heftiness of debt loads it can be beneficial to observe the migration of debt-to-income ratios. The purchase of a new home can lead to purchasing a new car, new boat, new furniture - the list goes on and on. Spending like this can be a downward spiral if not controlled, but helping members understand the correlation between their debt ratio and their financial health can minimize defaults.
Here’s to KPIs that benefit both your financial institution and your members simultaneously, one step at a time.
- Nicole Haverly, Product Director