Risk Scoring is often a critical first step for any business attempting to modernize its credit approval process. The process can feel daunting, especially if you're new to basic automation principals and scoring concepts. In this session, Erikk Kropp reviews a best practice framework aimed at helping businesses modernize their credit approval process. In this session you will leave with three key takeaways: Fundamentals related to credit approval processing and how they are impacted by key business drivers The critical role of risk scoring in the path to modernization Common risk scoring options in the industry and their corresponding pros and cons Watch the recording of this webinar: https://www.experian.com/business-information/webinar-sip-and-solve-ep-21-four-risk-scoring-options-modernize-approvals

1. 1 © Experian 22/04/2020
Sip and Solve
Four risk scoring options to help
modernize B2B credit approvals
Featuring:
Erikk J. Kropp
Senior Product Manager
Experian Business Information Services

2. 2 © Experian
Path to modernization
Credit Risk Data
- Commercial
- Consortium
- Blended / Owner
- International Data
Risk Scoring
- Generic
- Judgmental
- Custom Model
Instant Decisioning
- Decision Actions
- Credit Limits
- Audit Trails
- Manual Overrides
- Real-time / Batch
Application
Processing
- Online Form Hosting
- Digital Form Storage
- Workflow Processing
- Response Messaging
System Integration
- APIs
- CRM / ERP Aps
- Mobile Aps (iOS, Droid)
- Aging Synchronization
Sip and Solve: Four risk scoring options to help modernize B2B credit approvals

3. 3 © Experian
Why score-based automation?
Key Impacts:
• Quickly assess risk and take action
• Reduce dependency on manual reviews
• Increase consistency and objectivity
• Focus resources on medium risk, high balance
Decline 10% of applicants
50.82% bad rate
Approve 10% of applicants
1.25% bad rate
Manual Review 80% of applicants
8.04% bad rate
Sip and Solve: Four risk scoring options to help modernize B2B credit approvals
Analysts AutomationAutomation

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1. Generic scores
Development:
• Statistical-based
• All-industry
Purpose:
• Define probability of a specific outcome or “bad definition”
– Severe delinquency
– Bankruptcy, default, failure
Advantages:
• Easy to access and implement (off-the-shelf)
• Comprehensive data sets
Challenges:
• Usually limited to credit attributes
• Compatibility
Sip and Solve: Four risk scoring options to help modernize B2B credit approvals

5. 5 © Experian
2. Judgmental scores
Development:
• Judgment-based (experience of credit executive)
• Attributes, weightings, scaling is hand-picked
Purpose:
• Rank order accounts based on perceived risk
Advantages:
• Highly configurable
• Can include non-credit attributes
– Financial statement ratios (large customers)
– Portfolio / aging attributes (existing customers)
Challenges:
• Manual calculation (worksheet, spreadsheet)
• Decisioning software to automate calculation (extra cost)
Sip and Solve: Four risk scoring options to help modernize B2B credit approvals
ATTRIBUTE 1 WEIGHT SCALE POINTS
Years in File 20%
<= 2 YEARS 0
3 ‐ 5 YEARS 2
6 ‐ 10 YEARS 5
11 ‐ 15 YEARS 8
15+ YEARS 10 (2)
ATTRIBUTE 2 WEIGHT SCALE POINTS
Intelliscore Plus 40%
1 ‐ 10 IPV2 0
11 ‐ 25 IPV2 2
26 ‐ 50 IPV2 5
51 ‐ 75 IPV2 8
76 ‐ 100 IPV2 10 (4)
ATTRIBUTE 3 WEIGHT SCALE POINTS
Financial Stability Risk Score 40%
1 ‐ 3 FSR 0
4 ‐ 10 FSR 2
11 ‐ 30 FSR 5
31 ‐ 65 FSR 8
66 ‐ 100 FSR 10 (4)
SCORE SCALE DECISION DECISION RATING
0 ‐ 2.0 POINTS DECLINE E ‐ HIGH RISK
2.1 ‐ 4.0 POINTS MANUAL REVIEW D ‐ MED ‐ HIGH RISK
4.1 ‐ 6.0 POINTS APPROVE C ‐ MED RISK
6.1 ‐ 8.0 POINTS APPROVE B ‐ MED ‐ LOW RISK
8.1 ‐ 10.0 POINTS APPROVE A ‐ LOW RISK

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3. Custom model scores
Development:
• Statistical-based
• Business / portfolio specific
Purpose:
• Define probability of client specific outcome or “bad definition”
– Severe delinquency
– Bankruptcy, default, failure
Advantages:
• Highly predictive
• Optimal business application
Challenges:
• Cost
• Implementation time
Sip and Solve: Four risk scoring options to help modernize B2B credit approvals

7. 7 © Experian
4: Deploy scores for portfolio management
Portfolio Scoring
• Apply risk scores to entire account portfolio
• Run segmentation and trend analysis to spot risk
• Take action accordingly to limit back-end exposure or to increase sales capacity.
• Highly efficient and cost effective
Sip and Solve: Four risk scoring options to help modernize B2B credit approvals

8. 8 © Experian
Parting thoughts
• Know your options and comfort level
• Be realistic with expectations
• Seek the right partner(s)
– Flexible
– Best interests in mind
Sip and Solve: Four risk scoring options to help modernize B2B credit approvals

9. 9 © Experian 22/04/2020
Thank you!
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