"Pricing optimization is enabling bank executives to use pricing as a strategic weapon to meet their corporate objectives..."

Learn more from the guru of price optimization, Dr. Robert Phillips.
Nomis Price Optimizer
Nomis Price Optimizer™

Nomis pricing solutions for Auto Finance leverage customer data, advanced analytics, innovative technology, and tailored business processes to enable complete pricing scenario planning and profitability management.

This enables auto lenders to change the nature of pricing from a computed metric to a strategic lever to achieve portfolio goals. With Nomis Solutions, auto lenders can now:

Determine the optimal prices to intelligently grow profits, volumes, or both within operational and regulatory constraints
Incorporate complex consumer behaviors into the pricing decision, including pre-payment risk and adverse selection
Forecast anticipated outcomes at a granular level along any combination of segments and pricing variables

A core component of the Nomis pricing solutions for Auto Finance is the Nomis Price Optimizer (NPO). NPO provides extensive analysis and reporting functionality for performance monitoring, creating a more informed basis for pricing decisions, including the ability to:

Compare predicted vs. actual performance to analyze profit, volume, and risk variances due to competitive pricing actions, rate discretion, changes in funding costs, and shifts in customer preferences
Drill-down into any combination of segments and pricing variables to understand underlying portfolio trends
Improve estimation of future anticipated vintage performance through pro forma profitability estimations on an account level

Best practices with the Nomis Price Optimizer broaden traditional pricing approaches to incorporate both the value customers place on price and overarching portfolio goals. This results in pricing aligned not only with costs but also with market demand and portfolio objectives.

Evaluating Pricing Scenarios: Effective “What-If” Analysis

The Nomis pricing solutions for Auto Finance enable lenders to run effective “What-if” analysis, which:

Shortens the rate review process
Maximizes the number of rates which can be reviewed
Leverages price response models to forecast the profit and volume impact of rate changes
Drives financial, strategic, and operational benefits

This robust functionality enables lenders to stress-test their portfolio and pricing decisions under varying macroeconomic, competitive, cost, and risk scenarios.

Constraint-Based Pricing Optimization

The Nomis pricing solutions enable auto lenders to translate their business goals directly into bounds to be used in the constrained optimization process. Constraint-based optimization combines price response models and your business objectives to generate pricing scenarios, and automatically makes the profit / volume trade-off on a cell-by-cell level, getting beyond the top left corner of the rate sheet.

With Nomis, lenders can set:

Pricing boundaries — permissible rate changes at the segment level
Performance goals — targets for any subset of the portfolio along any key performance indicator, such as require a 5% increase in A+ sales.
Linear relationship rules — rate relationships across segments (e.g., rate increases with risk, term and vehicle age)
Capturing the Adverse Selection Effect

Auto lenders must manage adverse selection: the phenomenon whereby the average losses for a particular loan or customer class increase as rates increase. There are two kinds of adverse selection is auto lending: direct and indirect. In direct adverse selection, as the price of a loan product increases, the credit score distribution of a loan/customer segment shifts downwards. This may occur because customers with higher credit scores tend to have more loan product options to choose from and could potentially be more financially savvy than their low credit score counterparts.

In indirect adverse selection, the default probability increases for customers with the same credit score in a segment as rate increases. This is typically a result of private adverse information on the part of borrowers and Nomis incorporates these relationships into the modeling outcomes.

The Nomis pricing solutions for Auto Finance take into account adverse selection and as a result enhance credit execution.

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