Consumer Risk Reduction

Background: For a large US bank, credit card charge-offs represented 33% of overall consumer loan write-offs.

Challenge: Improve method for identifying and reducing credit card default risk.

Measurement: Reduced write-offs.

Benchmark: Current write-off rate.

Method: 80% of credit card customers have deposit relationship with the bank. Focus Optimal recommended using bank transaction history and Credit Bureau variables to build credit card risk scores. To improve accuracy and efficiency risk scores, Focus Optimal segmented the credit card customer base into 15 subgroups based on loss types, customer value, relationship, and demographics. Models were built from each segment and were back tested in various time frames to ensure robustness.

Results: Six months following implementation of the risk scoring system, our client reduced projected credit card losses by 8%, and additionally the newly implemented process reduced the time to compile risk reports by 80%, with additional benefits of far greater accuracy.

Other applications: Risk scores were also used for credit card origination, risk based pricing, credit line management, collections and customer retention.