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Profit Based Acquisition Strategy For Credit Cards
Profit Based Acquisition Strategy For Credit Cards
Spends/Interchange
Finance charges
Others
2. Cost
Fixed costs
Acquisition costs
Other operating costs
3. Loss
Risk
Low
High
Cut of
Decline
Approve
Credit Score
Bad Rate / Charge-Of rate Ratio of number of customers defaulting on credit cards
to the total number of customers.
Objective
2.
Methodology
Independent variables
Credit bureau data
Account application data
Training data
A sample data set of 300,000 credit card accounts
Segmentation
Segments based on credit bureau scores.
Multiple spend models.
Model details - I
Modeling equation
log(Spend) = + 1 X1 + 2 X2 + 3 X 3 +......
where , 1, are regression parameters
Model details - II
Challenges
1.
2.
Challenges addressed!
Revenue is highly correlated with risk
1.
2.
Challenges addressed!
Revenue is highly correlated with risk
1.
2.
Results
FICO Only
FICO and
Spend score
Approval
rate(%)
90%
83%
Bad
Rate
Mean
(%) Spend ($)
1.60% 15,032
1.60%
16,617
Conclusion
Advantages
Easily communicated
Easily implemented in systems
Track able and easily recalibrated.
Limitations
A single credit card portfolio
considered