A leading U.S. credit card issuer wanted to improve its risk management strategies by better identifying which of its current customers were most likely to become delinquent, a trend that is very prominent in today’s turbulent markets.
The issuer’s current models relied on many inputs in predicting delinquency, including an income variable that had significantly declined in information value over the past year. As such, the issuer was in search of an alternative income variable that would yield greater results in its models.
The credit card issuer needed to identify a new source for income in an effort to improve its delinquency and charge off rates. The ideal income source would:
- Accurately predict potential delinquencies, based on historical data via a retro analysis
- Offer a better way to identify mass affluent cardholders at the high end of the income spectrum – those that were most likely to be able to pay their credit card charges
- Not be capped or banded in a manner which constrained the issuer from fully optimizing the income variable
- Demonstrate stability by consistently scoring the vast majority of existing customers, thus minimizing the need for the firm to constantly redevelop its models and strategies
The credit card issuer turned to IXI’s Income360 to improve its delinquency models. Income360 offers a continuous measure of total income such that each household is assigned a unique dollar estimate of total income up to $2 million per household, enabling the firm to gain a better understanding of which households have the ability to pay their credit card charges.
Because Income360 reflects both income from wages and income generated from investments, it was able to offer the credit card issuer a better estimate of total household income.
The credit card issuer also benefited from Income360’s ability to consistently score over 95% of its prospect and customer records.
By employing Income360 into its risk models, the firm experienced a 25% improvement in its ability to predict potential delinquent accounts when compared to the models that employed the firm’s existing income measure.
By adding Income360 into its suite of models, the firm will be able to save millions of dollars within the next year. Income360 helps the firm differentiate cardholders that are most likely to become delinquent and/or charge-off and take proactive steps to address their payment plans. The firm is now evaluating other risk management applications for Income360 including enhancing collections strategies and additional account management improvements.