Card Analytics



Performance

Is your business success based on performance? Absolutely and as a global consulting firm with an extremely strong reputation, so is ours. We are pleased to announce Performance Pricing from Card Analytics Consulting, Inc. If you are not satisfied with the engagement, you pay no professional fees. We want to align our success with yours.

Objectives

The key objective in the credit card business is to increase spend volumes and revolving balances while mitigating credit risk exposure – This hasn’t necessarily been successfully achieved in many global markets the past 2-3 years and today’s environment demands approaches that are “new” and are “intelligently” structured versus “just doing” what everyone else is. Additionally “localization” is critical – what works in one market may not necessarily work in another – Many get caught up in the success of what has worked well in a particular market but that may not translate to success if one tries to replicate it somewhere else – Culture, Customer Behavior, Third-Party Data (Credit Bureau) availability and quality, Regulatory issues (pricing, interchange, credit lines), Sophistication of Management of Internal Transaction Data & Maturity of Market (definitely influences operating costs structure) play a significant role in how one “successfully” develops tactical & strategic approaches to managing a consumer credit card portfolio.

To identify opportunities and construct campaigns that are financially intelligent, we first develop a clear understanding of segment-specific profitability. This can be accomplished with a variety of methods, depending on existing partner data and reporting:

➢ Conduct P&L/Segmentation Study

▪ Using partner historical data, create product segments and sub-segments (behavior, spend & risk)

▪ Measure revenues and expenses (create P&Ls)

▪ Evaluate segment/sub-segments – Are they profitable and is the return on investment satisfactory? What does the operating expense look like and it’s impact on pricing schemes – Opportunities to enhance operational performance, such as customer service, that will drive costs lower, thus allowing for more aggressive pricing schemes?

➢ If detailed P&L data is available, use existing data and card portfolio segmentation

In our segmentation/risk based pricing engagements, examining the financial results beyond the “product level” provides greater insights. The “sub-segment level,” within the product – What does this approach look like? Think of a multi-dimension approach to assessing the strength of a campaign/cardholder –

➢ Cardholder Behavior – 3-4 revolver types (from low to very high percentage of credit line being utilized) and 5-7 transaction types (low spending transactor to very high spending transactor)

➢ Risk Profile – Which internal behavior scoreband do they generally reside in

➢ Monthly spending level – 5-7 spend levels

➢ Product (including credit line sub-segments)

Also, as a part of the engagement Card Analytics Consulting, Inc. will also conduct a thorough review and evaluation of data management and decision-making practices that lay the groundwork for long-term success. Principal focus areas:

➢ Use of internal and external data – Is there a Data Warehouse? If so, what customer data is available? If not, what customer transaction data is presently used in campaign designs – Is the “correct” data being examined? What external data is used – For example, what credit bureau data is collected and what is the frequency. Again, using the “right” information and structuring the “right” deal is imperative. Must understand what works for your organization.

➢ Business result measurement and reporting – This is often not done and is a key reason why many campaigns fail to deliver anticipated financial returns – ALL campaigns must be continually monitored and the key is to take learning’s and apply to ongoing campaign designs

Primary Focus – Portfolio Campaign Offer Types

Card Analytics Consulting Inc. offers the Campaign Design & Execution Service, which focuses on increasing spend/usage volumes & revolving balances:

➢ Balance Build Initiatives - includes promotional short-term as well as long-term spend offers to existing customers, such as providing the customer with an “All spend in the next 60-90 days” at a discounted APR that we will develop. Many different campaigns are developed, competing with each other and applied to many different card portfolio segments (the structure for each will definitely vary as the cardholder behavior, risk profile and cost to manage varies significantly)

➢ Intelligent Balance Transfer (BT) offers – Trying to move beyond “0% or 3 month of less offers” as this structure generally provides minimal, if any financial lift. Focus in on a longer-term offer with an interest rate that is both desirable to the consumer and generates a positive return to the bank – Also have unique approach to “goto” interest rates after the expiration of the initial offer as well as to the portion of the credit line that the BT can use – Incredible mistakes made here that result in a net financial loss to the bank – Correctly assessing operating expense (fixed costs) and interchange revenue as well as designing a structure that ensures that the consumer continues to utilize the credit card are key drivers to a successful BT campaign!

➢ Easy Month Installment (EMI) plans must be structured correctly – Seems obvious but the reality is critical mistakes made here – Interest rate, duration and couple of other key areas must be “aligned”

➢ Partnership with key merchants which the consumer can obtain preferential interest rates on “installment” purchases – The deal is structured so that the merchant derives incremental lift in their business - interest rate structured to drive spend and a financial partnership that ensures that revenue enhancement occurs

➢ Spend and Get Campaigns – Reward structure for a pre-specified spend level for a specific duration – Usage is key driver to this campaign

➢ Long –Term or Permanent “Low Rate” APRs – Population selection for this offer is beyond critical – Whom to target and the financial structure is key

➢ Cross-Border Spend Initiatives – Handling of “Foreign Exchange” fees, interest rates for specific durations and spending incentives at selected merchants

➢ Co-Brand Deals – Structure of campaigns designed to enhance spending/revolve levels. “Global Best Practice Consulting” in the modeling of pro forma profit & loss projections, and structuring of an effective financial partnership with prospective merchant partners

➢ Credit Lines Increases (CLI) – Focus will be on line utilization, risk profile & time on books as well as historical credit line increase campaigns

➢ Inactive Accounts – Analysis to determine “Why” this is the case – The result of “lack of” product value proposition in a competitive environment? Does this consumer have other relationships with your bank? Use of internal transaction and third-party data to identify potential fantastic opportunities IF the right “value structure” is offered. Our unique approach here has delivered significant dividends to clients

Work Area Outline

The engagement team will consist of Card Analytics Consulting, Inc. professionals with substantial consumer lending expertise internationally (Over 15 countries, including India, Australia, Korea, Taiwan, Hong Kong, Singapore, Indonesia, Brazil, Mexico, Canada) and in the U.S. Primary focus area will be portfolio-related marketing and promotion profitability. However, because business areas are inter-related, the engagement will cover related activities as well.

Primary Focus

➢ Marketing Campaigns

▪ Review of past activities

▪ Data analysis and prospect identification - existing customer base

▪ Offer development

- Target populations

- Contact methods/channels

- Products/features

▪ Implementation and result measurement

➢ Product Profitability Marketing & Pricing

▪ Review portfolio profitability (by product/segment) – Identification of the type of consumer who should be targeted for specific campaigns

▪ Review product/segment pricing – How are segments identified within card products? Optimal segmentation? How should one utilize financial information to structure a pricing scheme that returns the desired level of profitability

▪ Risk-based pricing – EMI, Installments with merchant partners, cross-border initiatives

▪ Co-Brand Products

➢ No Preset Spending Limit (NPSL) Evaluation

▪ Potential for significant value

▪ Marketing materials & related communications

▪ Customer level of understanding

▪ On-going communication

▪ Statement design – use to reinforce message

▪ Authorization policies – Up to the “revolve limit” as well as the “PAD” structure (key for NPSL)

Additional Areas

➢ New Account Underwriting and Risk Management

▪ New account application processing - systemic vs. judgmental

▪ Credit and cash advance line assignment

▪ Authorization strategies

▪ External data assessing cardholder credit risk exposure

▪ Portfolio vintage analysis, segmentation and modeling

▪ Early month on books practices (EMOB), tactics & strategies – Is this in place? One spends a significant amount in acquiring new accounts – What are intelligent tactics to be deployed to ensure that risk is mitigated and desired spend is achieved during the initial 12-15 months on books?

➢ Portfolio Risk Management & Collections

▪ Credit line management

▪ Authorization strategies

▪ External data assessing cardholder credit risk exposure

▪ Delinquency fees and penalty pricing

➢ Operations Expense & Efficiency

▪ Customer Service

▪ Call routing & handling

▪ Organization & staffing

Proven Methodology and Process

Our process and methodology has been provided to top-tier financial institution’s credit card lending programs. This expert industry experience enables you to use the findings and recommendations with a high degree of confidence.

➢ Proven methodology: Card Analytics Consulting, Inc. has worked on numerous projects in this area for industry leading banks all over the world, delivering extremely valued insights, identifying key “actionable” opportunities – Has an reputation for consistantly producing business intelligence relevant to current economic, business, regulatory, and technological environments.

➢ Onsite analysis and performance assessment: an in-depth campaign management analysis and strategy assessment is performed by the experienced Project Team of professionals

➢ Collaborative approach: we work on-site and partner with your management to understand the policies, practices and strategies that affect performance as well as identify actionable and measurable performance improvement opportunities and solutions

➢ Presentation of findings: on a regular basis

➢ Measurement of improvement: significant driver of project remuneration

Confidentiality Commitment

Financial institution data will be treated as confidential and will not be disclosed beyond the Project Team, which will be comprised of representatives from Card Analytics Consulting, Inc. -- all of who will partner with you to realize the benefits and follow-up on recommendations.

Business Arrangements

We work for your benefit. If you are not satisfied with our services, you pay no professional fees. We have been asked, ‘Why do you offer this unique approach?” Our response is that we only take on selected engagements and are very confident in our approach and that many banks in today’s environments have limited budgets and being able to “pay for performance” is a proposal that the client finds intriguing and very acceptable – In addition, we have been in this business for 20+ years and work with over 100 clients globally in many countries and have a reputation that is extremely strong – Not delivering would definitely impact our key business objective, which is continuing to provide value to our clients and maintain an impeccable reputation in the Consumer Credit Card Industry!

Fees are set based upon the value of the services provided. Value is measured using a “lift” approach if possible (incremental improvement over baseline performance – this is to be developed and agreed upon by the Client and Card Analytics and would be a partnership sharing structure). If the lift approach is not possible, or desired, a more subjective “grade” approach can be used, whereby fee amounts vary according to the level of performance. We use periodic checkpoint meetings to ensure we are providing the best service possible – Professional fees would only be paid out after 12 months, as the stated performance lift must be assessed.

In the event that the client chooses the “partnership sharing” payment option (client responsible for absolutely no professional fees if targets not met) and they believe that prior campaigns just were not structured properly at all and that with our insights there should be considerable lift in performance, they can structure the terms so that our professional fees will be “capped”. Alternatively, if it is determined that prior campaign structures were solid and that it may be challenging to deliver better results, the professional fee structure will take this into consideration and our “partnership sharing” percentage would be higher.

Travel and related expenses are accounted for separately from professional fees. Expenses can be fixed in advance (based upon number of site visits and on-site days) or based upon an as-incurred reimbursement model – With an engagement with a Card Analytics Consultant located on-site, typical structure is to have them there for a minimum of 8 consecutive days during the month and in the two subsequent weeks when they are back in our offices, they will engage with client on all conference calls/meetings pertaining to the project as well as continue to drive the project forward as they will be a key player in the execution/assessment/next steps process – Essentially the consultant is a member of your team for the duration of the engagement. Typically expenses are invoiced quarterly.

Study Period and Timing

The typical duration of the engagement is 12 months. The total number of engagement partner site visits will be agreed upon in advance. The typical duration for a site visit is 8 working days, and the expected frequency is monthly. In addition to the on-site days, at least 1-2 days per month will be provided to the engagement partner for items such as conference calls, follow-ups and related activities.

Project Calendar

(Times approximate, because phase scheduling is dependent upon the specific activity)

|Diagnostics & Evaluation |Development & Implementation |Assessment & Add’l Implementation |

|Activities |Activities |Activities |

|Policy review |Campaign development |Develop / improve reporting |

|Data review |Policy development |Measure campaign results |

|Portfolio analysis & data overlay – credit |Implementation |Continue to identify/implement policy changes |

|bureau information | | |

Partner’s Resource Commitment

In order to streamline the engagement, you will be required to arrange for:

• The full support of senior management for this project should be communicated to all internal stakeholders

• The designation of a Project Coordinator to assist with on-site visit preparation, data source identification and collection, interview scheduling, and final certification of accuracy of project results

• Preparation in advance of data-related items, such as data dictionaries, is very valuable. Part of the analysis phase is an external data overlay on the portfolio, and advance preparation allows this process to proceed more quickly

Intelligent “Segmentation” is critical in identifying the “right” segment to focus on with ‘balance build initiatives” and & the use of the “right” data in the analysis will result in optimal structure/design of campaigns.

Example 1 – Build-up of P&L at the scoreband level within a defined segment – The segment here is the “Low Revolver” with low to moderate spend behavior. In a recent client engagement, over 130 such segments were created/populated with P&L data to identify the segments that had the most “profitable growth potential” as well as determine the appropriate pricing schemes to be implemented.

Low Revolver Segment With Low to moderate Spend –

Example 2 – Optimal segmentation and data is the first step – Now what does one do with the data? Careful analysis of the data and the development of unique/creative campaigns is the next step, followed by “execution” and assessment of campaign results.

Example 3 – Campaigns that generate solid returns require an intelligent “authorization” infrastructure. This example highlights the effective use of a cardholder’s behavior, risk and spend dynamics in the decision to authorize or decline the transaction. The “expected net revenue by segment” is the key in the approval process – This is the an example of what we have developed for a client –

Note: The same transaction in terms of risk level, amount and rates/fees results in different profitability depending upon the segment – This is “leading edge” service we provide to clients.

Example 4 – Risk Based Pricing Approach – Multiple segments within each card product. One study resulted in 130 segments, another over 300 segments and one with over 1,800 different segments. The segment level output is critical “input” to the campaigns we have designed.

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Example 5 – Global reputation as expert in Credit Card Portfolio P&ls and how to successfully structure profitable products resulted in being retained by large Taiwan Banks to address proposed legislation designed to “Cap” interest rates (APRs).

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Global Clients -

Additional Information:

For more additional information regarding our products and services, please contact -

Stan A. Myers - Managing Director at +1 650 315 6097 or smyers@

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3-5 days onsite

8 Months

2-3 Months

Low Revolver Segment – Example of Promo Offer

Key Insights

(client data changed)

Solid profitability

Over 200K accounts (score range 500-820+) – They have low balances

Monthly spend volume around $2.9K

Average credit line roughly $13K

Purchase APR over 20.99%

Potential Offers

* Low interest rate on spend in next 3 months

* APR of 10.99 – 11.99% range would be appropriate - This rate would be in place for 12-18 months (EMI Option). NOTE: This interest rate offer derived using all operating expenses for this particular portfolio segment - Direct OPEX, Credit Losses & Funding costs was 8.39%

* Credit line availability for such a tactic? Critical decision that one can’t afford a miss

*

Notes

* Low average balance minimizes the potential negative impact of offering lower APR to those consumer who exhibit “some” propensity to revolve

Each box represents different segment with different revenue structure

Stan Myers: capping revolving interest rates in Taiwan could cause losses for the government, banking industry and the public

Commercial Times (Taiwan) - Regarding Taiwan's heated debate over revolving interest rates on credit and cash cards, Stan Myers, Card Analytics Consulting CEO and a consultant working with Visa and Taiwan banks, says that Taiwan's revolving interest rates are relatively low compared with other Asian markets, and considering banks' operational costs, Taiwan's government should not cap revolving interest rates. If ceilings on revolving interest rates are established, banks will refuse to loan money to high-risk individuals based on the level of risk involved, which in turn encourages them to seek help from illegal money lending organizations. Banks could even become unprofitable as a result, sending them into bankruptcy and leading to even more serious social problems, essentially causing a three-way loss among

the government, consumers, and banking industry. In light of the current global economic situation, he also suggests that Taiwan's government should restore interest rates to the control of market mechanisms to further ensure stability of the banking systems and support a recovery of the economy overall.

1. About Card Analytics Consulting, Inc.

1. Card Analytics provides the following strategic services to the consumer and commercial credit card industry in over 20 global markets –

1. Issuer Profitability Studies

1. No Preset Spending Limit (NPSL) Portfolio Assessments (existing & new product launches)

1. Portfolio Risk Based Pricing

1. Balance Build Campaigns – New & Existing Accounts

1. Issuer Profitability Studies

1. P&L Modeling - Financial Planners Used In Development of Business Plans & Assessing Organization Expenses and Revenues

1. Issuer Risk Assessment Studies (Account Pricing, Fees, Authorization Strategies, Line Increase/Decrease Strategies, Delinquency Mgmt)

1. Strategic Operational Assessment Reviews

1. Portfolio Segmentation Modeling

1. New Account Acquisition Strategies

1. Loss Provision Strategies

1. Industry Risk & Card Usage Benchmark Studies

1. Management consultants who have a wealth of expertise in providing strategy assessments and operational efficiency reviews that have measurably improved clients operational performance.  Consultants also possess strong credit card industry and banking experience, holding key positions at J.P. Morgan Chase, Citibank, HSBC, American Express and the Ford Financial Services Group.

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