Greater regulation in the credit card market has become a fact of life since the Global Financial Crisis, whether it’s the USA CARD Act, the NCCP Act in Australia or Canada’s new credit card regulations.
As my colleague Evan blogged about earlier, in January 2011 new regulations came into effect in Australia around “responsible lending.” These put the onus on credit providers to ensure that credit products are "not unsuitable" for the borrower when offering credit. A year earlier, Canadian regulators introduced rules designed to reduce the cost of carrying credit card debt. The rules included a ban on offering credit line increases without first obtaining express consent from the borrower – something that has been in place in Australia for a few years.
As regulators in various markets require issuers to adopt affordability and consent measures, how do credit card issuers maintain profitability?
One way is to use decision analytics to optimize initial credit lines for new card customers and credit line increases for existing customers. As the name of the approach suggests, optimization enables an institution to offer the optimal credit line (i.e., the maximum, most profitable line that suits the company’s risk appetite) whilst understanding losses and costs. FICO has been at the forefront of this approach for more than 10 years and has completed more than 100 such projects.
At FICO World next month in New York, you can hear about this approach first-hand from two banking clients, one in Australia and one in Canada. They are optimizing credit lines using decision analytics and adapting risk strategies to maintain profitability and competitive advantage, whilst remaining within their respective regulatory constraints. I invite you to join us at the conference, and share your own challenges and experiences.