The Management of Consumer Credit: Theory and Practice

Cover......Page 1
Contents......Page 8
List of Figures......Page 13
List of Tables......Page 14
Preface......Page 15
Acknowledgements......Page 17
1.2 Structure and content......Page 18
1.3 The nature of consumer credit agreements......Page 19
1.4 Credit granting institutions......Page 25
1.5 The five phase credit model......Page 27
1.6 The role of credit management......Page 29
1.7 Chapter summary......Page 30
2.1 The business functions required for credit management......Page 32
2.1.1 Strategy functions......Page 33
2.1.2 Operational functions......Page 35
2.1.3 Corporate functions......Page 37
2.2 Structural orientation......Page 38
2.3.1 Transparency and disclosure......Page 41
2.3.5 Asset seizure and bankruptcy (personal insolvency)......Page 42
2.3.8 Maximum interest rate......Page 43
2.4 Ethical aspects of credit management......Page 44
2.4.2 Credit – not just another consumer product......Page 45
2.4.3 Whose responsibility is debt?......Page 46
2.5 Chapter summary......Page 48
3.1 Product design......Page 49
3.1.1 Primary features......Page 50
3.1.2 Secondary features......Page 54
3.2 Product strategy......Page 55
3.2.1 Market intelligence......Page 58
3.2.3 Data analysis......Page 61
3.2.4 Decision analysis......Page 62
3.2.5 The cost of providing credit......Page 64
3.2.6 Determining the offer......Page 65
3.3.1 Communication channels......Page 66
3.3.2 Direct marketing......Page 67
3.3.3 Campaign costs, response cost and cost per conversion......Page 68
3.3.4 Campaign management and the prospects database......Page 69
3.3.5 Inbound communications......Page 71
3.4 Chapter summary......Page 72
4 Predicting Consumer Behaviour......Page 74
4.1 Scoring......Page 75
4.2 Segmentation......Page 80
4.4 Other dimensions of customer behaviour......Page 83
4.4.1 Risk pre-screening (credit scoring) models of repayment default......Page 84
4.4.2 Using response and risk pre-screening models in combination......Page 86
4.4.3 Multi-dimensional models of behaviour......Page 88
4.5 Chapter summary......Page 89
5 Customer Acquisition......Page 91
5.1 Application processing systems......Page 92
5.1.1 The data management unit......Page 94
5.1.2 The decision engine......Page 95
5.1.3 The evolution of decision engines......Page 97
5.2.1 Obtaining application details......Page 98
5.2.2 Preliminary assessment of creditworthiness......Page 102
5.2.3 Obtaining a credit report......Page 103
5.2.4 Final assessment of creditworthiness......Page 105
5.2.5 Setting the terms of business (product features)......Page 108
5.3 Variations on the standard process......Page 109
5.4 Pre-approval......Page 110
5.6 Multi-applicant processing......Page 111
5.7 Strategies for setting terms of business......Page 112
5.7.1 Shadow limits......Page 114
5.7.2 Affordability......Page 115
5.7.3 Optimizing the terms of business – champion/challenger......Page 116
5.7.5 Chapter summary......Page 118
6 Customer Management......Page 120
6.1.1 The account management system......Page 121
6.1.2 Account cycling and statement production......Page 122
6.1.3 Card networks......Page 124
6.1.4 The customer interface......Page 126
6.2 Relationship management......Page 127
6.2.1 Account level management......Page 128
6.2.2 Product level management......Page 129
6.2.3 Customer level management......Page 130
6.2.4 Retention and attrition......Page 131
6.3 Chapter summary......Page 134
7 Collections (Early Stage Delinquency)......Page 135
7.1 Preliminary assessment of delinquency......Page 136
7.2 Mainstream collections processing......Page 138
7.2.2 The use of credit reports in collections......Page 142
7.3 Managing customer contact and payment negotiation......Page 143
7.4 Designing, assessing and optimizing collections strategies......Page 144
7.5 Event driven collections strategies......Page 146
7.6 Chapter summary......Page 147
8.1 The debt recovery department......Page 148
8.2 Power dialer based debt recovery systems......Page 150
8.4 Legal action......Page 151
8.5 Debt collection agencies and debt sale......Page 152
8.7 Chapter summary......Page 153
9 Fraud......Page 155
9.1.1 First party fraud......Page 156
9.1.2 Identity theft......Page 157
9.1.6 Dealing with suspect fraud......Page 158
9.2.1 Compromised security......Page 159
9.2.3 Detecting and dealing with suspected fraud......Page 160
9.3 Chapter summary......Page 161
10.1 Provision......Page 163
10.1.1 Roll rate models of provision......Page 165
10.1.2 Advanced models of provision......Page 167
10.1.3 International accounting standard (IAS39)......Page 168
10.2 Capital requirements and Basel II......Page 169
10.2.2 Assets, risk and risk weighted assets......Page 171
10.3.1 The standardized approach......Page 172
10.3.2 The foundation IRB approach......Page 173
10.4 Chapter summary......Page 175
A.2 Data sets and sampling......Page 177
A.3.1 Exclusions, data cleaning and new variable creation......Page 178
A.3.2 Formatting of the independent variables......Page 179
A.4 Variable selection......Page 181
A.5.1 Discriminant analysis......Page 182
A.5.3 Logistic regression......Page 183
A.5.4 Survival analysis......Page 184
A.5.5 Neural networks......Page 185
A.5.6 Classification and Regression Trees (CART)......Page 186
A.6 Assessing model performance......Page 188
A.6.1 K-S statistic and GINI statistic......Page 189
A.7 Comparison of alternative modelling techniques......Page 191
A.8.2 Augmentation......Page 192
A.8.4 Data substitution......Page 193
A.9 Continuous models of customer behaviour......Page 194
A.10 Implementation and monitoring......Page 196
Appendix B: US and UK Legislation......Page 198
Appendix C: Recommended Reading......Page 203
Notes......Page 205
Bibliography......Page 213
C......Page 219
E......Page 221
L......Page 222
P......Page 223
T......Page 224
W......Page 225