vision 2014: capturing and protecting balances
DESCRIPTION
Gain an overview of the balance transfer market in the United States and compare where your business stands in respect to the industry. Experian® developed a powerful tool that uses trended data and custom attributes to identify consumers likely to transfer balances. In this session, we will discuss the identification and segmentation of these consumers, as well as the overlay of other data and products that will aid in targeting your most profitable current and future consumer relationships.TRANSCRIPT
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Capturing and protecting balances
Uzma Aziz Experian
Brodie Oldham Experian
#vision2014
2 © 2014 Experian Information Solutions, Inc. All rights reserved. Experian Public.
Estimated annual card-to-
card consumer balance
transfer activity:
$40B
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State of the economy
Credit card market trends
Balance transfer – risk and opportunity
Balance transfer drivers
Segmentation and predictive modeling
Deep dive analysis
Recommendations and summary
Q&A
Agenda and objectives
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Unemployment rates forecast to come down
Source: Bureau of Labor Statistics January 2014, Economic Projections of Federal Reserve Board Members and Federal Reserve Bank Presidents, December 2013
0%
2%
4%
6%
8%
10%
12%
1977
1979
1981
1983
1985
1987
1989
1991
1993
1995
1997
1999
2001
2003
2005
2007
2009
2011
2013
2015
Unemployment rate
FOMC forecast
Feb 2014: 6.7%
Oct 2009
10.0%
Apr 2000
3.8%
Dec 1982
10.8%
5 © 2014 Experian Information Solutions, Inc. All rights reserved. Experian Public.
Bankcard late stage delinquency rates
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
3.0%
3.5%
4.0%
4.5%
1Q06 3Q06 1Q07 3Q07 1Q08 3Q08 1Q09 3Q09 1Q10 3Q10 1Q11 3Q11 1Q12 3Q12 1Q13 3Q13
Percent balances
60-89 DPD 90-180 DPD
4Q13
High Low
0.70% 0.43%
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Personal bankruptcies peaked in 2010 and declined 12% in 2013
State of the economy – declining bankruptcies
700
900
1,100
1,300
1,500
1,700
2007 2008 2009 2010 2011 2012 2013
Personal bankruptcy filings on a decline
2010: 1,538,033
2013: 1,072,807
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Outstanding debt trends Real estate
Home Equity Outstanding Debt ($BN)
$0
$200
$400
$600
$800
2007 2010 2013
HE loan HELOC
Mortgage Outstanding Debt ($BN)
$0
$2,000
$4,000
$6,000
$8,000
$10,000
2007 2010 2013
Mortgage
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Outstanding debt trends Non-real estate
$0
$200
$400
$600
$800
$1,000
2007 2010 2013
Non-real estate outstanding debt ($B)
Auto Bank Card Student Other Non-RE
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Debt-to-Income InsightSM trends
11.5%
12.0%
12.5%
13.0%
13.5%
14.0%
14.5%
15.0%
15.5%
2007 2008 2009 2010 2011 2012 2013
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Distribution of bankcard loan originations By VantageScore® band
Super Prime Prime Near Prime Subprime Deep Subprime
0%
10%
20%
30%
40%
50%
2007 2008 2009 2010 2011 2012 2013
New Card Origination was 20% higher in 2013 year over year & over 90% of these were in the Super prime to Near prime segments
$-
$30
$60
$90
2011Q1
2011Q2
2011Q3
2011Q4
2012Q1
2012Q2
2012Q3
2012Q4
2013Q1
2013Q2
2013Q3
2013Q4
$ B
Ns
New card originations
11 © 2014 Experian Information Solutions, Inc. All rights reserved. Experian Public.
U.S. Total Credit Card Debt in November 2013 – $856.9 billion
U.S. households that have a credit card balance – 46.7%
Americans who carry card debt from month to month – 39%
Average debt per credit card that carries a balance – $8,220
State of the market – credit card debt
Source: Federal Reserve
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Balance transfer Two sides of the coin
Revolving balances are down which means fewer dollars open for transfers
The good news is outstanding debt is concentrated in the prime segment as lenders have written off most of the bad debt
According to Experian research an estimated $35-$40 billion dollars were transferred between credit cards in 2012
The bad news is if you’re not the recipient of these, you’re on the losing end…
13 © 2014 Experian Information Solutions, Inc. All rights reserved. Experian Public.
Estimated annual card-to-card consumer balance transfer: $35-$40 B
Balance transfer The risk and the opportunity
Percentage of
customer balance
transfer activity
< 1% 59% 21% 20%
Balance transfer
destination
Bank XYZ Other banks Bank XYZ Other banks
Balance transfer
source
Bank XYZ Other banks Other banks Bank XYZ
59%
Key opportunity areas
On average, nearly 60% of a bank’s card customer
BT $ activity is undetectable “off bank” activity
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The consumer:
Manage cash flows
Opportunity to pay off debt
Improve credit
The lender:
Gain new customers
Grow portfolio balance
Balance transfer The driver
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Typical balance transfer offer
Zero or near zero percent APR for an introductory period
Low APR may or may not be applicable to new purchases
Extended introductory period with balance transfer fee
No balance transfer fee with a shorter introductory period
Lenders are definitely catering to the customer need…
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Intuitively
Consumers with revolving balance
Time it right / strike when the iron’s hot – post holiday season?
Good credit risk
Let’s find out
Are you getting the expected response rates on your Balance Transfer offers?
Would you like to improve these?
Balance transfer Who are lenders targeting?
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Balance Transfer IndexSM propensity model key components
Balance Transfer IndexSM Model component overview
Model
Target
Experian tradeline
level data and
variables
Historical consumer balance
transfer activity
Model predicts likelihood that a consumer will initiate
a balance transfer within the subsequent six months
Score output from 100-990:
Higher score = higher likelihood of balance transfer
Generic trended and custom attributes utilized
Key predictors: balance transfer history,
historical balance transfer amounts, cards
carried and utilized, payments and spend
Experian developed logic identifies
historical card to card balance transfer
activity using Experian tradeline
level data
18 © 2014 Experian Information Solutions, Inc. All rights reserved. Experian Public.
Balance transfer activity can be identified by pairing spend and payment data
Defining balance transfers
Balance Transfer IndexSM Model component overview
Key criteria
Logic searches for pairing of spend and
payment activity between trade lines
► Identifies one-to-one and many-to-one money
movements
Material change in spend, payment and/or
balance activity required
► Additional rules regarding balance behavior
following the balance transfer
Experian data leveraged
Trades linked month to month to capture
variations in tradeline attributes
Both reported and inferred tradeline payment
and spend data used
Minimum of six months of raw trade data
required
Tradeline 1 Tradeline 2
Payment Spend Balance Payment Spend Balance
Month 1 $ 6,000 $ 1,000
Month 2 $ 100 $ 200 $ 6,100 $ 100 $ 300 $ 1,200
Month 3 $ 6,100 $ 200 $ 200 $ 2,200 $ 6,200 $ 5,200
Month 4 $ 100 $ 1,000 $ 1,100 $ 200 $ 1,000 $ 6,000
Month 5 $ 100 $ 800 $ 1,800 $ 1,000 $ 500 $ 5,500
Month 6 $ 100 $ 500 $ 2,200 $ 100 $ 300 $ 5,700
Money move tagged as balance transfer Payment and spend information enable visibility
to balance transfer
Tradeline 1 payment of $6,100
Tradeline 2 total spend of $6,200
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Objective:
Gain an overview of the balance transfer market in the U.S.
Discuss the identification and segmentation of these consumers
Overlay of other data and products that will aide in targeting your most profitable current / future consumer relationships
Balance Transfer IndexSM – analysis design
December
2012
Observation period
June
2013
6-month performance window
Sample bank and overall industry populations
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20
Balance Transfer IndexSM On bank performance
0%
20%
40%
60%
80%
100%
120%
10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
Balance Transfer Index
In the Market Model
Base Line
0
10
20
30
40
50
60
BalanceTransfer
Index
In theMarketModel
KS Model performance
Cu
mu
lati
ve
pe
rce
nt
co
ns
um
er
res
po
nd
ers
Percent of population
More likely to
balance transfer
Less likely to
balance transfer
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Balance Transfer IndexSM Sample bank consumer performance
600
650
700
750
800
850
900
100 -150
150 -200
200 -250
250 -300
300 -350
350 -400
400 -450
450 -500
500 -550
550 -600
600 -650
650 -700
700 -750
750 -800
800 -850
Balance Transfer IndexSM correlation
Avg. VantageScore3.0
Avg. In the Market Model_Bankcard
Balance Transfer IndexSM More likely to
balance transfer
Less likely to
balance transfer
0%
5%
10%
15%
20%
100 -150
150 -200
200 -250
250 -300
300 -350
350 -400
400 -450
450 -500
500 -550
550 -600
600 -650
650 -700
700 -750
750 -800
800 -850
Estimated interest rate
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0%
5%
10%
15%
20%
25%
30%
35%
300 -350
350 -400
400 -450
450 -500
500 -550
550 -600
600 -650
650 -700
700 -750
750 -800
800 -850
VantageScore® 3.0
Sample Bank VantageScore3.0
Overall VantageScore3.0
VantageScore® 3.0 Sample bank vs. overall
VantageScore® 3.0 High Low
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Balance Transfer IndexSM
On bank performance (sample bank) – using segmentation to identify balance transfer appetite
0
50
100
150
200
250
300
Deep subprime 300-499 Subprime 500-600 Near Prime 601 -660 Prime 661-780 Super Prime 781 - 850
Average balance transfer score
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Balance Transfer IndexSM
On bank performance (sample bank) – using segmentation to identify balance transfer appetite
Balance Transfer
Index < 152
VantageScore3.0
< 660
VantageScore3.0
> 660
ITMM<700
%Consumers 6.2%
EIRC 15.29%
Avg. Monthly
Spend $366
Avg. Income $53K
ITMM>700
%Consumers
46.24%
EIRC 4.93%
Avg. Monthly
Spend $800
Avg. Income $60K
ITMM<700
%Consumers
33.30%
EIRC 3.44%
Avg. Monthly
Spend $929
Avg. Income $60K
ITMM>700
%Consumers
11.79%
EIRC 13.59%
Avg. Monthly
Spend $292
Avg. Income $50K
.3% 2.6% 1.5% .6%
Percent balance transfer activity
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Balance Transfer IndexSM
On bank performance (sample bank) – using segmentation to identify balance transfer appetite
Percent balance transfer activity
Balance Transfer
Index > 152
VantageScore3.0
< 660
VantageScore3.0
> 660
ITMM<700
%Consumers .01%
EIRC 41.58%
Avg. Monthly
Spend $1382
Avg. Income $85K
ITMM>700
%Consumers
2.02%
EIRC 14.02%
Avg. Monthly
Spend $2095
Avg. Income $73K
ITMM<700
%Consumers .03%
EIRC 25.95%
Avg. Monthly
Spend $2365
Avg. Income $100K
ITMM>700
%Consumers .4%
EIRC 27.29%
Avg. Monthly
Spend $1376
Avg. Income $70K
1.5% 72.1% 9.5% 12.1%
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Balance Transfer IndexSM
On bank performance (sample bank) – using segmentation to identify balance transfer appetite
Balance Transfer Index
< 152
VantageScore3.0 < 660 VantageScore3.0 > 660
ITMM<700
%Consumers 6.21%
EIRC 15.29%
Avg. Monthly Spend $366
Avg. Income $53K
ITMM>700
%Consumers 46.24%
EIRC 4.93%
Avg. Monthly Spend $800
Avg. Income $60K
ITMM<700
%Consumers 33.30%
EIRC 3.44%
Avg. Monthly Spend $929
Avg. Income $60K
ITMM>700
%Consumers 11.79%
EIRC 13.59%
Avg. Monthly Spend $292
Avg. Income $50K
.3% 2.6% 1.5% .6%
Percent balance transfer activity
Percent balance transfer activity
Balance Transfer Index
> 152
VantageScore3.0 < 660 VantageScore3.0 > 660
ITMM<700
%Consumers .01%
EIRC 41.58%
Avg. Monthly Spend $1382
Avg. Income $85K
ITMM>700
%Consumers 2.02%
EIRC 14.02%
Avg. Monthly Spend $2095
Avg. Income $73K
ITMM<700
%Consumers .03%
EIRC 25.95%
Avg. Monthly Spend $2365
Avg. Income $100K
ITMM>700
%Consumers .4%
EIRC 27.29%
Avg. Monthly Spend $1376
Avg. Income $70K
1.5% 72.1% 9.5% 12.1%
~84% of balance
transfer activity
27 © 2014 Experian Information Solutions, Inc. All rights reserved. Experian Public.
Estimated annual card-to-card consumer balance transfer: $35-$40 B
Balance transfer The risk and the opportunity
Percentage of
customer balance
transfer activity
< 1% 59% 21%
Balance transfer
destination
Bank XYZ Other banks Bank XYZ Other banks
Balance transfer
source
Bank XYZ Other banks Other banks Bank XYZ
Key opportunity areas
On average, nearly 60% of a bank’s card customer
balance transfer $ activity is undetectable “off bank” activity
71%
28 © 2014 Experian Information Solutions, Inc. All rights reserved. Experian Public.
Propensity modeling can help identify customers with high appetite for balance transfer
Balance Transfer IndexSM combined with behavioral segmentation can identify profitable customers that help
► Grow portfolio balance
► Identify off portfolio transfer activity
► Reduce balance attrition
Summary
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