Vision 2014: Capturing and Protecting Balances

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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


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


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%


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%


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


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


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


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


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


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


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…


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


The consumer:

Manage cash flows

Opportunity to pay off debt

Improve credit

The lender:

Gain new customers

Grow portfolio balance

Balance transfer The driver


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…


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?


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


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


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


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


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


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


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




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





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%





< 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. Income $60K

ITMM<700

%Consumers 33.30%

EIRC 3.44%


Avg. Income $60K

ITMM>700

%Consumers 11.79%

EIRC 13.59%


Avg. Income $50K

.3% 2.6% 1.5% .6%




> 152

VantageScore3.0 < 660 VantageScore3.0 > 660

ITMM<700

%Consumers .01%

EIRC 41.58%


Avg. Income $85K

ITMM>700

%Consumers 2.02%

EIRC 14.02%


Avg. Income $73K

ITMM<700

%Consumers .03%

EIRC 25.95%


Avg. Income $100K

ITMM>700

%Consumers .4%

EIRC 27.29%


Avg. Income $70K

1.5% 72.1% 9.5% 12.1%

~84% of balance

transfer activity


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%


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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Vision 2014: Capturing and Protecting Balances

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