To make the best decisions in these areas, lenders need to understand applicants better. The most powerful way of doing this is by finding insights in transactional data.
To enable this, Experian has created additional functionality in its automated transaction categorisation engine – CaaS – to analyse credit card transactions.
Our new Credit Card behavioural insight uses this granular data to:
â— Improve the predictive power of risk models – boosting the Gini coefficient by 4%
â— Make better marginal decisions about increases – boosting Gini by 15% in these cases
â— Proactively reduce credit limits where necessary – reducing bad debt by an average of £300 per customer.
Better information and better decisions with transactional data
By looking deeper than credit-risk scores and getting to the gritty detail of transactional data on credit cards, lenders get insights that allow them to:
Increase lending while maintaining a desired level of risk
- Improve risk models. Transactional insights make credit-limit risk models more predictive – allowing lenders to lend more without taking on higher-risk credit. It is an especially powerful tool for the most difficult borderline decisions.
- Monitor portfolio health with less delay. Analysing transactional data on a monthly basis gives lenders a more up-to-date view of their portfolio’s health, allowing them to act earlier where necessary.
- Identify transactions linked to risk of default. By spotting transactions indicative of low or high-risk behaviour, lenders really get to understand consumers – for instance, are they using cards to get protections on big-ticket purchases, or are they rotating debt from other existing loans? This insight can be used to manage credit limits accordingly.
- Spot vulnerability quickly. Be able to spot changes in behaviour such as paying for household essentials such as groceries or utilities may be indicative of emerging vulnerability. Identifying this early allows you to proactively manage vulnerable customers at a time of increased financial stress.
Act earlier to reduce exposure to bad debt
- Transactional insights help lenders spot early-warning signs in a consumer’s behaviour before they move into arrears – and support accordingly. Spot customers on the slide sooner.
- With this information lenders can make proactive decisions to avoid customer delinquency, either through restructuring repayments or by restricting further access to credit.
Help customers through one-off life crises
- Understanding a customer’s buying habits in depth means lenders can offer a service specifically tailored to their situation.
- Rather than making snap decisions to restrict credit after observing financial shock, lenders can use transactional insights to spot indicators that a customer is experiencing a difficult one-off life event.
- Using that insight, lenders can help customers through these events with supportive repayment decisions and more sensitive interactions.
How does automated transaction analysis for Credit Cards work?
The tool profiles customers by categorising their transactional data – creating insights from their expenditure and balance characteristics.
The model sorts regular spending into five different risk bands that gives lenders a new dimension for understanding consumer behaviour. Greater understanding means more confidence when extending credit.
By analysing discretionary purchases, it can discern between two customers with similar credit-risk scores and card-usage patterns but who actually carry different degrees of risk.
Analysis of non-discretionary purchases can spot the difference between consumers going bad, and those that are building credit or taking advantage of unique card features.
For customers, Credit Card Expenditure Analysis allows their lender to manage credit in a way that is well-informed and well-intentioned. And lenders can do this in a way that boosts profits and creates more meaningful and loyal relationships.
It also allows for early identification of spending behaviour that identifies vulnerabilities so that those most at risk and be protected.
To learn more about how Credit Card Expenditure Analysis can make that happen for you, please get in touch.