Attrition modeling is a buzzword in the credit cards portfolio management teams. As penetration levels are so high, it is becoming increasingly difficult to get a ‘my card only’ customer. And when your card is one of the many in a customer’s wallet, how do you prevent it from being the ‘card that is never used’? Because that is a sure indicator that the customer will attrite very soon.
Before we start on this, let us see the common types of cards in the market today.
Credit Cards can be issued by Banks, NBFCs (in India), Retailers / Oil companies etc. These cards can be bank cards or co-branded cards.
The USA is the largest and most evolved credit card market in the world . Some data off the net:- https://www.cardhub.com/edu/number-of-credit-cards/
The number of credit cards from the four primary credit card networks (i.e. VISA, MasterCard, American Express, and Discover) is 608.3 million.
(Sources: Visa.com, MasterCard.com, AmericanExpress.com, Discover.com, Nilson Report, February, 2010)
According to data from the U.S. Census Bureau there were:
This data includes the number of store credit cards, which almost equals the number of credit cards from all four primary credit card networks combined.
Also according to data from the U.S. Census Bureau, there were:
According to Experian, there are 3.45 open credit accounts per individual with credit history. If there are between 220 and 230 million adults in the U.S, this data indicates that there are between 759 million and 793.5 million credit cards nationwide.
(Source: Experian National Score Index, June 2011)
Another article cites :- https://finance.yahoo.com/news/pace-credit-card-accounts-picked-041704674.html
The number of new cards issued to consumers last year rose by more than 20 percent versus 2010, according to TransUnion. And 24.2 percent of those cards went to people with below-prime credit scores. That trend continued in the first three months of this year, as 24.1 percent of new cards issued in the quarter went to higher-risk borrowers. “We expect these consumers have been making active use of their cards, because in many cases they may not have had access to cards in the past couple of years,” Wise said.
One key reason banks have become more open to issuing credit cards to higher-risk borrowers is tight competition for top-rated consumers, many of whom are not signing up for additional credit. So that leaves the crop of borrowers with some blemishes in their credit history. Still, even with the pool of subprime credit card users growing, TransUnion has forecast that severe delinquency rates on cards will remain near current low levels at least through the end of this year.
Looking at the above data, we can easily conclude that retention of tried and tested customers makes a lot more sense in terms of higher profitability than growing the sub-prime credit score market. And thus arises the question – ‘Who is the customer that I want to RETAIN? ‘ Is he someone all my competitors want too?
And the answer is ‘YES – ALL THE OTHER CREDIT CARD COMPANIES WANT YOUR MOST PROFITABLE CUSTOMER !!’ . And instead of concentrating all the energy on wooing the ‘best customers of the competition’ we should concentrate on retaining – through active engagement and campaigns – our ‘best customers that the competition is wooing’ . And here in comes Analytics – to help you identify the customers you should DEFEND and GROW .
A simple SEGMENTATION can be the start of the exercise and once the business agrees to the parameters for classification, level 2 analytics can kick in. ATTRITION MODELLING can help predict customers likely to attrite in the near future and active retention strategies can therefore be planned and executed much before the last stage of Customer Disassociation starts. Thus, the cost of retention and Efficiency of retention can substantially increase with Analytics.
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