Consumer Credit

In today’s challenging economic environment there are three critical imperatives facing credit card issuers:

1. Manage rising credit losses. Rising unemployment, bankruptcies, and the continuing wave of home foreclosures are driving significant losses in all categories of consumer lending. While traditional credit tightening activities around underwriting, line management, and collections are necessary; they will likely not be sufficient in these extraordinary times. Improvements in loss mitigation tools and insights will drive significant impact to the bottom line. This will require investments in new capabilities to enhance early risk identification and leverage innovative, integrated customer treatment strategies.
2. Re-think pricing. The new UDAP regulations will fundamentally change the way issuers need to think about acquiring new customers and managing yields in their existing portfolios. In particular, the new regulations should change the landscape of acquisition offers using aggressive promotional or “teaser” pricing. As issuers re-think pricing, they will have to develop an understanding of price elasticity for various populations and reach a “Preferred Price” state. Capabilities around enhanced risk based pricing, informed by a deeper understanding of customer price elasticity will be critical.
3. Find attractive growth. In the face of declining consumer spending, falling acquisitions, and tighter credit standards, issuers must continue to identify and pursue segments of attractive revenue growth. Gaining share among core customers and winning the “battle of the wallet” takes on new urgency. This will require a renewed focus on customer experience (tucking in your best customers), identifying attractive under-penetrated segments within your base, and developing segment relevant products / services / offers to drive engagement. Smart segmentation, rapid cycle learning capabilities, and a willingness to pay “tuition” to learn about customer needs are key enablers to driving sustainable growth.