Best Practices in Credit Cards and Consumer Lending

Transcription

1 A Lafferty Management Report Best Practices in Credit Cards and Consumer Lending By Chris Hoyland 1

2 Best Practices in Credit Cards and Consumer Lending The overall aim of this report is to improve our understanding of how to manage consumer loan portfolios. Best Practices in Credit Cards and Consumer Lending tackles a potentially difficult subject in a manner that is both thorough and accessible while bringing together, for the first time, previously conflicting elements of the risk and revenue trade-off. Difficult concepts are explained clearly and simply without retreating into jargon and the outcome is an explanation of the consumer lending world which is at the same time reassuring to non-technical consumer bankers - often giving credence and precision to their experience and intuition - while also allowing quantitative analysts to play a more complete role in everyday decision making. With over 200 pages, Best Practices in Credit Cards and Consumer Lending is an indispensible guide to bringing harmony into the fragmented understanding of how to manage a consumer lending portfolio or a consumer lending business. It recognises the huge range of different talents required to make a consumer lending business successful while acknowledging that those holding their own specialist skill set frequently don t have a firm understanding of the skills of their business colleagues and the challenges they face. As a result, exchanges between these differing interests frequently take place at a level of prejudice and invective. This report makes the first tentative attempts to change that, providing: a framework for the quantitative analysis of a consumer lending business analysis of all aspects of consumer behaviour, including response, activation, attrition, risk, usage, etc. business managers with the key skills to find optimal lending strategies and accurately forecast and monitor results Best Practices in Consumer Lending and Credit Cards is written in a manner that requires little or no mathematical skills to read and understand, although some familiarity with mathematical notation would be a help. It contains many practical examples drawn from the author s thirty years of working with leading consumer lending banks such as Citibank, HSBC, Standard Chartered Bank, American Express, GE Capital in a wide variety of different markets. Care has been taken to use practical examples which have general applicability. Best Practices in Credit Cards and Consumer Lending is unique in that it proposes a development path for banks which takes them from their current level of analysis to a more complete level of analytical understanding. 2

3 Best Practices in Credit cards And Consumer Lending Best Practices in C rredit cards and consumer Lending C contents: Acknowledgements 1 Executive Summary 3 1. Introduction Risk Management in Evolution Risk, Uncertainty and the Law of Large Numbers The Rules of the Game Abstract Beginnings From Theory to Practice - The Model Defined Marketing Analytics Credit Revisited Management Issues and Product Programmes Practical Thoughts on Fraud 111 i

4 Best Practices in Credit cards And Consumer Lending 11. Practical Aspects of Collections Building a New Portfolio Managing Existing Customers How to Develop a Credit Score Classification and Estimation Techniques Management Information Consumer Lending in an Economic Crisis Final Thoughts 233 Appendix 1: On Control Theory 237 Appendix 2: Some Essential Statistics 243 Appendix 3: Banking Terminology 247 Appendix 4: On Marketing Data 259 About Chris Hoyland 264 About Lafferty Group 265 ii

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