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Thursday, December 3, 2015 - 03:16
Identifying financial stress

The total balance on consumer credit cards nationwide has risen above R115 billion, the highest in the last three years according to the latest quarterly data from Experian SA. This is due to an increase in the value as well as a rise in the number of purchases made using credit cards. The trend indicates an increasing reliance on credit to fund the rising cost of living – food, transport, water and electricity and other essential services.
The growth in credit card spending is coupled with an increase in outstanding balances - the average person with a credit card owes more than R12 000.
People are also facing higher levels of debt on other unsecured credit products. Total households that have missed payments are trending upwards, particularly for unsecured lending products such personal loans and overdraft facilities.
Taken together, this highlights the need for credit card providers to manage the risk of delinquency and credit losses. Further, the latest Basel Regulations - which add to the cost and complexity of managing capital and liquidity - have meant that credit providers have shifted their focus from acquiring new customers to effectively managing their existing credit card portfolios for profitable growth.
David Coleman, Head of Analytics at Experian SA said: “This shift highlights how important it is for credit card providers to analyse their customer base - to understand how cardholders behave and transact differently across the credit card products that they use. This ensures that the credit card providers put in place the appropriate marketing and risk strategies to generate loyalty, grow the relationship across the organisation, ensure a ‘front of wallet’ position, and minimise credit losses and delinquency.”
“In a saturated credit card market, insight into the behaviours, trends and performance of customers -  through effective segmentation - is crucial in determining the appropriate strategy for each type of customer, so that the institutions can extract the maximum value from the data and remain competitive, as well as protect their customers from unmanageable debt,” said Coleman.
Experian’s Data Analytics has developed a credit card segmentation solution, TrendView, which identifies and classifies seven types of behaviours. Customers are segmented into categories such as ‘credit rookies’, ‘practical shoppers’ and ‘plate spinners’, for example. These segments identify customers:
• That are new to credit – the rookies;
• Those who carry balances from month to month typically paying only the minimum due – the plate spinners;
• Those who use the card for loyalty schemes and pay off the majority of the balance from month to month – the practical shoppers; and
• Those who are showing signs of financial stress.
“By using the institution’s credit card portfolio, as well as benchmarking against external credit card portfolios, the credit provider’s customer risk is exposed and their marketing decisions for long-term profitability and customer loyalty are enhanced. The analysis also provides valuable insight into how a consumer uses their full hand of credit card products helping institutions determine true profitability potential as well as a realistic view of their share of the consumer’s wallet,” said Coleman.
“The subtleties of segmentation allow organisations to target the even finer segments of customers – allowing them develop more personalized relationships with their customers and tailor actions and decisions appropriate to their individual behaviours.”
Experian SA encourages organisations to use effective segmentation to ensure that their customer management strategies for pre-delinquency, credit limit management, authorisation decisions, strategic collections, retention, pricing, and marketing are appropriate and focused on the right customers to maximise the effectiveness of the results.
Experian Decision Analytics helps businesses unlock the value of data by applying expert consulting, advanced analytics models, software and systems to help businesses solve complex problems and make confident business decisions so that they can achieve and sustain growth and profitability.

Copyright © Insurance Times and Investments® Vol:28.12 1st December, 2015
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