Credit Card Management Reports by ako11896

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Best Practices for Managing Credit Card Risk in Emerging Markets

Description:    This report provides an in-depth and focused analysis of the critical business issues in banking and
                retail finance, cards and payments and accounting today. Aimed at industry executives, strategists,
                researchers and consultants, Management Reports are written by industry practitioners and
                consultants who bring an expert overview of industry trends and issues, backed up by original data
                and extensive case studies. This report is the result of unique quantitative and qualitative research
                into key issues and markets and offers a wealth of data and actionable information unavailable
                anywhere else.

                Vital new research for issuers of every size and stage of development in emerging markets –
                discover how to adapt the tools and experience of more mature markets to quickly implement
                successful credit cycle risk management practices.

                You will:
                - Discover how to implement and manage a successful credit risk cycle even if your organisation
                lacks experience or a supporting infrastructure
                - Realise the enormous opportunity in tackling key success factors early – ensuring you to get it
                right first time and successfully avoid the common mistakes made by your predecessors
                - Learn which risk management tools can be tailored to emerging markets to support your business
                objectives and accelerate company growth
                - Capitalise on the experience, tools and skill sets available – and learn why sophisticated
                technology is not a prerequisite for best practice risk management
                - Implement best practice by learning from the experience of more developed markets, including
                their mistakes

                About the author:
                Charles Dalton has held senior management positions in several card businesses including National
                Data Corporation, Bank of the Southwest and Carte Blanche. His experience includes creation and
                enhancement of service organizations, phone centre operations, risk management policies and
                collection functions, as well as virtually all back-office activities in the card industry.

                Practicing as Dalton Associates International, he has consulted in 21 countries in Australasia,
                Europe and Africa, as well as the US. The 40+ consulting engagements have included start up total
                process design, call center operation initiation, collection operational improvement, existing
                business process rationalisation, structural enhancement and combining bank and card structure
                and processes. Results are focused on cost reduction, productivity and service improvement.

                He has developed and presented over 30 week-long seminars on card operational productivity for
                Mastercard University, Visa International, the Asia-Pacific Banking Institute and Diners Club
                International.



Contents:       Foreword
                Executive summary
                Introduction
                Key findings

                What is the credit risk cycle?
                The importance of managing the credit risk cycle in emerging markets
                The challenges facing issuers in emerging markets
                Managing the credit risk cycle in the absence of credit bureaux
                Marketing/sales and the credit risk cycle
                Risk management policies
                Risk management tools
                Score cards
                Behavioural scores
Predictive models
The application process
Account management
Use of the behavioural score in account management
Account suspension policies and procedures
Credit line review – increase or decrease
Re-issue, replacement and additional card handling
Pricing
Collections
Credit loss
Analysis and provisioning
Fraud
In-house risk management skills and tools
The future of risk management in emerging markets
New technology – availability and use
Credit bureau development

1. Background
What is the credit risk cycle?
Development of the cycle in the credit card industry
Reasons for development of the credit risk cycle
Historical perspective

2. Overview
The importance of managing the credit risk cycle in emerging markets
The challenges facing issuers in emerging markets
Managing the credit risk cycle in the absence of credit bureaux
Profit and the cycle
Marketing/sales and the credit risk cycle

3. Development of effective risk management policies
Who develops policy? Who ‘owns’ risk?
Policies required
New accounts
Credit administration
Corporate accounts

Merchant credit
Fraud
Collections
Credit loss.
Development of policies
Evaluation and revision of policies – the cycle

4. Developing scorecards, behavioural scores and models
Development and use of application scorecards
Creation and use of behavioural scores: general by segment
Development and use of predictive models
Ongoing score validation/revision

5. The application process
Something happened
A typical application process
Application receipt
Imaging or filming
Data capture
Positive file check
EWP match
Negative file(s) check
Raw score computation
Verification queues
Approval queues .
Obtaining and utilisation of prospect and customer databases
Designing effective applications
New accounts
Credit administration
Collections
Application fraud
Application process MIS
Internet and website utilisation
Referral bands, line assignment, review process

6. Account management (credit administration)
Identifying indicators and tools to track account behaviour
Information and analytical activities
Use of the behavioural score in account management
Surfacing and handling exception, risk and credit-related issues
Account suspension policies and procedures
Credit line review: increase or decrease
Re-issue, replacement and additional card handling
Re-issue
Replacement cards
Additional cards
Pricing: risk-based APRs, penalty rates, etc
Website and internet use

7. Collections
Defining ‘early’ and ‘late’
The collection ladder
Collection policies: development and use
Development of account-handling procedures
Third-party collections
Tools of collections
Collection MIS: historical development to the present day

8. Credit loss
Models: types of losses
Analysis and provisioning
Recovery activities
Position in the cycle

9. Fraud
Fighting fraud in the marketplace
The shift towards EMV technology
‘True name’ fraud
Lost and stolen cards
Fraud positioning in the business

10. Credit risk cycle structures, staffing and training
Collections
New accounts
Incoming calls
Credit administration
Training and staffing
Collections
New accounts
Credit administration
Risk policy

11. The future of risk management in emerging markets
Credit bureau development
Governmental attitudes
Industry attitudes
Societal attitudes
In-house risk management skills and tools
New technology: availability and use
            Predictive dialler
            Inward IVR and keypad
            Eligibility routines
            New account systems
            Collection system
            The website and internet in the future of the credit risk cycle
            New accounts
            Collections
            Credit administration
            Structural challenges

            Tables
            Table 5.1: Internal changes resulted or now resulting
            Table 7.1: Some characteristics of accounts at two levels of delinquency
            Table 7.2: Historical and current collection practices
            Table 7.3: Example: a three-way movement looking at a single value from 30 days through to 120
            days, starting at 50,000,000
            Table 8.1: Types of losses

            Figures
            Figure 1: A credit risk cycle conceptual view
            Figure 1.1: A credit risk cycle conceptual view
            Figure 1.2: A typical, traditional credit feedback concept, used by management in many markets
            today
            Figure 1.3: Credit management – a traditional functional schematic
            Figure 1.4: A credit cycle risk conceptual view .
            Figure 3.1: Typical position of risk policy in card organisations
            Figure 3.2: Potential credit risk policy for cards as part of a bank risk policy team
            Figure 3.3: Credit card risk policy – risk analysis structure
            Figure 5.1: Conceptual application process
            Figure 6.1: An example of a credit limit increase eligibility routine
            Figure 7.1: Example of a collection ladder
            Figure 7.2: Example of a collection matrix
            Figure 7.3: A single cell from a collection matrix
            Figure 7.4: A billing cycle in a portfolio between 30 and 60 days
            Figure 7.5: Manual collection call sheet
            Figure 7.6: A brief sample of collection MIS taken from an automated collection system
            Figure 7.7: Predictive dialler results
            Figure 10.1: Traditional collection staffing structure
            Figure 10.2: Modern collection structure
            Figure 10.3: The modern application process structure
            Figure 10.4: Overview of a traditional organisation structure
            Figure 11.1: A challenge for the future – credit risk cycle-related structures only



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