Predicting New Customers' Risk Type in the Credit Card Market

Yi Zhao · Zhao Ying · Inseong Song

41 citations0/0 files storedJournal of Marketing Research

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Customer churn and segmentation Customer Service Quality and Loyalty Financial Distress and Bankruptcy Prediction

Abstract

Recent studies in marketing have consistently shown that all customers are not equally profitable. In the credit card business, all customers are not equally risky. When a customer misses one payment on a credit card bill, a signal is sent to the credit card company. It is important for the card issuer to interpret the signal and to identify whether the customer is a low-risk one, who will eventually pay back the debt and contribute to the card issuer's profits by paying interest on the overdue balance, or a high-risk one, who will not pay back the debt. The issuer can then customize its policies to deal with these different consumer types. This article develops a dynamic model for debt repayment behavior of new customers in the credit card market that makes it possible to differentiate between low-risk, delinquent customers and high-risk customers. The authors apply the model to a data set of new consumers' monthly spending and repayment records.

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References

1968FINANCIAL RATIOS, DISCRIMINANT ANALYSIS AND THE PREDICTION OF CORPORATE BANKRUPTCY 1987Dimensions of Consumer Expertise 1984Methodological Issues Related to the Estimation of Financial Distress Prediction Models 2003Return on Marketing: Using Customer Equity to Focus Marketing Strategy 2006Modeling Customer Lifetime Value 2002An Empirical Analysis of Personal Bankruptcy and Delinquency 2001Customer Equity: Building and Managing Relationships As Valuable Assets 2003Customers as assets

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