In this case study, a leading credit card issuer in South Africa challenged their existing credit limit policies and strategies. As we shall see from the results, the new Challenger strategy resulted in substantial bottom line business benefits for this client.

The existing Champion strategy was reactive and mostly customer initiated. The number of requests for limit increases peaked during periods of high spend activity, such as holidays and overseas travel. This led to overloads in the operational areas and a slow turnaround of customer requests. The key objectives of any credit limit strategy are to increase sales and balances on good accounts, whilst minimising any increase in balances on bad accounts. It was with these objectives in mind, plus the requirement for decreasing operational overloads, that this card issuer reviewed the current Champion credit limit policies.

The new Challenger strategy that was designed to achieve the client’s stated objectives proactively granted credit limit increases to approved customers at regular intervals. The increase amount was varied by risk score as opposed to a blanket policy increase.

This strategy was enabled, executed and monitored through adaptive control software. The following changes were made for the new Challenger credit limit strategy:
• Accounts were assessed every month for an increase.
• Customers were granted credit limit increases every twelve months.
• Accounts were considered for an increase after a minimum qualifying period (6 months on books) had passed. A minimum qualifying period is necessary in order to allow for sufficient performance for the behaviour scores to be predictive.
• A minimum cut-off score was required to qualify for a credit limit increase. Accounts scoring below the minimum cut-off were ineligible for a credit limit increase and were re-assessed the following month.

For this Challenger strategy, segmentation using risk, utilisation and credit limits was considered, although other factors, for example attrition, affordability and profitability could have been used.
• Low risk customers were given varied increase amounts depending on risk and conversely high-risk customers were ineligible.
• The higher the utilisation of the credit limit, the greater the likelihood that the customer will utilise a credit limit increase. Accordingly, low utilisers of credit limits were not granted a credit limit increase.
• Low credit limits received a specific increment amount based on risk whereas medium-high credit limits received a percentage increase, based on the current limit.