The U.S.A Lending Market

The U.S. market witnessed an astounding growth in terms revolving credit in the last two decades. Federal Reserve Statistical releases show that in 1985 the average revolving credit outstanding was about $ 115 Billion (20% of the total consumer credit).In 2006, these average numbers soared to 843 Billion (36% of total consumer credit). Survey of Consumer Finances observed that, of the 75% households with a revolving credit line, 58% had a balance outstanding. This growth was noticed by a lot of financial institutions that led to their entry into consumer lending business.

Within the last decade many consolidations happened in consumer lending businesses through acquisitions, mergers and purchases. Bank One’s acquisition of First USA in 1997, Chase’s purchase of Providian in 2002, HSBC’s acquisition of Household in 2003, Citi’s purchase of Sears in 2003, Chase’s purchase of Bank One in 2004, Bank of America’s acquisition of Fleet Bank and Bank of America’s merger with NBNA in 2005 were some of the major deals impacted the market share of consumer lending businesses. Bank of America now leads the bunch with 40 million active accounts and $143 billion outstanding balances. Chase, Citigroup, Capital One and Discover are the other four players in the top five.

Managing by the Odds.

Over the period of time, lending to consumers profitably proved to be one of the most challenging to the businesses involved. Intense competition for market share and large volume of small loans to service are the two major reasons prompted the lenders to approach the way they do business differently. Increased automation in decision processes and managing the portfolios by the odds (in a statically predictable manner) were opted by all the lenders to stay competitive. Large scale investments were made on rule based systems, data warehouses and data mining. The benefits were tangible; increased responses on the expensive mail solicitations, higher approval of applications, consistent underwriting processes, improved fraud detection, data driven portfolio management, comprehensive reporting and MIS , optimization of call center operations, early delinquency detection and efficient collection efforts to name a few. All these efforts, collectively named as ‘analytics’, hence formed an inevitable part of the consumer lending business.

Consumer lending is a volume based business with millions of small loans and transactions handled on a daily basis with thin profit margins. In such a scenario, managers depend on the analytics departments to control the risk-returns statistically. This requires data warehousing, scorecard development, data segmentation and pattern analysis, tracking dashboards and comprehensive reporting systems. SAS System is widely used by these businesses in meeting these requirements.