Optimising credit limit increases for profit, with Cristian Bravo (Western University)

How to Lend Money to Strangers

Brendan le Grange

Credit, Fintech, Management, Lending, Banking, Business, Careers

5 • 2.6K Ratings

🗓️ 7 December 2023

⏱️ 27 minutes

🔗️ Recording | iTunes | RSS

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Summary

"Causality is the new explainability."

We all know credit limit increases are one of the most, if not the most, important levers in the card profit model. And we all know the reality of managing credit limits is far more complicated than the theory - every action has a reaction and all of that. So we focus on pulling back and releasing the spring of the pinball machine and then just get ready to react as best we can.

But as data analytic techniques become more advanced, we can plan more and leave less to chance. So in this episode, I sit down with Dr Cristian Bravo, from Ontario's Western University, to talk about Sherly Alfonso-Sánchez's research into "Causal Learning for Credit Limit Adjustment in Revolving Lending Under Adversarial Goals"

Western University has data science programs at https://uwo.ca/sci/datascience/index.html

The Banking Analytics Lab is at https://thebal.ai/

If you'd like to speak to Cristian, or just stay up to date with the work he and the BAL are publishing, you can find him on LinkedIn https://www.linkedin.com/in/cristianbravor/

In our chat, Cristian mentions an early version of this research - that paper can be found and downloaded here: https://arxiv.org/abs/2306.15585

Or go read Sherly's blog on this same topic at https://thebal.ai/2023/07/11/optimizing-credit-limit-adjustments-under-adversarial-goals-using-reinforcement-learning/

Then come and find me on LinkedIn, and while you're there, send me a connection request: https://www.linkedin.com/in/brendanlegrange

As mentioned more than once in this episode, my action-adventure novels are on Amazon, some versions even for free, and my work with ConfirmU and our gamified psychometric scores is at https://confirmu.com/ and on episode 24 of this very show https://www.howtolendmoneytostrangers.show/episodes/episode-24

If you have any feedback or questions, or if you would like to participate in the show, please feel free to reach out to me via the contact page on this site.

Keep well, Brendan

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Transcript

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0:00.0	May I have your attention please you can now book your train tickets on Uber and get
0:08.0	10% back in credits to spend on your next Uber ride so you don't have to walk home in the rain again.
0:15.0	Trains now on Uber. T's and C's apply. Check the Uber app.
0:20.0	There is an adversarial goal here.
0:25.0	If you increase the limit, you have a potential profit from the person using their
0:31.0	credit limit.
0:32.0	But you have a very real immediate heat to your provisions.
0:37.5	So now we needed some sort of modeling that didn't just gave us whether to increase or not, but also gave us the optimal value
0:46.6	that we should increase you.
0:48.1	We don't just give you a limit increase, we give you the one that minimizes the value at risk,
0:53.2	and also the one that has unexpected value,
0:57.0	a profitable margin, and Teladula Abstan.
1:00.8	If you are in doubt, don't do it. We were given increases to more people than before surprisingly,
1:08.0	but we were given much more conservative and reasonable increases than what other competing policies were probably
1:16.4	really able to offer.
1:21.0	My career started in credit cards, so the quest to find the ideal credit limit strategy is one that I know well.
1:28.0	And it's one that I've enjoyed.
1:30.0	And then when I moved into the credit bureau space, I had the chance to take a bird's eye view of the landscape.
1:36.0	And the challenge became even more fascinating.
1:39.0	If Lender A gives a customer of theirs a credit limit increase.
1:43.2	Sure, they can see on their side if marginal spend increases.
1:47.2	But what happens to the spend that same customer has at lender B in that month and the month after and what happens when Lender B reacts?
	...

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