Neuristics Corporation, providers of intelligent decision-support tools for consumer lenders, today announced the general availability of The Neuristics Edge(TM), a credit score for identifying low-risk prospects for pre-approved credit card solicitations among groups below traditional credit risk score cut-off levels. The score is available as a service provided by Neuristics or as a software tool for implementation by issuers, said Neuristics CEO Richard B. Leavy in making today’s announcement.
“Credit card issuers targeting traditional populations are experiencing declining response rates and increased charge-offs, due to fierce competition and adverse selection,” said Leavy. “At the same time, there are millions of credit-worthy individuals excluded from credit card solicitations by lenders, because they have been mis-classified by conventional credit scores. The Neuristics Edge expands the universe of prospects for card issuers by correctly re-classifying these low-risk candidates.”
The Need for New Prospects
The Neuristics Edge offers a solution to the difficulty faced by issuers in identifying creditworthy and profitable new candidates for credit cards. “Saturation of the prime market has thinned margins and has made it harder to apply risk-based pricing. In addition, changing demographic and socioeconomic patterns, such as the growing numbers of mobile professionals working on contract basis, create behaviors that aren’t addressed by traditional scoring methods,” said Merrill Ross, financial services analyst with investment bankers Friedman, Billings, Ramsey & Co., Inc., ofArlington, VA.
“For a while cards lost their allure because of narrowing margins, but issuers are beginning to discover that they have more tools to acquire and manage these relationships,” she added. “To the extent that they can discover a new population that had been mis-scored and therefore denied credit, they are likely to find a more loyal customer set who value the extension of credit, who are not as adverse to risk-based pricing, and who generate more fees because they have more needs.”
Benefits of The Neuristics Edge
The intelligent predictive technology in The Neuristics Edge is designed to evaluate credit-card candidates who score below traditional credit risk criteria. Usage of the Neuristics Edge has indicated that the population of creditworthy individuals is 20 percent of the so-called sub-prime group, or approximately 10 million individuals. With average balances conservatively estimated at $1,000, this group represents a virtually untapped market of at least $10 billion in receivables.
The Neuristics Edge, like other Neuristics predictive tools, incorporates multiple analytical techniques for credit-risk prediction. “While most scoring models rely largely on statistical techniques, Neuristics’ approach is hybrid modeling that combines neural networks and other intelligent technologies with statistical analysis,” said Barbara Smiley, a director of Meridien Research, a financial technology research firm based in Needham, MA. “The problem of identifying pockets of creditworthy borrowers among the population characterized as sub-prime is very responsive to such techniques. Such models are often able to uncover subtle predictive patterns that can be missed with more linear approaches.”
The Neuristics Edge score offers a simple-to-understand percentage probability of an individual meeting payment commitments for 18 months after scoring. For example, a Neuristics Edge score of 94 indicates that an individual has a 94% probability of remaining good for 18 months. Lenders thus have the information required to solicit new customers based on their internal credit-risk criteria and use actual probabilities for risk-based pricing. In addition, the Neuristics Edge can be “tuned”, based on an issuer’s results, to target the most attractive candidate groups in subsequent acquisition campaigns. Availability
Neuristics Edge risk scores are available as a service from Neuristics Corporation with volume-based pricing. The scoring process requires only credit bureau data. The Neuristics Edge is being tested or used by five major credit card banks.
The analytic engine of The Neuristics Edge is also offered as a highly customizable software module for installation by lenders with high-volume scoring requirements. Neuristics consultants offer model adaptation for special target markets, different types of credit products (such as mortgage or auto finance), or behavioral risk scoring of existing clients. The Neuristics Edge can also be integrated with other Neuristics decision-support tools for predictive modeling of loyalty/profitability and collections optimization. About Neuristics
Neuristics Corporation develops and markets intelligent decision-support tools that enable financial services providers to uncover new opportunities for profit and to reduce risk and overhead in acquisitions and relationship management in consumer credit and payment systems. Neuristics clients include major banks, financial transaction processors, and a third of the top 25 credit card issuers. Founded in 1993, Neuristics is a privately held firm based in Baltimore, Maryland.Details