Banking Case Studies Decision Support General Consulting Underwriting Strategies

Adjustment of initial line assignments and authorization strategies helps client achieve growth & loss targets

line assignments authroization strategies


A PAG client in the US credit card market was not achieving its Year 1 growth and loss-rate projections on a new credit card product.  Balances were growing in the lower half of the credit spectrum and activation on higher FICO balances was not happening at a rate to offset the lower credit balance growth.

PAG Solution:

PAG reviewed the Client’s underwriting approach to see if adjustments could be made to the existing account management strategies to stimulate balance growth in the proper areas.  PAG found the Client was being too conservative with its initial line assignments and authorization strategies.  Average credit lines for 680+ FICO customers were only $1,800 while the Client was blocking nearly 20% of transactions at the point of sale. These higher-end customers simply weren’t using the card: They weren’t being assigned sufficient credit lines to meet their shopping needs and using the card was a hassle.

PAG used refreshed Vantage scores along with other data attributes to quickly build credit lines in a revamped Credit Line Increase (CLI) strategy so those higher-end credit customers could see significant credit limit increase to meet their shopping needs. PAG also rebuilt the authorization strategy to fit the demographics of the Client’s portfolio, resulting in fewer stoppages at the POS without a significant increase in transactional fraud.  PAG also designed Reissue strategies so the Client could continue to pursue the right credit growth when the initial batch of cards expired.

Client Benefits:
  1. PAG was able to increase balance growth in customers with an initial line of $2,000 or greater by 40% while lowering overall Year 1 delinquencies on the portfolio by more than 10%
  2. PAG complemented the enhanced CLI program by loosening the authorization strategies, enabling higher-credit customers to feel more comfortable using their cards. The resulting model and analysis increased transactions per month on active users by more than 20% with a minimal increase in fraud losses to only five basis points.
  3. PAG worked with the Client’s marketing team to deliver digital and direct mail messages to inactive customers by promoting its reward platform and mobile application. The results were a 22% increase in first-time use of the card in the next nine months.
  4. The Client exceeded its Year 1 growth targets and has since seen no substantial risk in fraud or credit losses. Growth continues to trend in the right direction.
  5. The Client has re-engaged PAG to have a PAG SME on its risk council. That person is helping guide account-management strategies while making sure learnings are being shared with the underwriting team to ensure wins are seen in the initial book of business for future portfolio bookings.
Banking Case Studies General Consulting Regulatory Compliance Regulatory Readiness Preparation Scorecard Builds/Validation

PAG adds processes and reports to help lender convince regulators its exception documentation was sound


A large unsecured loan provider in the United States was having challenges with its model suite and convincing its regulator and partners that its models were compliant and in control. The client had a few Matters Requiring Attention (MRAs) and other regulatory issues threatening to disrupt its business and didn’t have a large budget to hire a full modeling team to close the gaps.

PAG Solution:

PAG was hired to do a complete end-to-end review of three different models and assess their overall performance and compliance relative to industry expectations. PAG was able to determine that all three models were built from sound assumptions, and the performance seen in the development samples was consistent with production.

The client, however, had a number of issues with exceptions in its lending process and a complete lack of model documentation that confused regulators about performance and compliance. PAG created a report to separate underwriting performance on loans within the credit sandbox versus those approved on exception. We also compared the client’s model documentation to the OCC’s requirements and identified the missing documentation. PAG put a six-month plan together to close all gaps and identified an ongoing governance structure that the regulator blessed, and the enhancement work began.

Client Benefits:
  1. PAG successfully built out its client’s enhancement plan to close down its areas of opportunity in the model governance space to the point it was able to meet monthly with its regulator to review progress.
  2. PAG’s staff allowed the client to focus on documenting its model practices while we educated the model team on ongoing governance, saving the client hundreds of thousands of dollars on personnel costs.
  3. PAG was able to help get the client’s current MRAs closed and allow it to go back to running its business.
  4. The client successfully passed a regulatory audit after one year with zero significant findings or MRA’s.
Banking Case Studies Forecasting General Consulting

Card portfolio acquirer sees double-digit improvement in profitability after PAG overhauls forecasting process


One of PAG’s large clients in the United States purchases credit card portfolios from other US-based financial institutions. Our client was looking for highly effective forecasting methods to determine loss rates, growth curves, and other critical metrics to increase its profit margins through a more accurate determination of portfolio profitability, thus impacting its offered purchase price.

PAG Solution:

We re-engineered and overhauled its forecasting process, designing a data template and schema for standard portfolio purchases that would provide more detailed information on what drives credit card profitability.

We then used our GOBLIN platform to ensure data from the prospective portfolio was received quickly and in a ready-to-analyze format. Using our years of experience in the card industry and our proprietary forecasting models, we utilized different forecasting techniques (e.g., exponential smoothing, complex weighted averages) to increase the speed and accuracy of our client’s portfolio evaluation process. This allowed the client to focus on portfolios with more upside and avoid ones with limited profit potential.

Client Benefits:
  1. PAG successfully increased the speed of the valuation process from approximately three weeks to five business days under the current redesigned process. These changes enabled our client to evaluate more portfolios and turn around bids much faster, getting a leg up on other interested acquirers.
  2. Our client has access to more streamlined data through GOBLIN and can run its own analysis and compare using our models.
  3. Our forecasting models had reduced variability in the observed loss curves by over 30%, with an average variance of only +- 2%.
  4. Our client has seen portfolio profits increase by an average of nearly 17% within a year of acquisition.
Case Studies Regulatory Compliance

PAG helps new affinity card issuer build compliance infrastructure


Company: New Market Entrant – US Co-Brand & Branded

Company was planning to enter the US Credit Card Market and had no compliance personnel or infrastructure to support their efforts. As they were looking to procure affinity partners, they were facing numerous audits for documentation and processes that did not exist.

PAG Solution:
PAG was engaged in a 3-stage approach, which started with PAG building out over 50 policies and supporting procedures to govern regulatory expectations and to support ongoing call center operations. From there, PAG documented technical requirements to help the client’s engineers program the regulatory requirements and controls directly into the proprietary card system. PAG then built user test cases and performed user acceptance testing to ensure all programmed controls were working as intended. PAG also supplied the client with a highly qualified Chief Compliance Officer to help guide their internal efforts, hiring practices, and to represent them in customer facing meetings.

Client Benefits:

  1. PAG was able to successfully build out our client’s complete Compliance Management System allowing them to successfully pass multiple prospective partner audits which led to several lucrative affinity relationships.
  2. PAG’s staff allowed the client to focus us their system engineering efforts while saving time, money, and resources on needed Compliance activities.
  3. PAG assisted the client’s eventual hiring of their internal Compliance Department by interviewing prospective employees and training them to be successful in taking over PAG Compliance duties in time.
  4. Our client was able to successfully pass a regulatory audit after 1 year in practice with zero significant findings or MRA’s.
Banking Regulatory Compliance

Strong risk management isn’t about stopping risk. It’s about managing that risk effectively

risk management

Risk is inherent in everything we do. Whether it be choosing to leave the house, turning on a burner, bungee jumping from a cliff, every action has the potential for something to go wrong. The same is true in business: business decisions carry risk. Sometimes it’s the expansion or growth that drives risk – but doing nothing is often a risk as well. A competitor could be leaping ahead while you are standing still. Inevitably there’s money that could have been made, if you had taken a chance.

Thus, strong risk management isn’t about stopping risk; it’s about managing risk effectively.

Effective risk management is a term that’s often thrown about as a sound bite. What does it really mean, and how do you get there?

  1. Balance risk and reward: Ensure you are getting paid (or value) commensurate with the risk. In finance this means setting pricing and fees at a point that balances future risk; in a casino, this means driving volume to offset wins or regulatory hassle; in health care this means driving enough timely value and customer satisfaction to offset the cost and regulatory headache.
  2. Measure small, miss small: Develop reporting and data infrastructure to measure and monitor the risk short term. Reporting at a more granular / marginal level soon after implementation drives faster response to problems and greater long-term savings. Many banks responded far too late during the Great Recession, primarily because they were monitoring the long-term blended performance. The short-term marginal performance gave early warning signals that were missed by many due to inadequate measures and reporting.
  3. Open Discussion and Debate: Robust discussion and debate of risks allows decision makers to be fully informed in making the risk / reward decisions. Hiding potential negatives may smooth the path to approval today, but they will usually come back to hurt the company (and your career) long-term. Identifying risks and mitigations before implementation ensures that risk management is effective. This process cannot be a rote repetition of last month’s risks. Critically thinking about what risks apply and what makes this decision or action different than others is just as important as thinking about how the decision and actions are the same. Reporting and measurements must be matched up to risks as mitigating factors that drive successful early identification and action on issues as they arise.
  4. Triggers: Of particular use in tracking performance vs. expectations, triggers are metrics that are established prior to implementation and set at expected levels with a small cushion. The cushion should consider the standard deviation / seasonal movement of the metric within normal conditions and be set to ensure that any unusual movement triggers for a response. Most often, these are established with red, yellow, and green indicators to show if a metric is within tolerance. Measures that go above the limit will be flagged for deeper analysis or explanation to management. This ensures that decisions are followed and monitored to ensure they perform as expected.
  5. Opportunity Cost: Decision making must also consider opportunity costs associated with taking or not taking an action. If you commit resources to this project, what other projects or needs are sidelined? If you don’t act on this opportunity, will your competitors steal market share? Will you lose customers?

In Ben Franklin’s words: “An ounce of prevention is worth a pound of cure.”