HSBC Achieves 15% Uplift in Monthly Card Spend Using FICO’s AI-Powered Optimization
- HSBC saw a 15% increase in monthly card spend by customers.
- The project led to improvements in active card use and share of wallet.
- FICO's AI-powered optimization technology helped HSBC grow its credit card portfolio.
- HSBC won the 2024 FICO Decisions Award for AI, Machine Learning, and Optimization.
- The optimization strategy allowed HSBC to adjust credit limits based on customer risk and engagement levels.
- HSBC's focus on tailored customer experiences and revenue growth led to the project's success.
- None.
Insights
The application of FICO's AI-powered optimization by HSBC to its credit card portfolio represents a significant technological advancement with tangible financial outcomes. The reported 15% increase in monthly card spend and enhancements in active card usage and share of wallet, all without amplifying bad debt, suggest a strategic win for HSBC. It appears that HSBC successfully navigated the fine line between growth and risk management, a common challenge in retail banking.
From a financial perspective, increased card spend directly translates to higher interest and fee income, bolstering the bank's revenue streams. This feat, especially during the unpredictable waves of the COVID-19 pandemic and new consumer duty regulations, underlines the resilience and adaptability of HSBC's credit strategy. On a larger scale, such innovations could drive competitive advantages in the market, potentially affecting HSBC's stock as investors look favorably upon institutions that leverage technology to enhance profitability while managing risk effectively.
HSBC's achievement, recognized by the 2024 FICO Decisions Award, signals a broader industry trend toward data-driven decision-making in financial services. The retail banking sector's competitive landscape requires personalized and efficient customer experiences to retain and grow market share – a demand met by FICO's optimization tools. The improvements in customer metrics reflect a successful user-centric approach, likely to influence customer satisfaction and retention positively.
An integral part of the strategy was evidently the anticipation and response to regulatory changes, highlighting the importance of agile strategy frameworks. Such developments are critical for investors, as they reflect a bank's commitment to compliance and its foresight in risk management. The UK's Consumer Duty regulations, which focus on fair value and debt prevention, create an environment where HSBC's proactive measures may set a precedent for industry practices, potentially impacting the valuation and perception of other banking stocks in the region.
HSBC's approach to credit limit adjustments demonstrates a sophisticated understanding of risk-reward dynamics. By simulating various scenarios, including changes in the economic landscape and regulatory conditions, HSBC has displayed a robust risk management framework. This precision in credit assignment and the ability to adapt to economic shifts are critical in ensuring financial stability and maintaining consumer trust.
For stakeholders, the application of AI in risk assessment and management is a reassurance that the bank is positioning itself to navigate future financial uncertainties. The reduction in bad debt, despite an increase in credit limits, indicates a well-calibrated strategy that aligns with investor interests by minimizing losses and maximizing returns. Additionally, HSBC's readiness for the Consumer Duty regulations suggests a commitment to responsible lending, which could contribute to the long-term sustainability of the bank's credit business and perceived shareholder value.
FICO® Platform delivers standout results in credit line assignment;
HSBC wins 2024 FICO Decisions Award
Highlights:
- HSBC is using FICO® Platform to grow its credit card portfolio
-
The project saw a
15% uplift in monthly spend by customers on their cards, as well as improvements in active card use and share of wallet, without increasing bad debt - HSBC won a 2024 FICO® Decisions Award for AI, Machine Learning and Optimization.
Today at FICO® World, the industry’s leading analytic and AI event, FICO announced that HSBC, one of the world’s largest banking and financial services organisations, has used AI-powered mathematical optimization technology to grow its credit card portfolio. The project saw a
More information: Optimization | FICO
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“With FICO optimization, we can adjust credit limits to each customer’s risk, reward and engagement levels, and manage them with scientific precision, at speed, as our strategy and the economic climate change,” said Mike Roberts, head of unsecured retail risk, HSBC
The retail banking sector in the
“Setting new credit limits through testing programs is inefficient, and could damage customer relationships,” said Roberts. “By using FICO’s mathematical optimization, we were able to simulate responses to customer engagement, levels of spend, activations, loss rates, profitability and customer outcomes, whilst factoring in changes in economic and regulatory conditions. We were also able to better meet customer needs by targeting offers to customers that wanted and would use a credit line increase.”
HSBC worked closely with FICO to design the decision influence process that captured their credit line increase business. Eight action-effect models were created to forecast the impact of the existing credit line increase strategy. These models were configured within FICO® Platform, together with HSBC’s own profit calculations, and a suite of around 40 scenarios were developed to find the best solution.
When COVID 19 hit in 2020, HSBC rapidly redeveloped the strategies to deal with the new economic climate. Despite reduced demand for credit during lockdown, the optimised strategy proved to be more effective than its previous strategy at generating card use.
In July 2023, the
“The ability to test vast decision strategy possibilities, inter-relationships and subsequent permutations in volumes and scenarios is way beyond the capacity of the human brain to calculate,” said Roberts. “At the same time, we are executing explainable decision strategies that provide the visibility and certainty to know that we are doing the right thing for customers.”
“Decision optimization is one of the most advanced tools a lender has,” said Nikhil Behl, chief marketing officer at FICO. “HSBC has again shown its leadership in the market with this project.”
“To get an advantage in one of the world’s most competitive credit markets is an outstanding achievement,” said Paul Robinson, VP credit management at Canadian Tire Bank and one of the FICO Decisions Awards judges. “The judges were impressed by HSBC’s savvy use of optimization and its ability to balance numerous objectives and constraints to find more successful options for its customers.”
To see the full list of this year’s FICO® Decision Awards winners, check out: https://www.fico.com/en/decisionsawards
About the FICO Decisions Awards
The FICO Decisions Awards recognize organizations that are achieving remarkable success using FICO solutions. A panel of independent judges with deep industry expertise evaluates nominations based on measurable improvement in key metrics; demonstrated use of best practices; project scale, depth and breadth; and innovative uses of technology. The 2024 judges are:
-
Andrew
Birmingham , editor, Mi3 - Eric Kavanagh, CEO Bloor Group and host, InsideAnalysis
- Elizabeth Lumley, deputy editor, The Banker
- Paul Mah, senior editor, CDO Trends
- Laura Martins, editor, IT Forum
- Paul Robinson, VP credit management at Canadian Tire Bank (Previous Winner)
- Shiv Sehgal, EVP audience analytics at RSG Media (Previous Winner)
- Nick Vitchev, director at Chartis
The winners of the FICO Decisions Awards will be spotlighted at FICO® World 2024, April 15 – April 18, 2024 in
About FICO
FICO (NYSE: FICO) powers decisions that help people and businesses around the world prosper. Founded in 1956, the company is a pioneer in the use of predictive analytics and data science to improve operational decisions. FICO holds more than 200 US and foreign patents on technologies that increase profitability, customer satisfaction and growth for businesses in financial services, insurance, telecommunications, health care, retail and many other industries. Using FICO solutions, businesses in more than 100 countries do everything from protecting 4 billion payment cards from fraud, to improving financial inclusion, to increasing supply chain resiliency. The FICO® Score, used by
Learn more at https://www.fico.com
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FAQ
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