Westpac Insures Against Consumer Bankruptcy with SAS^®

Westpac expects to generate substantial benefits per annum by identifying and analysing behaviours that enable the bank to pinpoint and predict consumer bankruptcy.

Bankruptcy accounts for a substantial part of credit card loss for Australian banks. Trevor Laight, senior manager of consumer lending from Westpac's Product Analytics & Strategy Division, says, "with significant market share of the credit card business in Australia, we want to reduce our risk exposure and at the same time apply analytical measures to ensure new and existing customers have the most suitable credit plan."

"We used award-winning data mining software from SAS to build a series of qualitative and quantitative variables that are applied to identify changes in customer behaviour," Laight adds. "This helps the bank identify consumers with the likelihood to become bankrupt and enables Westpac to monitor the situation. We have also been able to pinpoint consumers with a low risk of declaring bankruptcy and we have been able to drive growth in this portfolio through targeted marketing."

Due to the successful results from the bankruptcy model, a mainstream charge-offs model was developed to also pinpoint customers going into default. Charge-offs refers to situations where customers are unable to pay off their credit card debt and the bank is required to write-off the debt as a loss.

Why SAS
In preparation for a tightening economic climate, coupled with expected socio-economic changes, Westpac chose SAS for two key reasons:

• The bank required fast implementation of a solution.
• The solution needed to be compatible with the bank's existing analysis structure.

"The flip side of predicting bankruptcy is that we have also been able to pinpoint consumers with a low risk of declaring bankruptcy and we have been able to drive growth in this portfolio through targeted marketing campaigns and offers," Laight says. "Given the benefits we have gained to date it is only a matter of time before other divisions see the dual benefit potential and similarly embrace analytics. It is likely to be replicated by the Business Banking Division of the bank."

About Westpac
As the third largest bank in Australia with market value of nearly AUD$25 billion (US$13.25 billion) and ranked among the top 100 banks in the world, Westpac is a leader in utilising technology to gain competitive advantage. Westpac is one of the few banks in the world to be applying sophisticated analysis to protect credit risk from bankruptcy propensity, with banks throughout the United States and Europe starting to explore this potential.

Awareness of the potential repercussions on banks from tighter economic outlooks have also triggered the Australian federal government's Department of Fair Trading to embrace modeling techniques in order to protect customers' interests and maintain business as usual over coming years. Visa and MasterCard organisations are actively pushing regulators to advocate to banks and financial institutions to employ statistical modeling.

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