Risk-Based Credit Offer Segmentation
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Solution Overview
Problem
Conventional credit card offers typically provide a single interest rate applicable to all applicants, leading to over-qualification for consumers with excellent credit histories and under-qualification for those with poor credit histories, resulting in missed opportunities for card issuers to attract desirable customers and generate revenue.
Innovation Solution
A method and system that process credit history data to calculate multiple interest rates corresponding to various credit risk scores, allowing for a multi-tiered offer that discloses these rates to applicants, enabling selection of the appropriate interest rate based on their specific credit risk score.
Engineering Contradictions & Design Principles
Engineering Contradiction Analysis
1Adaptability or versatility
If a single interest rate is offered to all applicants, then the offer is simple to communicate and process, but high credit risk score applicants are over-qualified and low credit risk score applicants are under-qualified, resulting in missed opportunities
Solution Approach 1:
The patent segments the single interest rate into multiple interest rates corresponding to different credit risk score ranges. Applicants are divided into segments based on their credit risk scores, and each segment receives an appropriately tailored interest rate. This resolves the contradiction by making the offer adaptable to different applicant types while maintaining a structured, manageable offer framework.
Solution Approach 2:
The patent changes the interest rate parameter based on the applicant's credit risk score. Instead of using a fixed interest rate for all applicants, the system varies the interest rate parameter according to the applicant's creditworthiness. This allows the offer to be customized for different risk profiles while maintaining a consistent offer structure, resolving the contradiction between adaptability and complexity.
2Reliability
If multiple interest rates are offered based on credit risk scores, then high credit risk score applicants receive lower rates increasing attractiveness, but the offer structure becomes more complex
Solution Approach 1:
The patent performs preliminary segmentation of applicants into credit risk score categories before making the offer. By pre-defining the interest rate tiers and their corresponding credit risk score ranges, the system prepares the multi-tiered structure in advance. This allows the offer to be reliably aligned with credit risk while simplifying the actual offer communication, as the complexity has already been worked out in the preliminary classification stage.
3Productivity
If conventional single-rate offers are used, then processing is straightforward, but issuers miss opportunities to attract desirable customers and generate revenue
Solution Approach 1:
The patent implements a self-service mechanism where the appropriate interest rate is automatically determined based on the applicant's credit risk score. The system autonomously matches applicants to the correct interest rate tier without requiring manual intervention or complex processing. This resolves the contradiction by enabling efficient customer acquisition through automated, credit-risk-based rate assignment while keeping processing time minimal.
Data Source
AI summary
A system and method for communicating an offer to apply for a credit instrument is provided. A processing allows for processing credit history data. A calculating step allows for calculating a first plurality of interest rates based on the credit history data. A determining step allows for determining a second plurality of interest rates based on the first plurality of interest rates, wherein the second plurality of interest rates corresponds to a plurality of credit risk scores. Finally, a communicating step allows for communicating the offer to apply for a credit instrument in an initial communication with an offeree, the offer disclosing the second plurality of interest rates. An apparatus that calculates the interest rates used in the offer is also provided.