Beyond the plastic

Barclaycard's Jerome Le Luel explains how the science of decision making is essential in managing risk in today's environment

The Job

I head credit risk management for Barclaycard UK. My department decides who should be allowed a credit card and how much credit they should be granted. Once the card has been issued we constantly review the decision we made, checking whether we need to increase or reduce the line of credit, take the card away or issue another one.

At Barclaycard we manage 11.9 million credit card accounts in the UK and 11.7 million outside the UK. No human being can grasp all this so we use statistical tools to make sure we make the right decision on average as often as possible.

We gather information to help us build statistical models in a number of ways. We ask new customers questions about their income and we use credit agencies to check their credit record. If they're our customers we see how they behave with their card: What do they spend money on? Do they make their payments on time?

Our industry has a massive impact on the country. This is reflected within the company. If we make mistakes we could harm the bank. We feel like we are in charge of something important. The chief executive of the company wants to talk to us regularly. It matters for him whether we do well or not. It's absolutely vital to the company. It's great to be in the spotlight.

What I find most exciting about the job is that we're dealing with human behaviour on a huge scale. We use maths to make decisions that affect the lives of real people. The link between the models and human behaviour is fascinating. Our aim is always to ensure we lend the right amount of money, to the right person at the right time. We can use it to benefit people, but with it brings a massive social responsibility because we're distributing a product which is potentially a double edged sword. It is extremely useful for most people. It helps them manage their lives. But we know that some customers can find themselves in trouble. We need to manage that very carefully because otherwise our whole industry would disappear. The credit card has a very important place in the economy as long as it is responsibly managed.

My team has spent the last 18 months developing services to help people in difficulty get over this recession. Using statistics, we've taken preventative actions to stop people from digging themselves into a hole. It's bad for us if they default because we lose money. It's bad for them because it impairs their credit rating and their ability to access any new loan. And it's bad for our reputation if we just do nothing. So there's a very strong incentive to get it right. But it's tricky. How can you intervene in people's lives when there's a crisis whilst letting people choose what they want to do? It's not an easy call.

The People

I think it's a good time to join credit risk. It's probably easier to find a job in credit risk today than it is in marketing. And if you learn credit risk in a recession you're well set for when the economy recovers. In order to get a job, students need to show that their quantitative skills are excellent. We put all our candidates through some basic maths tests and those who don't have a high standard aren't going to make it. But it's not just about the maths.

The people who do well in this profession understand the maths but they're also able to challenge the numbers, to take a step back and think about what might be missing. I like my team to be a bit sceptical when they see information. When they create a model I want them to put it through stressing and distorting so that if times are hard we don't get caught by surprise. But they're not people who sit behind their computer all day and never talk to anyone. They have to spend a lot of time working closely with people who may have different backgrounds and skills. There are lots of meetings where we need to find a compromise. You might be the analytical expert but other person in front of you at the table could be the expert in Marketing or Product Development. Their opinion matters too and you need to get along with them very well.

We've recruited this year around 15 graduates from various universities in the UK and they started last month. Initially they go to an induction to introduce them to Barclays and the Barclaycard business. Then they join the Credit Risk department where they get some pretty intensive training on the software that we use to do statistical analysis. Then they start their first rotation. They will do three different assignments over two years and each assignment is a real job. They have a manager and they are in charge of projects. We give them an opportunity to rotate across the department so they can work with different projects, products or geographies. For example, they might work with the credit manager in charge of the student credit card. Their manager might ask them to review this product. They'll gather data, analyse it and then recommend whether we should change the product or not. Then they'll have an opportunity to present their conclusions to the senior team, which they find quite exciting. It's not just about the quality of their analysis it's also about their presentation skills. It's a bit scary but it's a great opportunity for them.

The Industry

Looking back over the last twenty years the first revolution came with cheaper computers allowing fast computing of vast databases. This meant a massive expansion of usable consumer data. The creation of credit agencies also meant that more data was shared among banks. Deregulation in the retail banking market made it possible for new, smaller players to enter the market and start competing against the large banks. So there was more data and more competition around the use of this data, which led to a redistribution of market shares and the emergence of some specialist players.

Now we're going through a second phase of transformation. I'm expecting the market to consolidate and the regulations to change. The regulators are worried about the treatment of consumers and the level of profits from credit cards. This will probably lead to tighter rules around pricing.

The only way really to ensure success will be around the use of analytics because the markets themselves won't grow much. Success will be a question of getting the decimal point improvement. Innovations and new technology will also be paramount.

We think that plastic as we know it will not last for much longer and the question is: 'What is going to replace it?' There is no clear answer yet. The mobile phone is going to be part of the answer. The contactless card that Barclaycard has been testing over the last two years is a step in this direction. I doubt it's the final step but it's a convenient option for people, especially on the London Tube. But the next stage is to get rid of this plastic and get the chip embedded into a mobile phone. Then the mobile phone itself is a contactless card. You could exchange money with people as easily as a text message. You could pay over the internet. That's a much larger opportunity and that's where Barclaycard is going.

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