System and method for monitoring managing and valuing credit accounts

• US 20040039688A1
• Filed: 08/25/2003
• Published: 02/26/2004
• Est. Priority Date: 10/05/2001
• Status: Active Grant

• Current Assignee: Argus Information and Advisory Services Incorporated (Verisk Analytics Incorporated)
• Original Assignee: Argus Information and Advisory Services Incorporated (Verisk Analytics Incorporated)
• Inventors: Laufer, Leonard, Banerjee, Nana, Sulkowski, Nikolas
• Granted Patent: US 8,332,291 B2
• Time in Patent Office: Days
• US Class Current: 705/38
• CPC Class Codes: G06Q 40/02 Banking, e.g. interest calculation or account maintenance credit or loans G06Q40/03
• CPC Class Codes: G06Q 40/03 Credit; Loans; Processing thereof
• CPC Class Codes: G06Q 40/08 Insurance

Abstract

The present invention relates to a system and method for estimating the future and present value of credit accounts (FIG. 1). A plurality of profit driver segments (105) are established. A degree of belonging of the credit account to each of the plurality of profit driver segments (105) is determine by characterizing the credit account based upon it historical behavior (110). The probability of migration of the credit account from at least one profit driver segment (105) to at least one profit driver segment based upon historical behavior data is determined. The credit account can then be valued based upon the characterization of the credit account and the determined probability of migration. By examinating how accounts migrate between behavior segments over multiple periods, and analyzing the discounted cash flows associated with these migration patterns, a net present value may be calculated for each account.

Claims

1. A method for valuing a credit account based upon a probability that the credit account will migrate between profit driver segments, the method comprising the steps of:

a. establishing a plurality of profit driver segments;

b. characterizing the credit account based upon its historical behavior to determine a degree of belonging of the credit account to each of the plurality of profit driver segments;

c. determining a probability of migration of the credit account from at least one profit driver segment to at least one profit driver segment based upon historical behavior data; and

d. valuing the credit account based upon the characterization of the credit account and the determined probability of migration.

2. The method of claim 1 wherein the step of establishing a plurality of profit driver segments comprises the step of analyzing historical credit account behavior data for a population of credit accounts to determine a plurality of profit driver segments that drive profitability.

3. The method of claim 2 wherein the step of analyzing historical credit account behavior data for the population of credit accounts comprises the steps of:

a. translating historical credit account behavior into profit and loss terms;

b. identifying a set of one or more profit and loss terms that are effective in characterizing the credit account behavior and profitability; and

c. applying standard rates to the set of one or more profit and loss terms to isolate the credit account behavior from pricing impact.

4. The method of claim 1 wherein the step of characterizing the credit account based upon its historical behavior comprises comparing profit and loss data for the credit account to average profit and loss data for a population of credit accounts.

5. The method of claim 4 wherein the step of comparing profit and loss data comprises the steps of:

a. determining the profit and loss cash flow values for each of the profit driver segments characterizing the credit account;

b. determining the average profit and loss cash flow value for each of the profit driver segments characterizing the population of credit accounts;

c. comparing the profit and loss cash flow values and the average profit and loss cash flow values for each of the profit driver segments characterizing the credit account; and

d. evaluating the distance between each of the profit and loss cash flow values and average profit and loss cash flow values for each of the profit driver segments characterizing the credit account.

6. The method of claim 5 wherein the step of evaluating the distance comprises taking a function of the distance between each of the profit and loss cash flow values and the average profit and loss cash flow values for each of the profit driver segments characterizing the credit account and scaling to one.

7. The method of claim 5 wherein the distance is calculated as the square root of the sum of the squares of the difference between each of the profit and loss cash flow values and the average profit and loss cash flow values for each of the profit driver segments characterizing the credit account.

8. The method of claim 1 wherein the step of determining the probability of migration of the credit account comprises analyzing the migration of a population of credit accounts between profit driver segments upon the happening of an account management action.

9. The method of claim 8 wherein the step of analyzing the migration comprises the steps of:

a. identify a crisp profit driver segment for each credit account in the population of credit accounts;

b. identify one or more product attributes for each credit account in the population of credit accounts;

c. grouping the credit accounts in the population of credit accounts based, at least in part, on similar crisp profit driver segments and credit product attributes; and

d. tracking the migration for one or more groups of credit accounts between profit driver segments from one period to the next upon the happening of an account management action.

10. The method of claim 1 wherein valuing the credit account comprises calculating the credit account'"'"'s net present value for a period based at least in part on a current period cash flow for the credit account.

11. The method of claim 10 wherein the step of calculating the net present value of the credit account for a period comprises the steps of:

a. calculating a next period cash flow for the period;

b. discounting the next period cash flow; and

c. summing the next period cash flow and current period cash flow.

12. The method of claim 11 wherein the step of calculating the next period cash flow comprises the steps of:

a. creating an initial membership vector from the degree of belonging of the credit account to each of the plurality of profit driver segments;

b. creating a transition matrix based on the probability of migration of the credit account from at least one profit driver segment to at least one profit driver segment;

c. multiplying the initial membership vector by the transition matrix to obtain a new membership vector; and

d. multiplying the new membership vector by a cash flow vector to obtain a next period expected cash flow.

13. The method of claim 12 wherein the step of creating the initial membership vector comprises the steps of:

a. determining a numerical value for the degree of belonging of the credit account to each of the plurality of profit driver segments; and

b. organizing the numerical values into a vector where the row of the vector numerically describes the belongingness to each of the plurality of profit driver segments.

14. The method of claim 12 wherein the step of creating the transition matrix comprises the steps of:

a. defining one or more product attributes to associate with the transition matrix;

b. selecting a population of credit accounts to incorporate into the transition matrix based on at least the product attributes;

c. determining a numerical value for the probability of migration for the population of credit accounts from at least one profit driver segment to at lease one profit driver segment for a given period; and

d. organizing the numerical values into the transition matrix such that the columns of the transition matrix define the profit driver segments and the rows of the transition matrix define the probability of the population of credit accounts migrating to the profit driver segment for the given period.

15. The method of claim 12 further comprising the steps of:

a. organizing a population of credit accounts into groups based on similarities in product driver segments and credit product attributes;

b. determining a cash flow for each of the profit driver segments for each of the credit accounts in the group of credit accounts;

c. averaging the cash flows for each profit driver segment of each credit account in the group of credit accounts;

d. organizing the average cash flows into a vector where the row of the vector describe the average cash flow for each of the profit driver segments.

16. A system for valuing a credit account based upon a probability that the credit account will migrate between profit driver segments, the system comprising:

a. account characterization module, the account characterization module being capable of establishing a plurality of profit driver segment and characterizing the credit account to determine a degree of belonging to each of the profit driver segments;

b. a transition matrix module operatively connected to the account characterization module, the transition matrix being capable of determining a probability of migration of the credit account from at least one profit driver segment to at lease one profit driver segment; and

c. a net present value module operatively connected to the account characterization module and transition matrix module, the net present value module being capable of valuing the credit account based upon the characterization of the credit account and the determined probability of migration.

17. A method for valuing a profit and loss component of a credit account based upon a probability that the credit account will migrate between profit driver segments, the method comprising the steps of:

a. establishing a plurality of profit driver segments;

b. characterizing the credit account based upon its historical behavior to determine a degree of belonging of the credit account to each of the plurality of profit driver segments;

c. determining a probability of migration of the credit account from at least one profit driver segment to at least one profit driver segment based upon historical behavior data; and

d. valuing the profit and loss component of the credit account based upon the characterization of the credit account and the determined probability of migration.