Forecasting economy's impact on consumer risk will help leading UK retailer extend credit safely in changing economy

Forecasting economy's impact on consumer risk will help leading UK retailer extend credit safely in changing economy

Shop Direct Group, the UK’s largest online and home shopping retailer, has extended its use of analytics and decision management technology from FICO to include models that assess how economic changes would affect its portfolio risk.

The FICO Economic Impact Service is being used to help the retailer maintain a consistent risk level through cycles of economic change, across a number of retail brands that sell to consumers primarily through catalogues and websites, including Littlewoods, Very.co.uk and isme.

Matching financial offers to risk

Shop Direct Group will use FICO models custom-designed for their business to understand how changes in the UK economy would change the risk levels of individual customers, and the risk of its credit portfolio. With these actionable assessments, the retailer can test portfolio sensitivities and adjust its credit offers and policies both nationally and at the regional level, in order to match its risk appetite.

“Shop Direct Group wants to give our customers the credit they need, while at the same time ensuring that economic changes don’t leave our customers or our company overexposed to risk,” said David Poole, Shop Direct Financial Services’ chief operating officer.

“With FICO’s custom analytics, we can take a more forward-looking view of risk when extending credit. We chose FICO because of their track record with this innovative approach and our success with using their analytics to refine our decisions. We are also pleased with FICO and Equifax’s work to make economically adjusted risk assessment more widely available in the UK.”

Economic projects, lender-defined risk

The FICO Economic Impact Service is a patent-pending analytic service that helps lenders adjust their use of risk scores based on economic projections and lender-defined scenarios. The service examines up to 150 different economic indicators, then scientifically calibrates credit risk estimates to expected market conditions, at the account level. It provides custom analytics to European lenders, and is also integrating these analytics with other scoring systems as part of its expanded partnership with Equifax in the UK.

Direct Group has worked with the provider since 2004, and uses FICO predictive analytics and optimisation to make customer credit decisions.