The document analyzes data from 5,538 customers who applied for credit cards at BigEast Bank in January 2001. It finds that 82.2% of applications were denied, though rejected customers were on average more profitable than accepted customers. While most rejected applicants did not defect, 9.06% did. The document recommends BigEast be more transparent about credit approvals, use customer profitability data in decisions, encourage existing customers to open new accounts, and take calculated risks in approvals to improve customer retention and profits.

1. BigEast Case Group 6
BigEast Bank: Credit Card Approval
Group 6 Project:
Datla, Aditya
Koya, Siva
Merla, Narendra
Pappoppula, Veerendra
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2. BigEast Case Group 6
Executive Summary
This report provides an analysis and evaluation on how BigEast Bank’s decision on
approval or denial of a credit card to an existing customer, might affect its overall customer
relations and thereby in turn its profitability.
Business Problem:
 Should BigEast consider changing its credit card acceptance criteria?
To find a solution for the Business problem, we have addressed the following issuesin the
report:
 What role does the high denial rate of credit card play in customer defection?
 Is the average profit between accepted and denied credit cards customers
significantly different?
 Product lines/ sources that contribute to profit from customers that are being
declined credit cards?
 Is the bank risking potential profits by declining credit cards to profitable
customers?
Analysis:
In this report we have used the data of 5,538 customers, who have applied for a credit
card during the month of January 2001. This data set is obtained by consolidating the data from
the Credit Card Marketing department and data on customer profitability.
The average profitability for the rejected credit card applicant is 31.57.
The average profitability for the accepted credit card applicant is 23.39.
82.2 % of customers (4,556 out of 5,538) were denied a credit card.
The average cost incurred on a credit card approved customer is 9.69 and that of a
denied customer is 10.39.
A major share of the company’s profitability comes from the Over Draft Fee of the
rejected customers.
9.06% of customers (413 out of 4,556), who were declined a credit card have defected
from the bank in the next 8 months.
Results & Findings:
The following are the findings and results obtained by running various statistical tests on
the data
It is observed that the credit card rejected customers seem to be more profitable when
compared to the accepted ones by 8 USD.
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3. BigEast Case Group 6
Credit card rejected applicants have paid more Over Draft fee when compared to the
ones whose applications have been accepted, which has been the main contributor for
the profits. The balance of amount present in the credit card rejected customers
significantly low compared to the balances of the accepted customers.
Though 93.6% of customers whose credit card application have been rejected have
defected from the bank. Out of the 4556 declined customers only 413 (9.06) customers
are defected. Hence we can say that relation between high denial rate and customer
defection is weak.
The customers who are charged with high Overdraft fee and high monthly service
charge fees when compared to the other customers are more likely to defect.
Customers who had more number of accounts with the bank and customers who
generated more net revenue for the bank were more likely to stay with the bank.
Recommendations:
The bank should be more transparent about its credit card approval process thereby
improving the customer relations.
Make use of available data like customer profitability from all the departments in the
credit card approval process.
BigEast should consider running promotions to encourage existing customers to open
new accounts.
Should take calculated risks in the approval process.
Encourage existing customers to open new accounts with the bank.
Limitations:
The limitation of this report is the analysis on insufficient data. Extensive data from other
departments would have further helped in analyzing the reasons for customer defections.
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4. BigEast Case Group 6
Report
Summary Statistics:
Looking at the data, we have made the following observations on the customers have applied for the
credit card.
Out of all online applications for the credit card, about 82.26% of applications are rejected. The
acceptance of the application depends on customer’s credit worthiness. The major task ahead is to find
whether the rejection has any effect on the customer defection. As far as the profitability is concerned,
the difference between averages of the rejected and accepted customers is 8.18 USD and the
significance of the difference has to be tested using the two-sample t-Test.
Testing the average profitability of the rejected and accepted customers for the
credit card application.
Two sample t-Test:
Null hypothesis (H0): No significant difference in profit between customers who were denied and
approved credit.
Alternative hypothesis (H1): H0 is False.
Assuming 5% level of significance, from the T-test for unequal variances we can see that the two sided
probability value is <.0001 which is less than 0.05 and thus we reject the null hypothesis. Hence there
exists significant profit difference of 8.17USD between customers who were denied and approved
credit.
But there are other variables that might have an effect on the profitability such as additional charges like
service charges, overdraft fess and the overdraft fee on the returned items. Hence the average
profitability difference across the customers would be better explained by applying regression on the
profit with these control variables.
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5. BigEast Case Group 6
Multiple Regression:
From the above results it is evident that the overall model looks
significant (P < .0001) and also the other control variables have an
significant effect on the profitability. Also it is observed that the
rejected customers seem to be more profitable when compared to the
accepted ones by a margin of around 8 USD. The difference in the
average can be attributed to either the greater number of rejections
when compared to approvals in the given sample or it might be
because of some other reasons contributed by other variables like fee
and balances.
Effect of Fee and Balances on greater profitablity average for rejected applicants
From the above statistic summary results of average ODFeeRev and Balances for the overall applicants it
is evident that the credit card rejected applicants have paid more ODFee when compared to the ones
whose applications have been accepted. Also the balances of the rejected customers are much lesser
than the balances of the accepted customers. From the t-tests, P value of < 0.0001 in both the cases,
which is less than 5% level of significance, it is apparent that the average difference of Balance and
ODFee is significant between the accepted and rejected customers for the credit card applications.
Looking at the credit card acceptance decision on customer defection
For checking whether the credit card acceptance has any effect on the customer defection, Cross-Tab
statistic on Declined and Defected variables is used.
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6. BigEast Case Group 6
Cross-tab:
From the above contingency table it is evident that out of 441 customers who left the bank, 413 (93.6%)
customer’s credit card application has been rejected. But out of 4556
declined customers only 413 (9.06) customers are defected. Hence to test
the statistical significance for the relation between these two variables chi-
square test has been applied and the ‘p’ value of <0.0001 which is less than
5% level of significance shows that the association between the variables is
significant. Strength of association for these variables is verified from the
Kendall’s tau-b measure of association, the value of which is 0.08 (<0.7),
hence there exists a weak association between the variables Declined and
Defected. The same results can be obtained from the contingency
coefficient values.
Predicting the customer retention
From the above results and understandings, the bank’s ability to retain the present customers should be
tested. By applying the Logical Regression on the defection variable customer retention can be predicted
and from the results the bank should analyze its current business strategies to retain the customers if
the prediction of defection is high.
From the results of Stepwise logistical regression it is evident that the entire model is significant and
from the parameter estimated it is apparent that all the variables are having significant effect on the
customer defection. Other findings from the LR model are as follows:
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7. BigEast Case Group 6
From the generalized R-square the variance explained is 8.9 % which is very less and from this we can
state the model is not performing well.
The Misclassification rate is 0.0791 and the Overall % correctly predicted ( 1-0.0791) is 92.09 %.
Managerial significance:
As far as the managerial significance of the model is concerned the overall % correctly predicted is quite
high, sensitivity is 70.06%, and specificity is 59.72%.
From the sensitivity value, around 70% of the time the model is able to predict the customers defecting
correctly, which is decent. And from the odds ratio, it is evident that the variables, Revenue, XSell have a
negative effect on customer defection i.e the customers with high revenue and Xsell are most likely to
stay and the variables Declined, FeeRev and ODFeeRev have an positive effect on the defection i.e the
customers with high ODFeeRev and FeeRev are most likely to defect. Hence for retaining the customers
the bank has to either reduce the Fee for the customers having more number of accounts or having high
balances.
Predicting the profitable customer retenti on
Similar to the prediction for the entire customer list, the overall model is insignificant and from the
generalized R-square only 10.3% of the variance has been explained.
The Misclassification rate is 0.0747 and the Overall % correctly predicted ( 1-0.0747) is 92.53 %.
Managerial significance:
As far as the managerial significance of the model is concerned the overall % correctly predicted is quite
high, sensitivity is 68.9 %, and specificity is 63.6 %.
From the sensitivity value, around 69% of the time the model is able to predict the profitable customers
defecting correctly, which is good. And from the odds ratio, it is evident that the variables, Revenue,
XSell have a negative effect on profitable customer defection i.e the customers with high revenue and
Xsell are most likely to stay and the variables Declined, FeeRev and ODFeeRev have an positive effect on
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8. BigEast Case Group 6
the defection i.e the customers with high ODFeeRev and FeeRev are most likely to defect. Hence for
retaining the profitable customers the bank has to either reduce the Fee for the customers having more
number of accounts or having high balances. Hence it is observed that the prediction for profitable
customer defection is almost similar to the overall customer defection prediction and the manager has
to take the similar kind of actions to retain the customers.
What should the Big East bank do to retain the customers?
Though most of the customers who were rejected a credit card did not defect from the bank, we can
observe that a 92% of defected customers were rejected a card. Which can be one of the essential
contributing factors for the defection. Also the rejected customers are the most profitable customers
and a chunk those profits come from Over Draft fee, Since the bank is already taking a risk in allowing
those customers to Over Draft it should also consider being a little flexible in its acceptance process.
We can also note that the rejected customers have been the more profitable customers. They are also
likely to provide more profits to the bank through APR and late payment fee. Hence relaxing the
acceptance policy is not only likely to improve customer relationship but also improve profits.
The bank should make the information like customer profitability available to the credit card marketing
department thereby improving their approval process. The bank should be more transparent about its
credit card approval process thereby improving the customer relations.
As the number of accounts a customer has with the bank is linearly related to the probability of how
likely a customer is to stay with the bank. BigEast should consider running promotions to encourage
existing customers to open new accounts.
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