Identifying High Spend Consumers with Equifax Dimensions™

April 2014

Table of Contents

1 Executive summary

2 Know more about consumers by understanding their past behavior

3 Optimize business performance by “knowing more”

3 Methodology

3 Results

6 See it in action

8 Conclusion

About Equifax

Equifax is a global leader in consumer, commercial and workforce information solutions that provide businesses of all sizes and consumers with insight and information they can trust. Equifax organizes and assimilates data on more than 600 million consumers and 81 million businesses worldwide. The company’s significant investments in differentiated data, its expertise in advanced analytics to explore and develop new multi-source data solutions, and its leading-edge proprietary technology enable it to create and deliver unparalleled customized insights that enrich both the performance of businesses and the lives of consumers.

Headquartered in Atlanta, Equifax operates or has investments in 18 countries and is a member of Standard & Poor's (S&P) 500® Index. Its common stock is traded on the New York Stock Exchange (NYSE) under the symbol EFX. In 2013, Equifax was named a Bloomberg BusinessWeek Top 50 company, was #3 in Fortune's Most Admired list in its category, and was named to InfoWeek 500 as well as the FinTech 100. For more information, please visit www.equifax.com.

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Executive summary For businesses, the ability to predict individual consumer spend amount within a specific time frame is essential. It impacts their marketing strategies across the customer life cycle, particularly in the areas of customer acquisition and account management. But, their ability to understand spending preferences is also a key factor in developing customer loyalty.

To provide that wider view of individual consumer credit behaviors, Equifax Dimensions™ was developed. The solution delivers unique consumer insights around credit usage and payment behavior signals transpiring over 24 months of history. By leveraging aggregated time series account-level consumer credit attributes, Equifax Dimensions can help businesses identify consumer behavior patterns and trends by industry and account type and use that data to better segment and target consumers with more meaningful offers.

Proving the value of Equifax Dimensions, a data-driven comparison study within this document reveals how the solution can help businesses drive stronger, more profitable marketing and sales strategies by more accurately targeting high-spend consumers in the market. The study shows how Equifax Dimensions can:

• More powerfully rank spend amounts compared to using traditional credit attributes alone

• More efficiently separate high-spenders from low-spenders

• Help improve revenue opportunity throughout a large portfolio

Based on the sample population outlined in the study, the results show how using Equifax Dimensions can help generate an estimated $111 million in increased spending and $4.2 million in potential new revenue within the top 30% percent of the population, providing businesses with a fresh strategy for increasing revenue while also reducing marketing costs.

Identifying High Spend Consumers with Equifax Dimensions™

Equifax Inc. | Identifying High Spend Consumers with Equifax Dimensions™ | 1

Know more about consumers by understanding their past behavior

Often, the best predictor of future behavior is past behavior. It was on this premise that Equifax Dimensions was developed. As a complement to basic tools such as consumer reports, which provide a “snapshot” of credit activity at one specific point in time, Equifax Dimensions helps reveal consumer credit trends that measure the general direction in which the data is developing, such as increasing or decreasing spend levels.

Specifically, Equifax Dimensions provides 500 consumer attributes built from 24 months of account-level data that complies with Fair Credit Reporting Act guidelines. In practical applications, the trended data provided by Equifax Dimensions can help businesses identify:

• Propensity to open new accounts within a period of time

• Accounts more likely to be active

• Likelihood of balance transfer within a period of time

• Best candidates for line increases and likelihood to stay current

• Capacity to take on more debt without becoming past due

• How credit is used over an extended period of time

• Past credit performance and behaviors

• Credit stress and risk before delinquency and charge-off

• Accounts best suited for efficient collections and recovery efforts

The solution includes flexible controls that allow users to set unique consumer risk levels, behaviors and characteristics, so businesses can more accurately identify and address specific behaviors that align with their business model. Likewise, the solution attributes are available both online for real-time decisioning, and offline for custom analytics and account management functions.

Trended or Time-Series Data

Trended, historical, longitudinal or time-

series information captures the trends

within a data set for a specific period

of time. A sequence of data points is

typically measured at successive points

in time spaced at uniform time intervals.

Time-series data can be analyzed to

extract meaningful statistics and help

predict future values based on previously

observed values.

When measuring trended data within

a consumer credit profile, analysis on

direction, velocity, tipping points and

magnitude of changes within the profile

can deliver valuable information on credit

behavior such as spending and payment

patterns.

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Optimize business performance by “knowing more”

Study shows Equifax Dimensions significantly expands predictive insight To demonstrate how Equifax Dimensions can better predict consumer spend, this study used a two-stage testing methodology to compare the time-series attributes within Equifax Dimensions to traditional credit attributes, which use static data. The first step calculated spend on an account level first and then aggregated it to the consumer level. The second step distinguished high spend versus low spend. Observation status was defined as follows:

MethodologyTwo predictive models (logistic regression models) were built to forecast high spend:

• Champion model only utilized standard credit attributes, a set of attributes providing effective solutions for risk and profitability goals.

• Challenger model utilized standard credit attributes plus Equifax Dimensions attributes. Incremental lift is measured on statistical performance, based on a Kolmogorov-Smirnov (KS) test,1 and 10 percent, 20 percent, and 30 percent target capture rates2.

Result DetailsMore powerfully ranked spend amounts compared to using traditional credit attributes alone

Capturing consumer spend is a top priority for lenders. To better illustrate the capabilities of Equifax Dimensions attributes, Equifax used the sample population to further examine the relationship between score values and average “Total Spend Value within 12 Months.”

Data A random 1% sample of the Equifax National Credit Database

Exclusion Criteria - Deceased consumer- Consumer with bankruptcy- Consumer with fraud- Not a tradeline

Industry Revolving accounts

Use Case Spend: total spend amount on revolving accounts within 12 months is defined by using a combination of balance and payment information

Spend was modeled as binary target variable: high spend/low spend created at the median (around $500)

1 The Kolmogorov-Smirnov (KS) statistic is the measure of the maximum distance (greatest separation) between the cumulative % of high spend (goods) and the cumulative % of low spend (bads) across all score ranges. It represents the model's ability to differentiate "goods" from "bads" in the sample. Higher values indicate better overall separation and a stronger model.

2 10% capture rate: what percent of “bads” are captured within the 10% highest scores. In this comparison study, it means the rate to capture “high-spend” consumers. Similar for 20% and 30% capture rate.

Result OverviewBased on the sample population studied, adding Equifax Dimensions in the Challenger model captured more high-spenders and generated more spending in top deciles compared to the Champion model, capturing about 1,800 more high-spenders and generating about $38 million more spend and $1.4 million in potential new revenue in the top decile.

Equifax Inc. | Identifying High Spend Consumers with Equifax Dimensions™ | 3

Figure 1 demonstrates that credit attributes and Equifax Dimensions used together can powerfully rank order the spend amount—the higher the score, the higher the spend.

More efficient separation of high-spenders from low-spendersFigure 2 demonstrates how Equifax Dimensions more efficiently separates high-spenders from low-spenders compared to using credit attributes alone. After adding Dimensions attributes, the percent of high-spenders captured in the top three deciles (or top 30%) of scores is higher in the Challenger model, illustrating the value of Dimensions attributes to capture high-spenders.

Average Spend by Score Decile

� Challenger: Credit Attributes + Dimensions Attributes� Champion: Credit Attributes Only

$2,000

$2,500

$3,000

$1,000

$1,500

$500

$010% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Figure 1: Average Total Spend Within 12 Months by Score Decile

Score Decile

Aver

age

Spen

d

High Spenders by Score Decile

� Challenger: Credit Attributes + Dimensions Attributes� Champion: Credit Attributes Only

20

10

15

5

010% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Figure 2: High spenders by Score Decile

Score Decile

% o

f Hig

h Sp

ende

rs

Equifax Inc. | Identifying High Spend Consumers with Equifax Dimensions™ | 4

Improved revenue opportunity throughout a large portfolioTo optimize offers, terms and promotions, businesses need as much reliable insight as possible into how much consumers are spending. Figure 3 shows that using credit attributes alone in the Champion model provided strong model performance with a KS of 43.77. However, adding Equifax Dimensions further improved the model's predictive performance, with the Challenger model hitting a KS of 46.78 - a 7 percent lift over the Champion model.

More importantly, the target capture rates across the top three score deciles in the sample population improved by more than 4 percent, demonstrating that Equifax Dimensions can deliver deeper insight on more consumers.

Figure 4 shows the percent of increased spend amount for all score ranges after adding Equifax Dimensions attributes to the Champion model. Equifax Dimensions attributes effectively push high-spend consumers to the top score ranges, as spend amount is increased by 17 percent, 11 percent and 6 percent for the top three score deciles.

Comparison Study TestingMethodology KS 10% Target

Capture Rate20% Target

Capture Rate30% Target

Capture Rate

Credit Attributes Only

Challenger ModelCredit Attributes Plus Equifax Dimensions

Improvement by Equifax Dimensions

Lift from Equifax Dimensions

43.77

46.78

3.01

7%

18.05%

18.71%

0.66%

4%

33.74%

35.45%

1.71%

5%

47.85%

50.20%

2.35%

5%

Figure 3. Model Results Comparison by KS and Target Capture Rate

Percent of Increased Spend Amount by Score Decile

25%

0%

10%

5%

15%

20%

10% 20% 30%

Figure 4: Percent of Increased Spend Amount by Score Deciles

Score Decile

% o

f Inc

reas

ed S

pend

17%

11%

6%

Equifax Inc. | Identifying High Spend Consumers with Equifax Dimensions™ | 5

Considering Figures 3 and 4 together, it shows how Equifax Dimensions can help businesses target high-spend consumers more accurately in the market by putting a spend-amount increase analysis into model comparison results. After adding Equifax Dimensions attributes, the top score decile's target capture rate increased by 0.66 percent, but spend amount increased by 17 percent compared with the “Credit-Attributes-Only” model.

The same pattern can be found on the top 20 percent and 30 percent deciles with a diminishing trend. This indicates that Equifax Dimensions can not only push high-spend consumers to the top score deciles, but it can also suppress the low-spender rate, thus helping to increase the revenue opportunity.

See it in action

To demonstrate the increased number of high-spenders and total spend in top deciles captured by the Challenger model over the Champion model, Figure 5 presents a detailed example scenario based on a sample portfolio of 1 million consumers.

Adding Equifax Dimensions helps capture more high-spenders in top deciles, capturing about 1,800 more high-spenders and generating about 38 million dollars more spend in the top decile in the sample portfolio. This strategy helps increase the revenue opportunity throughout a portfolio, while also reducing the long-term costs to identify and market to those high-spenders.

Champion/Challenger Models

� Challenger Model Total Spend Champion Model High-Spender Count Challenger Model High-Spender Count� Champion Model Total Spend

600

200

400

100

0

250

200

150

100

50

500

300

20%10% 30%

Amou

nt o

f Inc

reas

ed S

pend

($ in

mill

ions

)

Num

ber o

f Hig

h-Sp

ende

rs(in

thou

sand

s)17%

11%

6%

Score Decile

Equifax Inc. | Identifying High Spend Consumers with Equifax Dimensions™ | 6

Champion Model Challenger Model

Figure 5. Increased Spend of Top Deciles by Challenger Model over Champion Model

TopDecile

10%

20%

30%

# ofConsumers

100,000

200,000

300,000

# ofHigh-Spenders

89,189

164,619

232,555

TotalSpend

$229 Million

$400 Million

$539 Million

# ofHigh-Spenders

90,909

174,201

244,472

TotalSpend

$267 Million

$442 Million

$570 Million

% IncreasedSpend

17%

11%

6%

The sample portfolio was also used to gauge potential incremental interest and transaction fees. Using Equifax Dimensions to identify more consumers that spend more over a 12-month period can result in incremental revenue of up to $1.4 million in the top 10% of scored consumers. This example assumes no other fees besides APR and transaction fees, and that half of the new consumers are revolvers making only the minimum payment.

Net New Spend Transaction Fees Interest Fees Total Revenue

Figure 6. Potential Incremental Revenue by Decile

10%

20%

30%

$38,000,000

$42,000,000

$31,000,000

$760,000

$840,000

$620,000

$682,813

$754,688

$557,031

$1,442,813

$1,594,688

$1,177,031

Potential Incremental Revenue by Decile

$1,800,000

$400,000

$1,000,000

$200,000$0

$1,600,000

$1,200,000

$800,000

$1,400,000

$600,000

20%10% 30%

Tota

l Rev

enue

$1.44M$1.59M

$1.17M

� Transaction Fees� Interest Fees

Score Decile

Equifax Inc. | Identifying High Spend Consumers with Equifax Dimensions™ | 7

Conclusion

To maximize business performance, marketing strategies and return on investment, and improve customer response and loyalty, businesses are redesigning their strategies to identify, target, acquire and keep profitable customers. Equifax Dimensions can help by offering deeper, trended insight that shows past consumer credit behaviors over 24 months to provide businesses with more precise predictive power.

Moreover, comparison results prove that pairing Equifax Dimensions with traditional credit attributes can help businesses effectively capture the high-spend consumers in the market. This enhanced insight can help businesses focus their marketing efforts on the most profitable consumers and perform more accurate targeting, better risk mitigation and enhanced segmentation.

There are references throughout this publication/website to various trademarks or service marks and these, whether registered or not, are the property of their respective owners. Equifax is a registered trademark of Equifax Inc. Inform > Enrich > Empower is a trademark of Equifax Inc. Insert all other trademark, registration, text here. Copyright © 2014. Equifax Inc., Atlanta, Georgia. All rights reserved.

For more information, please contact:www.equifax.com/consumer

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