Credit Card and Overdraft Limits

In 2016, Arion Bank established its Digital Future Accelerator as a means to deliver digitals products to its customer base and respond to competition from banks and FinTech companies. The Accelerator is a 16 weeks project, where employees with the relevant expertise are co-located and their responsibility is to re-engineer a single customer journey. The team of 10-15 people are committed to this single project only during the 16 weeks and return to their daily jobs afterwards. [See in Further reading: Arion Bank Digital Future Accelerator]. 

Lending in the form of credit cards, overdraft limits and freezing a credit card were highly prioritized and are projects that were delivered through the Bank’s Digital Future Accelerator.

Credit cards and Overdrafts are the most common short-term lending forms in Iceland

Unsecured loans in the form of credit cards and rolling credit lines (overdrafts) are the most common lending forms in developed economies. The Icelandic economy is no exception. The average household in Iceland has, at the end of 2017, debt in the form of credit card and/or overdraft amounting to ISK ~600,000 (EUR ~4,900). Rolling credit card debt is relatively uncommon in Iceland compared to e.g. the US market while overdrafts are commonly used.

Contacting a bank on a monthly basis?

Any given retail bank is familiar with the load on the Service center and even in the branch network in the last three days before salaries are paid out and the three days following. Customers need be ascertained they can make ends meet if their circumstances unexpectedly change. Rolling overdrafts in combination with credit cards are the most accessible lending formats for banking retail customers.

Saving time in the privacy of the home

Contacting the Bank via email or phone takes time for the customer. For the Bank, servicing a customer with a limit change request may take 5-10 minutes on average. For many customers, discussing their private financials, whatever their financial health is, may be a discomfort. Standardizing the process with intuitive customer self-service in mind is therefore important for both the customer and the Bank. Another common request to a call center or contacting a branch’s employee directly is to freeze a credit card that the customer may have lost, fully or temporarily. The distress associated with a lost credit card is known to most with such a card, particularly outside of traditional banking hours. Re-engineering these processes in the Bank’s app and online bank would prove to be a win-win situation for the customer and the Bank.

What the re-engineering process entailed

The simplest thing in the process was to design the user interface. The customer selects a current account or credit card in his app / online bank, clicks on a “Change limit” button and selects the new amount, all in an intuitive interface. Standardizing the process, the limits based on each customer’s credit score and financial health, writing the algorithm and simplifying the terms and conditions was the most time consuming. Both internal and external APIs (Application Programming Interface) are used to fetch a credit score with the customer’s consent and calculating the total lending limit. 

„Freezing your credit card or changing your credit limit on the go is convenient banking.“ Höskuldur H. Ólafsson– CEO

The standardization process has improved the quality of all lending decision. The algorithm not only takes into consideration any single lending request based on their credit score but is also connected and related to the whole portfolio of unsecured lending to individuals. Going forward, such an arrangement can give rise to any adjustment of the risk appetite based on wherever the economy is in the economic cycle. This was the first step to utilize Artificial Intelligence decision model in the Bank’s lending process. Once fully developed, those models need be trained and replace the older rule based models.

Time savings and efficiency

Changing a credit card or an overdraft limit in self service is both a time saving factor, more private and convenient for customers. Offering an end-to-end digital process also strongly signals to customers the path the Bank is on and shifts customers’ expectations on future communications with the Bank. Some of these expectations may be transferred to other banks in Iceland. For Arion Bank, allowing customers to adjust their own lending limits has given more room for engaging conversations with the Bank’s customers if and when they contact the Bank. The privacy factor should also not be underestimated. Being able to adjust one’s personal lending limit in a private space without having to share financial worries to a Bank’s employee is without doubt more convenient banking.

Customers respond quickly

Since the initiation of the services, customers have quickly learned and chosen in an increasing manner to use the digital self-service. It can be interpreted as a strong change in their behavior once given the chance to change the limit themselves.

Fast customer adoption