|| 2019 ACC Framework (May)

45. 2019 ACC (May), where we learn from failures

• What did you fail at today in ACC
• What or who has made a significant impact on your experience today
• How does what you learned today impact your own personal credit decision-making framework

Principles -

• There is an analytical approach to every single problem, so don't miss the opportunity of exercising your brain power.  How many dimes are in the US monetary system, and if you want to be having the confidence of +/- 50% range, what are the numbers?
• Decision traps
• Anchoring trap
• benchmark in and outside of the box
• call out the anchor, form an initial opinion before asking others
• seek data to broaden your perspectives
• ask others but don't anchor them by telling them what you think first
• Confirmation trap
• look for early data to confirm what we want to believe
• neglect to seek contrary evidence
• ask colleagues to challenge your thinking, find that devil's advocate
• actively seek evidence that may undercut your hypothesis
• Availability trap
• our tendency to rely on information that we can easily recall
• we need comprehensive data
• Status quo trap
• overestimate the cost of changes
• Sunk cost trap
• justify the past investment when making the decision by overestimating the probability that "good money has gone bad"
• Prudence trap
• sandbagging
• Framing trap
• different answers when using a different frame

• Rigorous decision model
• know your assumptions
• know your sensitivities
• know your business bets
• avoid pattern recognition failures, attack decision traps
• reduce overconfidence, highlight assumptions that need the most attention
• the last line of defense against decision traps; enable trade-offs and risk management
• ask how likely this will surprise
• ask how likely this will break

• How do we create our own framework
• put the thoughts together
• surprises, breaks
• calibrate my brain
• seek challenger
• everything can be analyzed
• how do I become indifferent

Cases

• double jeopardy - controls, and processes of hold out, double clipping
• ghost in town - null value, inactive, fraud
• lot loan, auto prime - understand the intermediaries as incentives / motivation will incent behavioral differences and deliver results differently; markets are different between leader and attacker; can't model your way out

Credit as a craft

1. every incremental credit decision we make into the system
2. how do we monitor, comprehensive, design, growth management reporting
3. what is the process to monitor
4. manage emerging risks, eg. student debt, digital experiences, improving underwriting tools
5. what do we want to test so that we are not flying blind, can we do decisions without the tests
6. learn from the regulators, who don't care about the culture, but only simply sort the highest and the lowest
7. feedback, credit review, audit, appreciate "seeking out the truth"
8. know what your system is, end to end process, try to make it better

Super spender

• focus on what drives the margin, eg. spend margin
• focus on the end customer
• bound the size of the best to allow yourself to be appropriately aggressive
• reforecast and reassess your level of decision, get more granular as results come in
• in need of a model on payment behavior, could be a splitter
• discover the transaction differences, customers go after different ticket sizes after getting the clip

Credit framework and culture

• Better decision makers
• clear objectives
• look both ways, competitors
• get paid for the risks that you take, not minimizing the risks
• manage the margin vs average (eg. interchange margins)
• understand the P&L
• when will we know (early reads, multiple early reads)
• document the future
• actionable monitoring translates and takes actions
• Talent development
• more experienced does not mean that you are smarter
• there are lots of ways that you can be wrong
• there are also lots of ways that you can be right
• resist the mini-me temptation
• diversity approach and rigorous decision making
• Representatives of the credit community
• a step, a process in the better decisions
• shroud of mystery, closed community, elitism
• are you helping or hurting, drive out the cynicism
• you are the credit analyst does not mean that you are smarter
• Career
• first 20 years are your choices
• second 20 years will be determined by your experiences, diverse knowledge and skills are important

CLIP case

• rigorous about model swaps
• know the world is changing, what does this mean
• be paranoid and action-oriented in monitoring, with action triggers that express in the economic terms for impact

Partnerships

• like branded card returns
• our company led brand
• the same tech path
• unassailable product and Val prop
• monitor and adjust
• launch foundational test soon, test test test
• slope lines based on highest wallet line
• use stated intended spend on card to downslope the lines
• adverse selection downward spiral, adverse selection, low risk, line lines, low utilization, high risk