The Impact of the Information Technology on the Credit Card risk Management

The Impact of the Information Technology on the Credit Card risk Management

Introduction

The world today continues to be impacted by information technology (IT) on various facets, credit card risk management not being exceptional. The phenomenon will endeavour to define what credit card risk management entails. Furthermore, the paper will examine the impact of information technology has brought to the banking sector while keen at giving various risk management strategies and business intelligence brought about extensively by changes in IT development.  Due to high competition witnessed today, many financial institutions across the world and especially banking sectors have resorted to giving credits to their customers. It is in this regard that they have managed to maintain their customers to keep the business afloat. While such a move has seen a symbiotic relationship between the two parties, much risk has been involved to the lender. Besides, the intricacies and advances of development in technologies have made operations in banking sectors and other financial institutions cumbersome. .

It is no doubt that the impact of IT has sparked debate on the management of credit card management in these organizations. Indeed the result of IT and CRM has been embedded in a bid to synchronized services and bring to the fore the risks associated with credit card issuance. A myriad of organizational and technical elements that continue to have a significant impact on business management service management, risk management, and customer engagement has made manageable thanks to the successful introduction of information technology.

Credit Card Risk Management and Information Technology

Credit risk is defined as the anticipation that a potential borrower will be unable to meet the agreed terms of the contract of a given obligation. Credit risk management goal is to adjust banks rate risks through credit risk exposure maintenance within a certain time. Most of the time credit risks are associated with a borrower failing to contribute towards payments arising from the debt they committed themselves to pay within specific parameters. In this regard, lenders carry the risks therein that include low cash flows, loss of the interest and principal, and appreciated collection costs. Higher borrowing costs comes with higher credit risks; therefore, lenders stand to lose a lot when credit card insurance is not well managed. While chances involving credit cards are evident, technological advancement has had an impact on trying to compact their spread.  Credit cards can easily be monitored and managed since the accounts are revolving credit lines. Therefore, investors and lenders have various options to manage them as opposed to other loans taken from retails such as mortgages. Financial institutions consider leading credit cards as a significant value step towards meeting goals. Information technology entails programs that can be used to monitor data movement, especially in case of a default. The program can consistently analyze, evaluate and capture data as it also evaluates risks that may be arising. Today many financial firms operation are facilitated by IT. The system is automated such that all the activities are synchronized to enhance easy accessibility and efficiency. Credit card insurance can, therefore, be made at a specific place but still be accessed by the controllers through the use of the installed program. Such issues as the change in internal and external market dynamics are critical to invoke a relevant strategy for the management of credit cards. The invention of new technologies such as mobile applications, cloud computing, enterprise resource planning (ERP), Big Data, analytics, risk and compliance systems, plays a crucial role in credit card risk management. The bank sector will always be given new challenges when there is a new invention of technology at the same time, giving them an opportunity for improvement.

Challenges to Credit Card Risk Management

Financial institutions have, over time, tried to mitigate problems associated with an alarming number of people who take goods on credit and fail to pay them within the stipulated time. The following challenges may be the cause of risks in credit management.

Lack of sufficient data management– organizations are dealing in credit card insurance may be experiencing difficulties in accessing the right data, therefore, causing delays to the execution of services.

Constant rework– most specialists are hindered when it comes to changing model parameters. The move may result in its endless duplication of work, thereby harming the banks’ efficiency operation.

Lack of sufficient risk tools– banks lack robust solutions, which in turn does not help them identify portfolios that can help manage devices effectively.

Ambiguous reporting– IT process should be simpler to operate and interpret. Overburdening it through manual, spreadsheet-reporting makes the operation come to a halt due to the cumbersomeness it carries.

Lack of group-wide risk modelling framework- The presence of a modelling structure this helps bankers to come up with essential risk measures while getting a bigger picture of risks involved.

Credit Card Risk Management Process

 

1. Risk identification: Here, the company determines and defines potential credit card risk influencing its specific project undertaken. These may include customers general debt default. A well-programmed system may be used to track down the individuals as mentioned earlier from whenever they could be located.
2. Analysis of risk: This is the breakdown of each specific risk while determining its impact on the operation of the company. The step also defines the odds at stake. A well thought out analysis will eventually help the financial institution know the risk credit cardholders poses in the event they do not live up to the agreement.
3. Risk evaluation and assessment: after the analytical is done, the risk is assessed and evaluated further. After that, the bank is at liberty to adopt the risk identified or not.
4. Risk prevention: the step is used to determine the highest-ranked risk of all analyzed and come up with a plan to mitigate them by use of risk control identified.
5. Monitoring risk: during this step, the adopted risk control method will be under monitoring by credit card controllers. They continue tracking and monitoring any potential new risk that may have come in the process of operation.

Credit card management process should be continuously be reviewed. IT department is always advised to ensure that its system is up to date considering the ever-changing in technology associated with cybercrime in some instances.

 

Companies operate a credit risk unit whose sole purpose is to assess and evaluate the financial status of the customers. They use sophisticated technological programs to pursue this gender. Once customers have been monitored and their financial health determined, a decision may be made to extend the credit or not. In -house, systems may be used to advise on the way forward. It may also help in taking risks, reducing and even give its opinion on the risk transfer option. Data enables the management to observe actions undertaken to mitigate credit card risks and the finance departments. For instance, if the company realizes that credit line is in decline a specific risk management strategy may be invoked to determine which cost-saving technique can be applied. Credit card portfolios are also managed through synchronized data that allows comparison of risk management processes in different companies. Candid measures must be employed in borrowing costs in order for credit levels to be managed. This should be done based on proper assessments of the market dynamics.

Circumstances under which Financial Institutions Lose Funds in terms of credit

1. Customers may be unable to pay their dues to loans they have accrued in terms of mortgage, credit cards, line of credit among others.
2. An organization may fail to pay for assets floating charges secured

• When the trade invoice is not paid in due time by the customer or business partner

1. When the firm fails to pay employees there stipulated dues as stipulated in the policies
2. When a depositor is not paid there funds by the insolvent bank on time
3. In case policy obligations agreed by the insolvent insurance firm is mate therefore resulting in unforeseeable confrontations that end up in court battles

• Government may decide to grant bankruptcy protection to an entity declared insolvent thus making destabilizing operations of the financial institution.

In a bid to reduce risks associated with credit lenders, banks are advised to do continuous credit checks on the borrowers in order to enhance credibility. Besides, the borrower should inquire of the borrower’s financial instability meant possible through giving guarantees for credit. Also, they may be asked to have a legitimate insurance cover. The purpose of the insurance is to cover them against any in eventuality arising from unforeseeable circumstances.

Conclusion

The impact of information and technology has massive implication to financial institutions when it comes to credit card risk management. Having a system that is well automated and synchronized helps to curb risks that may accrue as a result of debt default. Besides, it is imperative to note that as much as technology has enhanced efficiency in operations, it is likely to be manipulated through cyber-attacks. Therefore, much care should be instituted to keep at bay such vices. Credit card risk management should be intertwined with technology to improve monitoring and evaluation of movement of data across all facets of financial firms.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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