Weathering a downturn

When the weather — or the economy — is going through a stable patch, forecasting is relatively easy. When a Covid-19 storm hits, reliability can become a challenge.

The rapidly changing data needs to be collected and processed quickly and responsibly. The chaos needs to be tamed with scenario planning.

Modern meteorology handles those demands well. But financial forecasting is often viewed with the same skepticism associated with weather forecasting 30 years ago: it is moderately accurate unless something untoward happens.

 

At that point, heeding sailors’ and shepherds’ warnings might be the best bet. And that is no way to predict the weather. Nor is it any way for an issuing bank to anticipate cardholder behavior and use it as a base for acquisition, engagement and retention campaigns — particularly during an economic downturn.

Between 2015 and 2018, a competitive marketplace and savvy consumers led to an 84% increase in expenses incurred by US credit card issuers to support reward programs. By January 2020, multiple US issuers were cutting such benefits as more accurate forecasting to attract and keep consumers became integral to long-term value. Covid-19 then made it indispensable.

 

Happily, forecasting for issuing banks is now catching up with the weather.

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