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The Loyalty Effect: Using Multiple Account Dynamics to Measure the Impact of Customer Loyalty

Bonita Panchal
Blog Post11/20/2019
image showing The Loyalty Effect

Customer loyalty is a powerful asset for lenders. In a competitive environment that’s constantly faced with disruption, strategies for building long-term customer relationships are becoming increasingly important. But loyalty is a complex, multidimensional issue.

How do we begin to understand the thought processes behind it? Bonita Panchal, Senior Business Consultant, Analytics & Business Consulting at TransUnion, suggests a more practical approach: focusing on the actions, rather than the motivation, of loyal customers. Multiple account dynamics reveal a quantifiable loyalty effect on behaviour that can help lenders refine their customer retention and decisioning strategies.

Slow shifts in wallet over time

Financial organizations are operating in a Consumer First Era. The balance of power has shifted away from lenders and towards consumers, who now have a wider range of choices, higher expectations and easier access to alternatives should their providers fail to deliver.

With more power in the hands of consumers, lenders have to work that much harder for their share of wallet. Customer loyalty is hard to gain — but, as our analysis of multiple account dynamics shows, it’s worth the effort.

More products, fewer lenders

A TransUnion analysis of consumer credit products between 2012 and 2019 showed an interesting trend towards consolidating accounts with fewer lenders. This was true even for low-risk consumers (ranked as Prime or better using the CreditVision® Risk Score), who generally have more options when it comes to accessing credit products.

Figure 1: Multiple credit accounts held with different lenders, 2012 to 2019 Figure 1: Multiple credit accounts held with different lenders, 2012 to 2019

Figure 2: Average number of consumers with three or more credit accounts, by risk type Figure 2: Average number of consumers with three or more credit accounts, by risk type

Our analysis also showed that younger and older consumers tend to have fewer credit products, albeit for different reasons: older generations are deleveraging while consumers in younger cohorts are still building credit, as shown in Figure 3.

Figure 3: Consumer distribution by age and number of accounts Figure 3: Consumer distribution by age and number of accounts

The loyalty effect on acquisition and delinquency

Controlling for these variances in risk and age, we then looked at how consumers act when they have multiple accounts with the same lender. What we found is that the ‘loyalty effect’ has a positive impact on both new account openings and delinquency.

The more products a consumer had with a particular lender, the more likely they were to:

  • Open a new account with that lender within the next 12 months (this was particularly true for younger consumers, aged 18 to 25)1
  • Perform better on their accounts with that lender, as evidenced by lower delinquency rates across risk and age categories


Benefits of determining a loyalty equivalent

We took our analysis a step further and built a statistical model to analyze the likelihood of a consumer being loyal over two years. We created a dual-score matrix that showed both loyalty and risk.

likelihood of a consumer being loyal over two years

This enabled us to establish what a consumer’s equivalent CreditVision® Risk Score would be when their loyalty factor was taken into account —and revealed opportunities for lenders to boost acquisition within a given risk tolerance.

Let’s say a lender’s current policy is to approve applicants with a CreditVision® Risk Score of 660 or higher. A consumer with a score of 640 would automatically be declined … but looking at their loyalty score, we see their expected performance is equivalent to 670 — which means the lender has an opportunity to expand their target population.

loyalty score

A holistic approach to loyalty

Our analysis took only a few factors into account to demonstrate the positive effect of loyalty on consumer behaviour. Lenders that dive deeper will be able to create a valuable framework for understanding the current and lifetime value of their customers.

Complementing customer data with credit bureau data will allow for a more comprehensive analysis of those customers. This will enable supporting decisions that may involve a trade-off. For example, will raising a fee on one product put the entire relationship at risk?

5 key questions for lenders:

  • How do you think about multiple account dynamics?
  • Do you measure sequential product relationships in addition to concurrent relationships?
  • Do you communicate differently and offer benefits to loyal customers along these dimensions?
  • Is there a formal process at touchpoints that could make or break loyalty?
  • Do you take a different collections approach when there are multiple product relationships?


Lenders should take a rigorous analytical approach to understanding these complex relationships and consider the impact of loyalty when making financial decisions.

The approach we took is one of many that can be used to build a loyalty framework that answers key questions about customer behaviour and helps lenders build their portfolios without necessarily having to adjust their risk tolerance. We see many opportunities to advance this model further, partnering with lenders to enhance their programs with even more variables, based on consumer data, to gain additional, valuable insight.

Learn how your business can benefit from the loyalty effect today.

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1For Canadian consumers in Prime and above

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