Consumer finance: challenges for operational research

Consumer finance has become one of the most important areas of banking both because of the amount of money being lent and the impact of such credit on the global economy and the realisation that the credit crunch of 2008 was partly due to incorrect modelling of the risks in such lending. This paper reviews the development of credit scoring,-the way of assessing risk in consumer finance-and what is meant by a credit score. It then outlines ten challenges for Operational Research to support modelling in consumer finance. Some of these involve developing more robust risk assessment systems while others are to expand the use of such modelling to deal with the current objectives of lenders and the new decisions they have to make in consumer finance.