Credit card reward programs: Understanding your model risk

Credit card reward programs: Understanding your model risk
Download Credit card reward programs: Understanding your model risk

As the popularity of reward programs grows, so will their potential impact on bank financial performance and reporting. Anticipated program member redemption activity and expected redemption cost per point are key estimates needed for measuring the performance of a reward program.

We have offered ideas on how to evaluate and mitigate potential model risk associated with forecasting redemption activity. Adopting these ideas and concepts in your risk management and internal controls framework may help you to gain more comfort with these estimates.