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American Express and Data Mining

New York Times had an interesting piece on American Express. Turns out that the company takes more than a passing interest in your purchase patterns:

In recent months, American Express has gone far beyond simply checking your credit score and making sure you pay on time. The company has been looking at home prices in your area, the type of mortgage lender you”™re using and whether small-business card customers work in an industry under siege. It has also been looking at how you spend your money, searching for patterns or similarities to other customers who have trouble paying their bills.

In some instances, if it didn”™t like what it was seeing, the company has cut customer credit lines. It laid out this logic in letters that infuriated many of the cardholders who received them. “Other customers who have used their card at establishments where you recently shopped,”? one of those letters said, “have a poor repayment history with American Express.”?

It sure sounded as if American Express had developed a blacklist of merchants patronized by troubled cardholders. But late this week, American Express told me that wasn”™t the case. The company said it had also decided to stop using what it has called “spending patterns”? as a criteria in its credit line reductions.

“The letters were wrong to imply we were looking at specific merchants,”? said Susan Korchak, a company spokeswoman. The company uses hundreds of data points in making its decisions, she said, adding that the main factor in determining credit lines “has always been and still is the overall level of debt, relative to the card member”™s financial resources.”?

The company will still have plenty of other data to judge your creditworthiness, though. American Express executives have spoken candidly to investors and analysts about its deep dives into your data.

Basically American Express has been using shopping patterns to reduce customer”™s credit limits. This, in itself, is not surprising, but basing the evaluation on the stores and companies the customer used, rather than a more direct measure of consumer ability to repay a debt, is surprising.

So if you shop at the Dollar Store, you are not a careful shopper reacting to an uncertain financial world, but rather a poor credit risk who should be jettisoned before defaulting.

When I attended the IBM Information on Demand conference last year, I attended a presentation by American Express on their data warehouse and data analytic capabilities. No question that they have world-class data mining capabilities. However, last year, they spoke of using their data mining capabilities to offer new products or services to customers.

Not now.