Driving growth in a complex, dynamic marketplace

Transcription

1 Driving growth in a complex, dynamic marketplace An Experian white paper

2 Executive summary In this paper we will explore how powerful global trends are driving higher cost pressures and complexity in the originations process, placing significant pressure on financial institutions ability to acquire profitable customers. We will discuss the impact of these trends, and explain how to turn complexity and new challenges into a competitive advantage. A changing landscape brings cost and complexity It s no secret that acquiring new customers and building revenue are key factors to succeeding over the long term. In a highly competitive global marketplace, growth is more important than ever for financial services organisations. However, today s lenders face changing market conditions, escalating cost pressures and evolving customer expectations. These trends are creating complex new challenges that can hamper growth. Evolving regulations are driving many of these challenges. In the wake of the global financial crisis of 2007 to 2010, the scope and the speed of regulatory change have dramatically increased. Government and industry regulators have introduced a vast array of new recommendations as more demands are being placed on financial institutions to rebuild public confidence in the economies in which they operate. Although these reforms have the potential to improve the overall health of the financial services industry, they also are having a direct impact on customer acquisition. Increasing consumer protection The recent financial crisis took a huge toll on the profitability of financial institutions and other organisations, damaging the industry s credibility, undermining consumer trust and resulting in stringent new consumer protection initiatives. Financial services organisations are under increasing pressure to ensure that they offer appropriate products to their customers and that these same customers will continue to be able to afford these products if market conditions, interest rates or their own circumstances change. For example, the payment protection insurance scandal in the United Kingdom led to a host of new rules designed to educate consumers and stop mis-selling of financial products. According to Bloomberg, the fines and compensation costs associated with the scandal are expected to cost the industry 9 billion 1. In the United States, fallout from the subprime mortgage lending crisis has led to the formation of the Consumer Financial Protection Bureau, which is aggressively implementing regulations to establish better transparency and inform consumers more effectively. While these changes benefit the industry s overall health and integrity, they also force lenders to reconsider the processes they use to acquire and serve customers. As always, these organisations remain focused on avoiding losses from bad debt, but all too often they must make complex customer decisions with limited information. Financial services organisations are seeking better ways to apply the right data to their acquisition and origination processes and use advanced analytics to make more informed, efficient decisions. 1 Gavin Finch & Howard Musto, Lloyds Posts Unexpected First-Half Loss on Insurance Redress, Bloomberg, July 26, 2013 Page 2 Driving growth in a complex, dynamic marketplace

3 Minimising operational risk Consumer protection and credit risk regulation are only a fraction of the new challenges facing lenders. New operational risk regulations also are having a major impact on the customer acquisition process. To comply with these rules, organisations need to guarantee the integrity of the application process and ensure they are consistent, accurate, and protected from internal and external abuse. For example, acquisition systems and applications must comply with anti-money laundering (AML) regulations. Compliance requires strict controls to ensure that applicants are not on prohibited lists, such as suspected criminal or terrorist groups. To comply with know your customer (KYC) policies, these regulations also ensure that applicants are who they say they are. Strong operational risk regulations not only protect institutions from financial fraud, but they also help safeguard their customers from identity theft and account takeovers. The importance of operational risk goes beyond industry regulations. Since an organisation s reputation can be tarnished if data is compromised, financial institutions understand that maintaining the security and integrity of data is paramount. For example, in its 2013 Cost of Data Breach Study, the Ponemon Institute found that the average global cost of a data breach was $136 per record up $6 from To help protect sensitive customer data, financial institutions must implement robust security throughout every step of their acquisition processes and commit to using it only for appropriate purposes all with the knowledge and consent of customers. Ensuring financial stability The economic crisis demonstrated the importance of balancing aggressive growth and profitability with financial stability. Financial organisations and regulators alike are refocusing their efforts on providing greater transparency to investors and savers, while minimising the need for additional government intervention and funding. This has led to regulators requiring organisations to improve the quality and quantity of their capital and imposing stringent liquidity requirements. At the same time, however, governments are encouraging financial services institutions to lend more to fuel economic recovery. To meet these conflicting demands, lenders are under more pressure than ever to better assess the risk associated with their customers and prospects. They need to be able to make the right customer decisions in the short term to drive successful growth and accurately project and protect themselves from future stress from economic factors such as recession or interest rate shocks. Throughout the decisioning process, all interaction with the customer needs to be transparent, whilst providing proof that lending processes and decisions are fair. 2 Ponemon Institute, 2013 Cost of Data Breach Study: Global Analysis, 2013 An Experian white paper Page 3

4 Case study: Automating KYC identity proofing to boost efficiency by 40 percent To help reduce fraud and ensure regulatory compliance, a global financial services company in the United States was using a complex system to prove the identity of credit card applicants. However, the cumbersome system dramatically slowed processing, with 25 percent of applicants requiring manual verification. At the same time, the delays involved with this inefficient process caused the loss of significant numbers of good customers. Experian s Global Consulting Practice carried out an extensive strategy and workflow review and developed a way to streamline the approval process for cases that were flagged for potential fraud and identity verification. Through intelligent automation, applications awaiting approval were segmented and scored with Experian s identity proofing system to determine if conditions could be cleared without manual intervention. The new Experian system also sped up processing by identifying false positives captured by fraud rules. By applying a rich array of internal and external data to the decisioning process, the financial services organisation adhered to regulations and enhanced customer satisfaction while achieving significant operational efficiencies: Manual verification of identity discrepancies was reduced by 40 percent Booked accounts increased by 2 percent to 3 percent of the portfolio Improved audit trail satisfies regulatory compliance Streamlined, consistent authentication system enhances efficiency Operational efficiency improved with the termination of three full time employees Savvy consumers drive an improved customer experience Financial services firms must contend with more than complex new regulations. They also face new challenges from increasingly demanding, better-informed customers. In a competitive environment, firms need to work with customers how and when the customers want, and use the channel they choose so they can deliver fast, convenient and friendly service. The right channel for the right customer Convenience is top of mind for today s mobile, fast-moving customers. They want to interact with their lender when and where it suits them, with the communication device they select. To deliver the convenience and responsiveness customers crave, lenders need to make their services available through branches, phones, and online via the Web or mobile apps. Third-party channels like retail environments also play an important role in making credit available to customers. Page 4 Driving growth in a complex, dynamic marketplace

5 The number of available channels has soared over the past 10 years. As technology advances, their number and variety will continue to grow. To keep pace, institutions must not only make their products available through the channels customers choose, but also build flexible, agile application processing systems to support all these new channels. A positive customer journey from day one Like everyone else, financial services customers are moving at Internet speed. They expect to apply for a financial product and to know immediately whether they have been accepted or how long they will need to wait. Getting the first steps of the customer journey right is critical, because the application process will set the tone for the rest of the relationship. In a competitive environment, financial services firms should consider the customer journey as an enabler for growth and an opportunity to differentiate themselves by providing a superior customer experience. New customers expect a fast, convenient application process. If existing customers are applying for a new product, they want to avoid being asked for information the lender already has. As the application progresses, customers need to be kept informed of the status every step of the way preferably online. They want to know where their application is, how long it will take and how they can expedite the process. All too often, customers complain that they have no idea what is happening and must repeatedly call to find out the status of their application. In rare cases, their application may become stuck in the process, leading disgruntled customers to take their business elsewhere. To keep applications moving forward and customers informed, lenders need a process that enables their operations teams to make a decision as quickly and efficiently as possible. Cases should be prioritised and handled by teams who have the information they need to make a decision. Tight service levels verified by reporting should ensure that customers aren t kept waiting. If customers are declined, they will want to know why and understand any steps they can take to improve the outcome in the future. When customers are accepted, they will want immediate notification via phone, or the method that works best for them. They also will want to access their credit cards or loan funds immediately without waiting for extensive paperwork to be completed or other issues resolved. By employing robust decisioning technology that delivers a best-in-class customer journey, financial services firms can meet these demanding customer expectations and optimise their own processes to build a competitive advantage. They can create optimal, personalised decisions to improve take-up rates and maximise wallet share. They also can allocate their marketing resources more effectively to enhance their profitability. An optimised customer experience also can help organisations build loyalty and set the stage for long-term growth. An Experian white paper Page 5

6 Case study: Supporting business growth by 235 percent with decisioning and risk assessment A Russian bank was experiencing rapid customer growth after a merger, reaching 1.6 million customers two years after its launch. The firm s large network and availability of channels was generating up to 10,000 credit applications daily. However, to manage risk and control growth, the bank needed to implement more robust credit risk controls, so it could make rapid decisions about the right customers to accept for loans. After considering a variety of products, the bank chose Experian s decision management system for customer acquisition. The solution delivered efficient decisioning with automated, accurate risk assessment. Designed to align smoothly with the bank s business processes, the system lets the bank implement application scorecards, strategies and lending policies to create an accurate applicant risk assessment and qualification. By automating the process and ensuring an accurate assessment of the right customers to take on, the bank increased the amount of credit lent by 235 percent. At the same time, rapid decisions enabled the organisation to deliver a superior customer experience: Applicant decisions returned within one minute, with credit available in 30 minutes Manual underwriting for credit cards eliminated Manual underwriting for cash loans reduced to 10 percent Page 6 Driving growth in a complex, dynamic marketplace

7 Applying technology to drive new growth Technology is central to the customer journey, and is playing a key role as well in transforming how financial services firms are optimising their business processes. Customer journey and channels Branch Online Telephony 3rd party 3rd party Mail Apps Mobile 3rd party Decision areas Risk Operational areas Repairs Forms and fulfilment Strategic management information Affordability Suitability KYC Fraud Core application processing solution KYC AML Sanctions Credit Forms and agreement Accounting systems AML Sanctions Fraud Conditions Customer solution Data enrichment Aggregation and variable creation layer Sanctions Fraud Internal data Bureau A Previous Apps KYC IP checking Any additional data service(s) Internal data Internal data Bureau B Bureau C Figure 1: There are multiple areas an acquisition solution needs to integrate with. An Experian white paper Page 7

8 Every customer journey starts with data. As each application makes its way from a channel through the decisioning process, that data can be enriched, providing additional insight that enables the lender to make a more informed decision. Today s firms have access to an unprecedented range of data, from inside and outside their organisations. Most have accumulated a wealth of data, but few have taken the steps necessary to harness the full potential of it during originations. With robust decision analytics, organisations can add value to this broad array of data, and transform it into rich information to optimise customer acquisition. To succeed, a best-in-class system needs to integrate data from a variety of sources and channels to provide a timely and complete view of prospects, their behaviour, and risks. This data may include: Internal data Internal data provides insight into customers existing relationships with the organisation, loan portfolios and balances, and performance and behaviour. This data can be used to aid in risk assessment and to determine product affordability and offerings. Leveraging internal data from existing customers also can help streamline applications and other processes to provide a friendlier customer experience. External data Credit bureau data, fraud databases and services, and demographic data can provide a richer view of prospects to enable the best decisions. Financial services firms also have access to data from specialist services for specific products such as mortgages, banking card validation and verification services. Accessibility to data is rapidly growing, as new value-added services become available to support application assessment. Data is not only instrumental in enabling financial services firms to effectively decision applicants, but it also provides a more complete view of their customers that can drive a world-class customer experience so firms can offer the right product, with the right terms, at the right time. A centralised decisioning platform At the heart of the acquisition solution is a sophisticated decision engine that can support a wide range of business processes from within a central tool. The decision engine needs to consider more than customer risk. It also must support the growing complexity of strategies, scores, pricing models, rules, and other criteria to help organisations improve margins and reduce costs. A robust decisioning system can help organisations drive innovation and facilitate change, enabling them to rapidly develop new strategies, or simulate actions before deploying them to production environments. A decisioning environment also can support intelligent automation to help organisations streamline business processes, control costs and enhance agility. To realise the full potential of the decisioning system, organisations need a scalable, flexible technology platform that can smoothly integrate with existing tools and processes. The platform should be flexible to accommodate new products, delivery channels, and other evolving business needs. It also should be multitenanted, providing support for a variety of products, partnerships, and geographic regions all on a common, cost-effective platform. Page 8 Driving growth in a complex, dynamic marketplace

9 Case study: Enhancing acquisition agility and efficiency A financial services organisation serving customers in the United Kingdom faced serious issues when it learned that its decisioning system would no longer be supported by its technology vendor. The organisation depended on its system to drive key customer acquisition processes, including credit scoring, policy rule execution, limit setting, and product pricing. Without support for its decision engine, the organisation risked escalating costs, compliance issues and business interruptions. To keep operations on track, the company sought a sophisticated system that would make the best use of available data and performance insights. At the same time, the system needed to be implemented quickly, to maintain business continuity. Experian s Global Consulting Practice worked closely with the client to create an efficient system designed for rapid deployment. The system enabled the organisation to take immediate advantage of leading decisioning technology while minimising the impact of building and implementing a new system. Its simple design eliminated the complexities found in the client s previous system and facilitated rapid training. By migrating to a flexible new acquisition and origination system that was aligned to its business requirements, the financial services organisation was able to take advantage of the most advanced decisioning technology and gain the reassurance of being future-proof for years to come. A flexible way forward We ve seen how changing regulations and evolving customer demands are making successful growth more challenging and complex than ever for financial services companies. Today s consumers are more sophisticated, and they will choose a lender that can provide timely, highly personalised offers and informed, engaged service. Clearly, an advanced acquisition system is critical to helping financial services organisations keep pace with a changing marketplace. Intelligent, flexible technology coupled with sophisticated decision analytics can help organisations compete more effectively by being dynamic, customer-centric lenders. At the same time, this technology can empower them to deliver a best-in-class experience closely aligned with their customers needs. Ultimately, technology should be an enabler not an obstacle for any organisation. Armed with the right technology, financial services firms can position themselves to meet their short-term tactical objectives, as well as their long-term strategic goals. An Experian white paper Page 9

10 About Experian Decision Analytics Global Consulting Practice Experian s business consultants deliver powerful insight that is used by clients to enhance credit-management strategies across their consumer and small-business portfolios and the Customer Life Cycle. Experian s Global Consulting Practice is a credentialed consultancy dedicated to creating measurable and sustainable value for organisations around the globe in financial services, banking, mortgage, automotive finance, telecommunications and utilities, microfinance, retail credit and debt collections. We specialise in analytics-based decision strategies, data-driven products and services, regulatory compliance and fraud risk management across acquisitions, customer management, collections and overall portfolio management. Experian s business consultants provide clients with exceptional credit and fraud riskmanagement strategic insight, detailed enhancement opportunities, and deployment strategies through deep business subject-matter expertise and client intimacy, as well as a client engagement methodology to ensure consistency. We have deep knowledge of data, analytics and software and have demonstrated the ability to synthesise this intelligence with the deep understanding of credit-management principles and practices to solve our clients complex business needs. Average of 20 years experience per consultant Fifty-six consultants based throughout Asia Pacific, Europe, the Middle East, North America and the United Kingdom Deep expertise in acquisitions, originations, customer management, collections and recovery as well as identity authentication and fraud management Teams with local knowledge of best practices About the author Nick Vanstone Senior Business Consultant, Global Consulting Practice Nick Vanstone has over 10 years experience in the credit industry working across the customer life cycle. Vanstone started as a Business Analyst, creating functional designs for application processing and customer management systems. In his current role he has worked extensively in retail banking: - Providing consultancy across Origination, Customer Management and Collections, principally around business process, decisioning and use of data. - Leading the design of complex solutions, including application processing, customer management, collections and fraud solutions and the integration of these into banking processes and systems. Page 10 Driving growth in a complex, dynamic marketplace

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12 Experian 08/2013. The word EXPERIAN and the graphical device are trade marks of Experian and/or its associated companies and may be registered in the EU, USA and other countries. The graphical device is a registered Community design in the EU. All rights reserved.