A Customer-Centric Approach to Regulatory Compliance. Trends and Tips for Success

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1 A Customer-Centric Approach to Regulatory Compliance Trends and Tips for Success

2 The need to avoid financial and reputational damage from the consequences of regulatory noncompliance is causing many banks to change how they operate. According to KPMG s Evolving Banking Regulation 2013: USA New rules can lead to huge fines. Europe Regulatory reform is perhaps the biggest driver of change. Asia Business models are being impacted by regulation Fair Isaac Corporation. All rights reserved. 2

3 Consumer dissatisfaction is also a force for change, as banks take steps to retain and build valuable relationships amidst declining customer loyalty. E&Y Global Consumer Banking Survey 2012 E&Y Global Banking Outlook: Customers are more likely than ever to switch their main banking relationship. reduced customer loyalty, which challenges retention and cross-selling assumptions. Many existing models depend on cross-selling assumptions. With more customers becoming multi-banked, those models will cease to add up Fair Isaac Corporation. All rights reserved. 3

4 Can you satisfy both banking regulators and consumers? 2014 Fair Isaac Corporation. All rights reserved. 4

5 Yes, by focusing on improving customer experience, you satisfy both regulators and consumers Fair Isaac Corporation. All rights reserved. 5

6 Why customer experience matters, more than ever What consumers say about banks affects regulators:...one of the worst service experiences I could imagine. You d think they could at least have... Another reason to hate this bank. What regulators say about banks affects consumers:...raise serious concerns about how banks treat their customers... Help the consumer to... Bank will not impose fees for... Feds Will Monitor Banking Customer Experience...will monitor social media to identify problems Customers Are Now Banks Greatest Regulatory Threat 2014 Fair Isaac Corporation. All rights reserved. 6

7 Great customer experiences can be very rewarding Poor customer experiences can be very costly Customers who are promoters of their primary bank buy 14% more than detractors...bank fined record 28m for serious failings Fully engaged customers represent a 23% premium (share of wallet, profitability, revenue) over average customers; Actively disengaged customers represent a 13% discount Bad behavior can be expensive Banks pay for past sins as US, Europe levy record fines 2014 Fair Isaac Corporation. All rights reserved. 7

8 In fact, customer experience is becoming essential for improving compliance. We see leading banks shifting from a narrow, rules-based, technical focus to one that extends to business acumen, improvement of the customer experience and operational understanding. Without a new approach to compliance and operational risk management, many banks will continue to face high costs and losses in the form of escalating litigation, penalties and staffing needs. Managing Compliance and Operational Risk in the New Environment, PwC, Aug Fair Isaac Corporation. All rights reserved. 8

9 The more you focus on customer experience, the better you can: Comply Make sure you re treating customers fairly and consistently within segments Pick up early warning signals of compliance risk Compete Understand customers and anticipate their needs Engage them in ways that increase loyalty and drive revenue and profit 2014 Fair Isaac Corporation. All rights reserved. 9

10 Case in point: Consider the misstep some US banks made in 2011by trying to charge fees for debit card transactions. In her article, Why Customer Experience Management Is the Antidote to Risk, Patricia Sahm, of Carlisle & Gallagher Consulting Group, says that if these banks had paid attention to data showing that consumers abhorred such fees, they could have avoided the ensuing damage. Within days... there were very public and loud outcries from consumers. In the end, many banks retracted the fees, but at a significant reputational loss and regulatory scrutiny, says Sahm, could have prevented the introduction of risk to the system in the first place. n>genuity Journal, summer Fair Isaac Corporation. All rights reserved. 10

11 Ways to improve customer experience 2014 Fair Isaac Corporation. All rights reserved. 11

12 DECIDE See Jane as one customer Analyze data across accounts and channels to make decisions that reflect the full risk and value of the customer relationship with Jane. At the same time, analytic models help ensure that you re treating Jane fairly and consistently in relation to customers with similar risk/reward characteristics. Operationalize actions by using decision engines and intelligent communications that orchestrate the right actions at the right time through Jane s preferred channels. At the same time, these technologies capture an audit trail of all interactions with Jane, including operational decisions, inputs and outputs so you can easily demonstrate regulatory compliance. 87 Act as one bank to Jane LEARN One way to simultaneously improve compliance and competitiveness is to put the customer at the center of your operations. Advanced analytic, decision and communication technologies help you see ONE customer (rather than unrelated accounts) and act as ONE bank (rather than uncoordinated channels and lines of business) Fair Isaac Corporation. All rights reserved. 12

13 It s also helpful to centralize some analytic decisioning resources, making them available as services to your existing systems. Using the same process across channels for existing and new customers enables you to prove you re treating all credit candidates equitably. Philippe, an existing bank customer seeking a car loan, might apply in a branch, online from his smartphone or through another channel. Whichever channel he chooses, Philippe experiences the same consistent originations process. The loan amount, rate and term he qualifies for is determined by the same centrally orchestrated exposure management stategies. Decision engine centrally manages risk exposure strategies CUSTOMER-FAC I N G APPLICATIONS Monique, living in a different region and new to the bank, is also applying for a loan. Her risk level and characteristics are similar to Philippe s, so the centralized decision engine follows the same exposure strategy. The automatically captured audit trail means the bank can prove it is treating customers fairly and consistently Fair Isaac Corporation. All rights reserved. 13

14 These technologies have also proved very helpful to FICO clients working to improve customer experience: Mobile self-serve interactions Reduce friction in customer relationships by making fraud checks, collections reminders and other types of interruptive contacts fast, easy, convenient and discrete. Also help you insure you re treating all customers properly. For example, you might automatically send loan applicants a text message confirming the amount and key terms. Consumers then confirm they want to go ahead and every step in the dialog is captured in the audit trail Fair Isaac Corporation. All rights reserved. 14

15 These technologies have also proved very helpful to FICO clients working to improve customer experience: Speech and text analytics Improve regulatory compliance and reduce conduct risk exposure by analyzing ongoing speech or text interactions with consumers. For example, these analytics can prompt agents who fail to make legally required disclosure statements at the right time in the conversation. They can also immediately alert supervisors to agents using inappropriate language or improperly making promises or threats. Also be used with predictive analytics to identify the precise conversational patterns of your best agents. The insights help you focus and accelerate training to help all agents emulate the best Fair Isaac Corporation. All rights reserved. 15

16 Find out more about improving customer experience by downloading our white paper on the subject. Insights #75: Satisfying Customers and Regulators: Five Imperatives It covers five imperatives, from the customer s point of view: Treat me fairly How to avoid becoming the target of complaints and increased regulatory scrutiny by making your operations more customer-centric Understand me and show it How to let your customers know you understand them and value their business Don t interrupt me unnecessarily How to minimize friction by reaching out with relevant communications within customer-preferred channels and times Assist me and reward me How to build customer trust, loyalty and advocacy through a succession of outstanding experiences Make this fast, easy and secure How to increase speed, ease and security in customer transactions across all channels 2014 Fair Isaac Corporation. All rights reserved. 16

17 Meet the rising expectations of regulators and consumers Focusing on customer experience is the best way to do both Learn more: Check out our website and blogs: FICO.com Analytics Section FICO Banking Analytics Blog FICO Labs Blog For more information North America toll-free Latin America & Caribbean Europe, Middle East & Africa Asia Pacific (0) FICO is a trademark or registered trademark of Fair Isaac Corporation in the United States and in other countries. Other product and company names herein may be trademarks of their respective owners Fair Isaac Corporation. All rights reserved. 4033BK 7/14 PDF