EXPERT OPINION

Innovation Series

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Justin Furse

Justin is Head of Data Innovation Group, Experian

  

 

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Will you ramp up innovation in 2014?

Analyst firm IDC expects 2014 to be a defining year for credit providers. Having emerged from the economic crisis leaner and more efficient than ever, UK lenders are expected to ramp up innovation this year as they seek to establish new sources of competitive advantage.

Our own conversations with providers across the industry support IDC’s assertion. Growth is back on the agenda. While the rules of the game have changed, many providers are open to doing things in different ways in order to meet their new challenges.

Indeed, with economic activity picking up, lenders are now looking to reinvigorate projects that have remained dormant over recent years. We are seeing lenders upgrading legacy platforms with investments in technology and data to enhance their understanding of the consumer, enabling faster reporting, the ability to handle new communication channels and to develop highly customised strategies.

Single Customer View

The pace of technological change in the wider world means that it is now significantly more difficult for lenders to get quality face time with their customers. When they do they are dealing with people who expect organisations to have a joined up view of their relationship.

That’s why achieving a single customer view (SCV) is a challenge some lenders have been trying to address for more than 20 years. It has long been recognised that credit risk and customer management activities can also be managed more effectively using a holistic view of the customer.

The desire to finally address this once and for all has been sharpened partly through new regulatory requirements, but also through a wider need for re-engaging with customers and improving loyalty.

In addition, customers remain loyal to lenders that understand their needs and precisely how to address them, but it can also be an incredibly complex challenge to address. Product silos and differing data standards make it incredibly difficult to get a total view of all consumer data stored across a single organisation. That’s why lenders are increasingly looking externally to solve their internal data challenges.

Even those with major transformational technology programmes in place to achieve better cross-business integration accept that internal data alone cannot provide a truly holistic view of the consumer.

Transformation projects are focusing on greater integration with third party solutions such as ExPin, which is able to pool data from across an organisations many product lines and divisions with Experian’s unique data and matching technology.

Highly precise segmentation

This more precise view of the consumer enabled through new data sources and SCV projects has unlocked the ability of institutions to achieve far more accurate customer segmentation.

That’s why segmentation has been at the heart of large consumer businesses for many years, and financial institutions are no different. Conduct Risk has been a driver for better segmentation, however, it also makes good business sense for institutions looking to generate greater customer loyalty by offering more precisely tailored and suitable services to customers.

In addition, even small percentage improvements in credit losses, up-sell rates or the cost to serve can help financial institutions become dramatically more efficient, utilise funds more effectively and push back against the squeeze on profitability.

Collect more whilst remaining fair and compliant

Despite more positive economic signs, improving collections will also be a key focus for financial institutions this year. Lenders are always looking for ways of improving their collections rates, but are mindful this must be achieved fairly and sensitively.

Over the last four years we’ve seen tremendous consolidation in the debt purchase and collection agency market. The winners increasingly look to be those that are achieving scale and putting in place best practice data capabilities.

Collaboration is the name of the game. With major lenders and debt purchasers set to share a wider range of insight to drive better and more informed and collection strategies.

All consumer credit businesses have an increased burden to evidence strong compliance practices and, as a result, Treating Customers Fairly (TCF) has become particularly pertinent in the collections space.  It is now vital for Debt Collection Agencies to take proactive steps to understand what wider debts a person may have before attempting to collect from them.   For example, one collections firm may be chasing an individual for a £200 mail order debt when the same individual is £12,000 in arrears on their mortgage. 

Break-through data sources

One answer is data sharing schemes, such as our own Collections Network.  Sharing information on individuals to understand their full circumstances better is enabling better debt placement decisions, as well as helping to improve compliance, but more significantly enabling the fair treatment of individuals.

Growing momentum for our new Rental Exchange amongst social landlords means that banks, financial services firms and other creditors will soon be able to use a trusted record of rental payment performance to help assess credit risk.

A number of large housing associations and arm’s length management organisations (ALMOs) have already given notice to tenants that they will share their rental records with Experian. This will dramatically improve the insight available to creditors, improving assessment of those without mainstream credit products and helping them to meet responsible lending requirements.

Returning to innovation

We see plenty of evidence to corroborate the assertion from analysts that 2014 will see a far greater degree of innovation in banking and financial services.

One way lenders are doing this is by vastly improving their understanding of their customers, enabling a more sophisticated approach to customer segmentation and undertaking more sensitive and effective debt triage and recovery.

This is the first part in a series of innovation insights; we are planning to provide more insight on the future of data innovation, to support forward thinking strategies.

For more Experian innovation visit our dedicated Innovation in Data site.

 

About the author

Justin Furse

Head of Data Innovation Group, Experian

Justin has worked for many years consulting with some of the world's leading private sector organisationsto help them understand how data can be employed to drive business advantage.
During his career at Experian he has worked across the customer lifecycle withing both marketing and risk. Most recently he heads up a team creating innovative solutions based around Experian's unique data assets.

 

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