Customer Acquisition for SME Lending - What can it do for me?
With substantial margins available, the SME lending market attracts both traditional and non-traditional lenders, with new entrants making this dynamic market more competitive.
Lenders in the SME market face unique challenges, often needing to make lending decisions with limited financial data and market information.
How can we help you?
Traditional manual SME credit assessment processes are expensive in time and resources, and with SME customers demanding the speed of service they receive as consumers, lenders are turning to automation to achieve a consistent lending policy, reduce administration time and costs and meet customer expectations. However, automation has to be a balance between the ability to accurately assess an SME’s status and potential and achieving financial and customer service targets.
SME lenders are seeing a significant uplift in operational efficiency as skilled business managers are freed up to focus on high-risk, high value cases and higher business volumes can be dealt with using the same headcount.
A few key facts
Experian’s proposition for customer acquisition in SME lending brings together robust application processing, data connectivity, decisioning technology, predictive analytics and expert consulting.
Data capture screens allow the accurate input, validation and enrichment of application data, including from commercial and consumer credit bureaux information, to give the right level of data for decisioning.
Workflow functionality drives the application automatically through the process, with integral fraud detection. The system applies tailored policy rules and calculates multiple scores for objectives. The scores can be calculated at customer level, consolidating commercial and personal data to build a comprehensive picture of the company, and the individual behind the company.
Once a decision is made to accept, segmentation enables appropriate terms of business to be assigned and final conditions to be set, such as the need to request identification, accounts or to carry out a face-to-face meeting.
Operators can benefit from:
- Increasing conversion rates, revenue and generate loyalty
- Decreasing operational costs
- Making the most efficient use of skilled resources
- Reducing bad debt and losses
- Achieving higher acceptance rates
- Achieving compliance with Basel II
- Continually improving business performance
Decision Analytics enables SME lenders to automate the application process and rapidly implement accurate credit risk management.
- Delivering automated decisioning - Systemise decision processes, utilising all the relevant data faster for accurate decisions made on the same day.
- Reducing manual processes - Automate the origination process reducing the number and complexity of manual tasks.
- Enabling embedded policies and knowledge - Policy rules and business knowledge are built into the solution, including risk based pricing. Deviations from policy are strictly controlled and monitored.
With substantial margins available, the SME lending market attracts both traditional and non-traditional lenders, with new entrants making this dynamic market more competitive. As a result, lenders have an increasing pressure on returns and are focusing on reducing operational costs to preserve profitability.
Experian offers a Decision Analytics answer to meet these challenges. It integrates robust application processing, data connectivity, decisioning technology and predictive analytics with expert consulting to create a complete proposition for origination in SME lending. Integrating expertise and advanced tools, it enables SME lenders to automate the application process and rapidly implement accurate credit risk management.
- Data capture screens allow the accurate input and validation of application data, which is then enriched with additional data from internal and external sources including commercial and consumer credit bureaux information, to give the right level of data for decisioning.
- Workflow functionality drives the application automatically through the process, with integral fraud detection, checking the application against known frauds, previous applications and other data sources.
- Apply tailored policy rules and calculates multiple scores for objectives including credit risk, risk based pricing, affordability and Basel II elements.
- The scores can be calculated at customer level, consolidating commercial and personal data to build a comprehensive picture of the company, and the individual behind the company.
- Once a decision is made to accept, segmentation enables appropriate terms of business to be assigned such as price, maximum loan amount, duration and credit limits.
- Final conditions can be set, such as the need to request identification, accounts or to carry out a face-to-face meeting.
- In the small number of cases where a manual review is required, the workflow routes the application to the appropriate level of underwriter with all the information presented for rapid resolution.
Modular technology with flexible delivery options
The system has been designed and built for rapid implementation, with all the elements required for effective origination, along with the ability to customise elements to suit individual business requirements. The functionality in the technology has been designed to be modular so it can deliver the functionality needed today, and meet the needs of the business tomorrow.
For many clients the systems are integrated within their infrastructure. Alternatively, as part of the flexible approach to delivery, a hosted application service provider (ASP) option is offered. Integrating seamlessly with the existing infrastructure and systems, the web-enabled tools enable distributed working across the enterprise.
Experian creates a partnership with clients to deliver a solution that addresses their business challenges for today, and in the future. Bringing a fresh approach and independent viewpoint to every business, it delivers practical solutions that deliver measurable results.
Application processing and decisioning technology with a scalable and robust system that receives, validates and processes applications from multiple sources, with user controlled task orchestration and workflow driving operational and business procedures for both automated and manual decisioning.
Application fraud detection
Seamlessly integrated with application processing the application fraud detection tool. Using detection rules it screens for, and highlights potentially fraudulent applications, enabling fraudsters to be stopped before the organisation suffers losses. Maximising the value of data from internal and external sources, it uses this information to screen and highlight suspicious cases, which can then be quickly investigated by the fraud team, and action taken accordingly.
Experian uses world-class analytical capabilities to create statistical models that turn data into intelligence, helping to make an informed decision on applicants. Application scoring predicts how a potential customer might behave in the future, and whether this is the type of customer the organisation wants to take on.
Business intelligence with integrated monitoring and reporting
The integrated tools enable operational reporting and strategic monitoring to support both day to-day management control and longer-term business improvement. Business users can gain access to monitoring and reporting at every level of the organisation to create valuable business intelligence.
Expert reports have been specifically designed to meet the key business requirements of monitoring new business quality, strategy and scorecard performance and Basel II. Each report provides high-level statistics, indices and alerts to highlight divergence from business goals.
Data connectivity with Connect+
The proven Connect+ service offers links to credit and fraud bureaux worldwide. Using an established, ready-to-use and secure environment, data is retrieved, merged and standardised from multiple sources for the most comprehensive applicant overview. The service supports a sophisticated data enrichment strategy, so that only the appropriate level of relevant data is retrieved, thereby controlling bureaux data costs.
Automating more than 80% of SME decisions with better risk management reducing defaults by 30% in the first year for a Central European Bank
The small and medium sized enterprise (SME) market in Europe is thriving with more than millions of small businesses operating. The SME market is profitable for banking groups which provide most of the funding for these enterprises but, given its complexity and the strong competition, it presents unique challenges to organisations.
The client, a leading SME lender, wanted to undertake a complete review of their credit processes. The aim was to review and enhance the technology, process and methodology of assessing credit worthiness to improve the consistency and accuracy of decisioning across the organisation as well as incorporating the necessary requirements for Basel II compliance.
The client chose to work in partnership with Experian due to a strong history of successful projects and its expertise in consulting and Basel II compliance.
Experian’s Decision Analytics business worked with the client to deliver a holistic solution with decision support tools to manage and deploy strategies for both origination and customer management.
The system automates decisioning and implements a range of statistical models for credit risk, customer value and Basel II. A key part of the project was consultancy to develop strategies, re-engineer processes and support business development.
- Better understanding of customers utilising quantitative and qualitative assessment to drive strategies based on a holistic view of customer value for both lending and marketing decisions
- Increased accuracy and consistency of decisions with centralised lending strategies and decentralised decision making process, with business managers guided through a structured lending process
- Improved customer service with quicker decisions, less manual administration and business managers who can focus on customer service rather than assessment
- Meeting Basel II compliance requirements with the implementation of PD, LGD and EAD models for both regulatory (Basel II) capital calculation and operational purposes (“use test” requirements).
- Enhanced decisions with multi bureau connectivity provide the greatest depth of customer data
- Controlled credit bureau costs by systematically accessing only the most appropriate bureau reports resulting in the average cost per transaction falling
- Higher acceptance rates through the implementation of risk based pricing
- Consistency and control in risk management and policy application, removing the subjective judgement of individuals
- Better use of skilled resources with automation freeing up skilled analysts to work on complex, high value deals which require manual underwriting
- Rapid expansion and deployment of the solution into new operations and territories, accruing benefits quickly across the organisation
- Increasing volume and decreasing processing time – it wanted to automate up to 70% of all credit applications, allowing higher volumes to be processed in a shorter period of time
- Consistency and control – it wanted to be able to consistently implement and control lending policies, risk management and credit decisioning
- Data Access and Quality – it needed to have real time access to the best data available in credit bureaux across Europe to enhance the quality of decisions
- Integration and deployment – it wanted the solution to be used across all European operations within the existing infrastructure and be able to support future growth and expansion
75% of decisions automated within three months of operation and 80% of these decisions made in less than 20 seconds for a European lender.
When the client started working with Experian in 2001 they held no central credit data repository and had manual processes for credit decisioning that varied across the European countries it operated in. Credit and risk management were difficult to control and consistency was complex to maintain.
The client initiated a project with Experian with the objectives of:
The client needed a solution that would automate credit decisioning consistently across Europe, allowing central control, but still allow for bespoke credit decisions in each country.
For efficiency and speed of process, it was important that the client had a single consistent system that provided instant real time decisioning. The client chose the Decision Analytics Origination system, which enabled the client to rapidly process and make accurate decisions on applicants in every country it operates in, while still being able to cater for local requirements.
It is a centralised multi-country, multi-language and multi-currency solution, which allows the client to input data from many sources and provide bespoke automated credit solutions to each of its vendors in each country. This enables real-time automatic credit decisions with tailored strategies for each vendor whilst enabling credit analysts in each country to access and work on credit proposals for their vendors in different countries.
Benchmarking SME lending operation and creating a roadmap to leading practice
In many organisations, SME lending practices still trail behind consumer lending practices not least because of a lack of reliable data on small businesses financial risk. The current changes in UK the market for all major SME lenders to supply both negative and positive commercial data will create access to a much wider level of data for decision making, bringing these lenders closer to consumer best practice.
Like many lenders, the client used external bureau data for new business applications, and only had access to negative information. Despite good use of internal data, the existing decision process had to compensate for this limited external data and tended to be labour intensive.
The organisation was fully engaged in the project to share positive commercial data with the credit reference agencies, and under the principles of reciprocity this meant that they will be allowed to use full commercial and consumer data in SME decision making. Consumer data, especially for very small businesses can add significant value to the risk decision, when combined with available commercial information.
The client knew that this was an opportunity to improve scoring and segmentation to better target resources, manage bad debt and improve profitability. The risk team recognised that some existing systems were creating constraints on access to data and these environments would need to be changed to make full use of the range of commercial data and to provide flexibility to access new data as it becomes available. It also wanted to consider the opportunities for greater automation of the SME lending and customer management process.
Decision Analytics answer
The client wanted to establish an informed view of how to make the best use of the enhanced data environment. It invited consultants from Experian’s Decision Analytics division to carry out a Business Review and provide recommendations for improvements across its SME lending operation through the increased use of available data sources and automation.
In the short-term:
- Using positive consumer data in origination strategies using existing links and improving scorecards and strategies with this additional insight.
- Using additional commercial data in customer management strategies and improving scorecards and strategies with this additional insight.
In the longer term:
- Improving the infrastructure to create the ability to use the full range of commercial data, especially as the value increases as more lenders supply data.
- Increase the level of automated data capture through a single system for data capture and integration.
- Using external data in automated customer management decisions through a single platform for relationship and risk management.
- Increase the level of automation through making the full use of sophisticated automated decisioning across the lifecycle
- More effective use of data across the whole commercial lending portfolio
The recommendations create a roadmap and business case which would move the client from its current position into leading practices over an agreed timescale. The investment would enable the client to make full use of existing, and future data sources, specifically positive consumer and commercial data.