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A new approach to the SME credit lifecycle
Lenders need to consider whether they can automate many processes related to SME customers to reduce the high costs of servicing a small business portfolio.
Probe SM - What can it do for me?
Effective Collections and Recoveries starts before the customer even becomes delinquent. Through the effective use of data, triggers and segmentation, organisations can gain a picture of where customers are becoming over-indebted and may struggle to meet their commitments. This means you can take immediate, pre-emptive action.
How can we help you?
Probe SM enables organisations to drive strategy proactively and reactively at every touchpoint with the customer. Operating at account and customer level, it deploys immediate, consistent and appropriate customer management. Probe SM combines data management with segmentation, scorecards and strategies to drive customer management throughout the organisation. It aggregates data from account management systems and other sources with historical data, and uses it to calculate the unique set of decisioning variables used in the scoring and strategy setting processes.
A few key facts
- Carry out regular customer reviews to detect deteriorating trends prior to delinquency.
- Use customer-level data to get the full customer picture.
- Test the degree to which customers' finances are stressed and manage your exposure.
- Prioritise cases going into collections based on risk, behaviour and customer value.
Automated customer-level management, data management, predictive analytics and expert consulting, to create a complete proposition for customer management.
- Reduce bad debt levels and manage overall exposure
- Increase take-up rates with relevant offers
- Free staff to focus on sales and customer retention
- Focus limited retention resources on highest value customers
- Ensure consistency of decisions and communications
- Turn collections into a customer service opportunity and retain customers by proactive action
Integrated automated customer-level management, data management, predictive analytics and expert consulting, to create a complete proposition for customer management.
Our clients are able to connect with their customers as individuals rather than as a disparate collection of accounts. The key to effective customer management strategies is a complete understanding of the customer.
Experian analysis shows that the strongest indication of future behaviour comes through combing all the data about a customer, including cash flow, card spend and other account activity, so this data is aggregated from all the customer accounts and combined with demographic and credit bureaux data.
Using behavioural scoring models at account and customer level, a customer profile is created that encapsulates the individual’s entire relationship with the organisation. This profile incorporates measurement of risk, customer profitability, propensity and lifetime value to ensure the dynamics of the customer relationship are understood and used to drive a wide range of appropriate and relevant customer management strategies. These strategies can be applied at both the customer and account level.
In addition, the customer profile is used to streamline and automate a wide range of activities such as customer reviews, application decisioning for existing customers and collections management.
Decision areas across the relationship:
- Limit management - Proactive and reactive limit increases/decreases based on overall customer and shadow limits. Identifying cross-sell opportunities.
- Origination of new lending - Incorporate the customer profile into the credit assessment when an existing customer requests a new product.
- Pay/No pay decisions - Automatically authorise extended credit limits for good customers and reduce Pay / No-pay decisions for overextended customers.
- Pricing - Implement proactive and reactive pricing and be able to price according to risk.
- Attrition and utilisation management - Proactively manage attrition and dormant accounts.
- Marketing - For outbound campaigns for cross and up-sell, respond to inbound requests and tailor messages and offers.
- Debt control - Carry out regular customer reviews to detect deteriorating trends prior to delinquency.
Consulting is at the heart of every Decision Analytics delivery by Experian. Consultants work with clients at every stage of the project, firstly to fully understand the business and strategic direction, and then to help design and implement systems and processes that deliver objectives.
Following implementation, Experian consultants work with clients through a structured and regular review programme to continually evolve and enhance strategies, so that organisations continue to gain maximum value as their needs change and the business grows. Experian creates a partnership with clients to deliver products and services that address 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.
The Experian customer management system combines data management with segmentation, scorecards and strategies to drive customer management throughout the organisation. It aggregates data from account management systems and other sources with historical data (sourced from the built in repository) and uses it to calculate the unique set of decisioning variables used in the strategy setting process.
The customer and account-level management strategies are controlled centrally by the business user and then deployed across the organisation, for every customer contact and through every channel. Business users have operational and strategic control with lending strategies managed on the desktop. They have complete control to define, test and manage business strategies without the need for programming resource.
Through simulation in the analytical environment and Champion- Challenger facilities in the operational environment, strategies can be evaluated, evolved and proved for maximum performance and then deployed across the organisation. The system improves operational efficiency by enabling the automation of manual processes and the redeployment of key resources.
Statistical modelling of information about how a customer has been running their accounts provides powerful data for predicting what they will do in the future. Experian uses world-class analytical capabilities to create statistical models that turn data into intelligence, helping organisations make informed decisions about customers.
Customer-level scorecards bring together all of these account behaviours into a single, highly predictive score. Experian is the market leading supplier of customer level scoring for retail banking organisations, including using innovative variables that analyse customer data such as cash flow and borrowing trends to provide new insights into customer behaviour. Generic and custom scorecards are developed using pooled data for robust and highly predictive models, according to a client’s requirements, data availability and timescales for delivery. Generic scorecards, based on industry data, are highly predictive, and fast to implement for immediate benefits.
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 customer management monitoring. This includes customer and portfolio performance, profitability, and strategy and scorecard effectiveness. Each report provides high-level statistics, indices and alerts to highlight divergence from business goals.
Integrated with customer management are the requirements to meet Basel II compliance. Models for probability of default, loss-given default and exposure at default are implemented to satisfy the ‘use test’ requirements of the Accord. The integrated reporting contains the key management reports and Basel II measures and, in combination with the analytical simulation capability, meets stress-testing requirements.
Modular technology with flexible delivery options
The system has been designed and built for rapid implementation, with all the elements required for effective customer management, but 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.
The systems can process portfolios on a regular basis, for example, running in batch mode at statement cycle point and also when triggered by other significant events. It can also be configured in an online environment to drive the strategy at other key touch-points with the customer, for example, during the online authorisations process, a customer service call or a branch transaction. Interfaces are flexible for rapid deployment against both new and legacy systems. The fully scalable systems are capable of processing millions of customer decisions rapidly.
Effectively managing customers with a partnership approach at a time of major business change
“Customer management is an area of key focus for the performance of our business.” “Probe SM has delivered the capabilities and control we needed, and in combination with the TSYS processing platform, we now have a high degree of strategic control over the management of our portfolio.”
Paul Hirst, Head of Risk, Home Retail.
Home Retail Group is the UK’s leading home and general merchandise retailer with sales of around £6 billion annually. It offers credit and insurance products to customers of its Argos and Homebase brands through its stores, online and through call centres.
With around two and a half million revolving credit accounts in its portfolio, Home Retail is committed to driving performance and customer service. Home Retail chose Experian’s Probe SM customer management decision system to control customer scoring and decision strategies on the TS2 platform. Probe SM for customer management has been fully integrated with the TS2 platform since 2002.
Probe SM is used to manage and maximise key aspects of the customer relationship including risk scoring, exposure management, collections and transaction authorisations.
- Home Retail was able to continue to use Probe SM’s customer management capabilities migration to the TS2 platform. The loss of this capability would have led to a significant cost to the business in terms of diminished customer value generation and a deterioration in customer service levels.
- The design partnership approach adopted by Home Retail, TSYS and Experian to convert all Home Retail decision management strategies onto the TS2 Probe SM system was a key component of ensuring that business continuity would be maintained post-migration.
- Business continuity in credit risk management capabilities was successfully achieved from day one of the migration of the Home Retail portfolio onto the TS2 platform.
Improving customer management strategies
“In order to grow the average profit per customer, we needed to get a better understanding of each customer on a continual basis. This has been achieved through improvements across all areas of the business, with a particular focus on credit limit management, the authorisations process, collections and the additional cross-sale of other products. The solutions provided by Experian have been invaluable.
We investigated several other solutions through a comprehensive tender process, but our Credit and IT teams found that there was nothing really to compete with Probe SM. Other solutions appeared to have a great deal of marketing material to back them up, but when you actually go into the nuts and bolts of the system, there was only one choice and that was Experian. I am sure that we will see a significant return on our investment within the first year.”
Graham Price, Head of Credit Risk, JD Williams
To continue to be the leading home shopping company, JD Williams recognised the need to improve its knowledge and management of its existing customers. JD Williams wanted to increase its cross-selling opportunities to enable it to provide new products to its customers and to further meet their needs.
After extensive investigation into the available solutions on the market, JD Williams found that Experian’s Probe Strategy Management (SM) Generation 3 was the clear leader. Already using Experian’s credit reference information, it made perfect sense for JD Williams to take both services together. Probe SM Generation 3 is a behavioural decision analytics solution, which now assists JD Williams in both its scoring and customer management activity. The solution makes full use of customer data held by JD Williams – and the customer data supplied from the Experian credit bureau – to create an insight into the behaviour and motivations of each customer. This enables it to completely understand each and every individual’s needs.
- Increased knowledge and effective management of its customers
- Ongoing growth as the company continues to see significant improvements in their profitability.
- Use of Probe SM to closely monitor customer activity, to maintain customer management strategies that are both up-to-date and appropriate, thus helping to protect the profitability of the business.
The issues of customer management for retail banking
Retail banks are continually striving to improve their risk adjusted return on capital. Bank profitability is driven by revenue, costs and bad debt losses whilst maintaining high levels of customer satisfaction and regulatory compliance. All of these are directly influenced by the daily decisions made in managing relationships with customers.
These decisions are powerful levers in managing the ultimate profitability of the bank. In many cases growth strategies have sought to strengthen relationships by increasing the number of product held by each customer, however this increases the complexity of the customer relationship.
Most banking organisations have some level of automated decisioning in place but few do this in a holistic way. Banking organisations have tended to develop on a “silo” or product level basis, with risk (and other) managers within each silo being responsible for decision-making, scoring and strategies for their silo alone. Whilst this gives clear line of sight to roles, responsibilities and objectives at the product level, it has often led to a confusion of approaches to decision-making for customers when looking across silos.
The fact is that a customer’s performance on their current account gives the organisation meaningful insights into the customer’s likely performance on their credit card or their personal loan, and vice versa. And yet, how many organisations take the full customer view into consideration when making credit risk and other decisions and interacting with their customers? Those that do, report that the potential benefits can be realised across a range of profit drivers. To make these decisions accurately it is essential to truly adopt a customer-focussed approach. In practice this involves gathering all the information on the performance of the customer together and using analytics to drive customer focused strategies.
The implementation of a customer level decision-making approach is a major change programme given the product silo legacy in many banks, but one with significant rewards. Overall the bank is able to make better and more consistent lending and management decisions as well as delivering a high standard of customer service, because decisions are made based on the relationship the bank has with the individual customer.