As Britain heads into a cold snap homes are turning up the heat and energy usage is soaring. But is it Jack Frost turning the dial or is it an impersonator? How hot will the fraudster be during the coming months? For many utility providers the answers to these questions are unknown.
For many energy providers, fraud is not on their radar. But that doesn’t mean it is insignificant. In fact, the majority of providers don’t classify fraud as a distinct risk because they don’t know the extent to which it is taking place or the losses incurred as a result. Fraud is often lumped in with ‘bad debt’, which results in a waste of time and resource when trying to find them through collection based processes.
A case of fraud in utilities can also take a long time to discover and tackle due to restraints on the removal of energy supply and processes that aren’t fit for purpose. That’s not to say, however, that it can’t be considered, dealt with or even prevented. If more emphasis were applied to pre-empting fraud through customer acquisition and management strategies, savings could be vast and collections resources better used in areas they are more likely to be effective such as offering appropriate repayment plans for struggling customers.
A key starting point is for utility providers to distinguish between ‘can’t pay’ and ‘won’t pay’.
This should be a classification for debtors who have genuine financial constraints that hinder their ability to pay. This might be referred to as ‘innocent’ debt and appropriate communication and collection strategies should be used to find the best solution for all parties in this category.
Where customers have the ability but not the intent to pay, a different approach is required. Let’s break these cases down into a further two categories:
- ‘Chancers’ – some fraud will be the result of an individual believing that they might get away with neglecting to pay. For example, they may move house and not provide a forwarding address in the hope that their bills will vanish. Or they may falsify the date that they moved in, hoping to gain a period of free energy.
- ‘Experienced debtors’ – other individuals will use more advanced methods to avoid payment. This may involve false bank details, identity impersonation or false tenancy details for example.
Utility providers are already aware of a need to identify distinct risk categories across their customer profiles, which may seem complex to understand and manage but can actually greatly enhance customer experience.
Providers need to consider certain core aspects of their operations such as:
Knowing your customer
This may seem obvious – but not that many organisations have an adequate single view of any given customer. Who are they, where have they come from, what channels do they engage with the best, what is their propensity for loyalty? Equally, what are their known risks? Understanding specifics about a customer can provide an early indicator of propensity to intentionally avoid payment.
Defining your data
Data can tell a thousand stories, and more. Interpreting what data says and what insight lies beneath it can provide actionable insight. Overlaying customer data for instances with data sources indicative of fraud can highlight cases of particular concern.
Pre-empting the customer
People moving house is a common process in Utilities. In some cases customers will offer information ahead of a move, in many they won’t. With the UK Government reporting over 1.3 million properties sold during 2015-2016, an increase of 10% compared to the year before, this is a growing challenge. A perfect world would see a utility provider pre-empting such a scenario and sending timely and relevant communications to the customer at the point of listing their house, or upon the sale or in the case of renters, upon the giving of notice. Not only would this enhance the customer experience and boost customer retention, it would also act as a deterrent for customers who opt to not inform of a house move.
Proving a customer’s identity and residency upfront can, amongst other benefits, raise concerns early. If residency can’t be confirmed immediately – it takes time to establish a ‘footprint’ at an address – then setting a timeframe for reattempting confirmation can ensure that false identities be distinguished by the time any collections strategies begin.
Competition and customer journey
Competition in utilities is fierce, with switching becoming more and more common (increasing by 29% in 2016, compared to 2015*), and people becoming increasingly savvy as to what to expect. With no key differentiator between the products – electricity is electricity – the differentiator is the brand.
The customer journey is an integral part of retaining customers as well as acquiring them. It is reported that under some fraud and identity strategies, as many as 200 people can be inconvenienced just to find 1 illegitimate customer. This cannot be tolerated by any organisation that takes the customer journey seriously. Whilst robust checks add huge value, they must be designed to minimise any inconvenience to end users.
Not understanding fraud in this space can mean you are prioritising efforts in the wrong area. The fraudster may be a master at evading payment, so the application of robust and multi-faceted initial and on-going checks are key to keeping collections strategies focussed where they should be – on real individuals that are likely to respond and come to an agreement.
All of the points raised are consistent in one thing: you need to know your customer. Knowing your customer can help reduce both bad debt and fraud. Understanding the intricacy of the journey each customer will go through; including what happens behind the scenes, will help identify the key stages for identity and fraud checks that won’t cause barriers to legitimate customers.
Simple changes can make a big difference. Reducing the time to discovery of fraud can save a fortune in staff resource and energy that will never be paid for. It is important to ask yourself, how well do you really know your customer? Will the fraudsters be sitting cosy at you and your customers’ expense this winter?