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Customer Profitability - what are the best practices?

Managing customers better has been a hot topic lately with our Asia Pacific clients. Originating a new account is a costly process, so ensuring we build long-term customer loyalty and satisfaction is sound business practice. Also, there is a ‘halo’ effect for customers that have multiple products with us – they tend to have lower losses and are more profitable than customers with a single product relationship.

So, how can banks in Asia manage the huge growth in credit we are witnessing right now, and still remain profitable, manage delinquencies, reduce attrition and increase customer satisfaction? We recently raised this question at our Customer Profitability seminars in Bangkok and Kuala Lumpur, where we discussed key issues facing banks and identified global best practices.

At FICO, we’ve identified four distinct levels of customer management:

  • Stage 1: Account level, where each product is managed separately from the others
  • Stage 2: Account level, but using enterprise data to supplement decisions
  • Stage 3: Product level, or single product customer decisioning – e.g., for a customer with more than one credit card
  • Stage 4: Full enterprise level customer management, where decisions are made with full information on all of the customer’s products

From our discussions with banks in the region, we’ve found that the customer management stage depends upon the type of decisions being made. For example, banks in Thailand face immense competition in the card space; they appear to be great at cross-sell and up-sell to their existing card base, and tend to make these decisions with data from multiple sources. However, most banks we spoke to appear to be at stage 1 for the majority of decision types.

How can banks in the region improve decisioning? We’ve identified 5 key elements:

  1. Implement lifecycle strategies as an integral part of the monthly or cycle-based decision process. This sounds easy enough, but many banks in the region use ad-hoc and multi-stage processes involving different internal teams to handle credit-line increases, attrition management, up-sell, new card customers and dormancy prevention. Ad-hoc multi-stage processes are prone to delays and error, impacting the effect of your customer management strategies.
  2. Use decision optimization to implement decisions more accurately and in a more timely manner. We are witnessing the growth of decision optimization in more mature markets as banks focus on making better decisions, in particular to manage the setting of initial credit lines, credit line management, pricing and early stage collections. We’ve seen banks increase revenue by 9% per account by using initial credit line optimization.
  3. Use deposit behavior scores to better manage the deposit relationship. The customer’s deposit relationship is a great reference for the source and use of funds for the customer. But how many banks use this information when making decisions on their lending products, particularly the unsecured portfolios? The deposit account is also useful for identifying customer lifecycle changes, and deposit behavior scores can be used to manage overdraft decisions and fee waiver decisions.
  4. Use all the data available to make better decisions, including transaction data. Transaction data, such as deposit transactions, can be used to identify customer lifecycle changes – did the customer recently start paying a mortgage, join a golf club, etc.? This data can also be used for marketing purposes – e.g., which of my customers is paying another bank for a credit card each month? And it can be used to identify risks mid-cycle, before a traditional behavior score is calculated at cycle time.
  5. Invest in the right customer management solutions.  Having the right solution to manage customers across all portfolios after the origination stage helps to automate decisions, thereby cutting manual intervention and minimizing human error. The best solutions also provide the ability to make decisions more accurately using predictive analytics such as behavior, attrition and response scores, and can incorporate strategies that have been optimized through the use of decision analytics. The right solution should also enable more timely decisions which can be made at cycle-time or even mid-cycle.  Many banks around the world use FICO® TRIAD® Customer Manager for this purpose, and are able to manage their customers and portfolios more efficiently and effectively.

Smart investments in these areas will provide gains, no matter what stage you’re at in your customer management decisioning.

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