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Česká spořitelna Modernizes Operations With Debt Collection Optimization

Improving customer outcomes

Česká spořitelna, the Czech Republic’s oldest and largest bank, has modernized its operations by optimizing its decisions around customers in early collections. The use of FICO prescriptive analytics, in this case, debt collection optimization, has improved customer satisfaction and reduced agent call minutes by 25 percent.

“As many Czech households continued to grapple with finances due to the impact of the COVID-19 pandemic, the bank understood that it needed to modify its approach to collections,” said Petr Olšák, head of retail credit risk analytics at Česká spořitelna. “Operational capacity needed to be targeted on relevant accounts, portfolio performance maintained, customer experience improved, and resources freed up to address hardship situations.”

You can read more about this story in the full media release.

Making the most of available resources

Prior to the implementation, Česká spořitelna segmented collection customers according to risk. Further refinement was then assigned using the strategy team’s best judgement and incrementally improved using champion-challenger testing. The traditional approach to strategy management did not provide insights into the optimal intensity of collection activities or the ideal use of operational resources to different customer segments.

Applying AI-powered prescriptive analytics to collections was a first for Česká spořitelna. While the bank had used FICO’s decision optimization technology for several years to improve strategies in loan consolidation and loan pricing, this was the first time it used the approach to solve an operational decision problem. 

“The key challenge with the collections project was how to best balance operational efforts with portfolio performance and customer experience,” said Olšák. “Modelling how certain customer segments responded to different treatments, namely whether and when they made payment, allowed us to simulate the impact of a given strategy on key performance metrics such as month-end balances, balance roll rates, cash collected, operational effort and variable costs.”

Finding the right balance

FICO® Decision Optimizer was used to design treatment strategies for early collections on the bank’s unsecured personal loans portfolio. Česká spořitelna improved the customer experience by avoiding over-collecting on low-risk customers, while proactively addressing credit risk.

Gaining insights into the trade-offs between alternative treatments has been a key objective for the optimization project. For example, the bank tested the impact of driving strategies either by month-end or cycle-end. Choosing a specific target, such as minimizing balance roll rates while constraining others, allowed the collections team to understand the trade-offs and choose an optimal operating point that provided the right balance.

This project allowed Česká spořitelna to determine the optimal collection treatment for each account entering collections: when the customer would be contacted (number of days past due), and through which channel.

Impressively, the full project including all modelling was implemented by Česká spořitelna’s in-house Retail Credit Risk Analytics team, without any IT resources and with minimal coaching provided by FICO.

Helping those impacted by the pandemic

The collections optimization project has been very successful for Česká spořitelna in the Czech Republic and particularly timely.  The optimized strategy allowed the bank to reduce operational efforts by 25 percent (measured in collector call minutes), while balance roll rates remained stable and cash collected was matched. This has freed up significant resources for other products and for more detailed discussions with complex customer cases, especially those impacted by the pandemic. The bank and its parent organization Erste Group plan to extend the methodology and framework to additional products and geographies.

“The Erste Group has seen great value in using FICO Decision Optimizer,” Petr Kapoun, risk advisor to the Erste Bank Group. “Not just at Česká spořitelna, but in its sister organisations in Slovakia, Hungary and Romania. The future use of Decision Optimisation for the Group involves local development of component models under Group coordination, and group-wide sharing of knowledge and the final Decision Optimisation models.”

The pandemic has highlighted the importance of targeting resources to the area of greatest need. Česká spořitelna’s work to review its early collections approach is an ideal scenario for using analytics and optimization software. Operationalizing these has enabled reminders for low-risk customers to be automated and freed up its highly-skilled workforce to take on work where they will have the greatest impact.

For its achievements, Česká won a 2022 FICO® Decisions Award for debt management.

“Having been through optimization projects myself, I know the challenge that exists in examining granular data in action/response models,” said Paul Deall, head of risk, mortgages at Westpac and one of the FICO Decisions Awards judges. “Česká have had a great result reducing operational effort and improving customer outcomes when the pandemic was hitting and loan deferrals were being offered.”

Debt Collection Optimization

 

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