As you heard from fellow blogger Dan McConaghy, FICO recently partnered with IDC to host what is probably the biggest gathering of banking CROs in Asia Pacific. A hot topic at the FICO APAC CRO Forum was customer profitability – how to expand existing customer relationships whilst offering superlative customer service and minimising attrition.
The big 4 banks in Australia have been increasingly focused on maximising customer profitability for quite some time, driven by both regulation and competition in a saturated market. With debit cards accounting for more than 40 percent of card transactions and regulators focused on responsible lending, (an opt-in regulation for line increases is coming in July 2012), it’s clear that banks down-under can’t rely on new account acquisitions and line increases to maintain profitability.
Most of these banks use account and customer data and analytics in decision making throughout the customer lifecycle. Many also are using decision optimisation to more accurately assign credit line increases to those customers most likely to use them without defaulting. In addition, we are seeing banks in Australia use transaction account data to identify customers that have holdings elsewhere (e.g., which customers are paying another bank’s credit card) and to identify life-stage changes (e.g., who’s moved house recently, who’s stopped depositing their paycheck into their account).
What was even more fascinating is how quickly banks in other parts of Asia Pacific are embracing this new strategy. Whilst the growth markets in Southeast Asia, including Thailand, Indonesia and The Philippines, are building their customer acquisition and origination platforms, banks in countries like China and Korea are now focused on maximising customer relationships to provide better customer service, reduced attrition and increased profitability.
Let’s look deeper at China. For the past several years, Chinese lenders were so focused on seizing their share of the significant credit boom that they paid little attention to managing customers once cards were issued. As a result, these lenders now face such challenges as low rates of activation (our clients say around 40%), backlash on “hidden” fees and higher costs of operating due to recent regulation. But smart banks – like BOCOM, China Everbright and CITIC – are working with FICO to assess their card portfolios for increased customer profitability.
A telling statistic, presented by IDC at the CRO Forum, also helped to underscore the change in focus: bad debt in China is forecast to increase from less than 2% now to between 5-10% in the next 3 years. Banks with world-class customer management solutions and analytics will have a clear advantage in identifying which customers are stressed and likely to become delinquent – before it happens – and can take steps to manage those customers appropriately.
Clearly the old adage ‘Know Your Customer’ could not be more appropriate, and not just from an identification and authentication perspective. Building better, more profitable relationships is dependent on knowing how your customer behaves, their product and channel preferences, and their value in terms of revenue and profitability.