Reinventing Origination: Engage the Customer in the Process

In the first of my three-part blog series on reinventing the origination process, I discussed how digital transformation has reshaped consumers' expectatiosn from the companies the…

by Richard Dougherty

May 13, 2019

In the first of my three-part blog series on reinventing the origination process, I discussed how digital transformation has reshaped consumers' expectatiosn from the companies they do business with – which means that leading financial institutions must transform their customer experience as well if they wish to remain competitive.

In the second part of my series, I want to focus on improving the customer experience, through customer information management focusing on speed, efficiency, and customer engagement.

Develop a Holistic Approach to Customer Information Across the Organization

There are few things that irritate a customer more than providing the bank with information they already have. Nothing screams “you are not important” more than having to provide my address to the very institution that helped me secure a mortgage to buy my property in the first place. Connecting legacy systems can be a messy and expensive venture, but the benefits of implementing a holistic customer information approach across the entire organization can be well worth it.

For example, one leading Canadian bank has been able to reduce its online application process by 60% simply by streamlining and connecting it to internal customer data sources to significantly reduce the amount of information customers need to manually enter. As a result, customers can complete the application process in a matter of seconds rather than having to submit page after page of information.

This doesn’t mean that streamlining the application process will result in less personal data on current or prospective customers the bank can analyze. Today, banks have a multitude of third-party data sources to leverage to gain insights into existing and prospective customers – from identity verification to checking how much the person makes each pay period. Used in the right way, the insight can radically improve the data collection and decision making process.

Speed & Efficiency

Today’s customers live in an “instant world” and expect content and digital experiences to be delivered anywhere, at any time, and on any device. These changing customer expectations have transcended the digital world and consumers expect the same level of instant and personalized service across all channels.

Success for banks will lie in their ability to deliver an outstanding experience to each and every applicant, while streamlining operational efficiency and scalability. As such, more and more leading banks are utilizing intelligent automation to reduce the rate of manual underwriting while still demonstrating full, consistent compliance with regulations.

Leading solutions are empowering business users to directly configure and manage business processes and decisioning strategies, enabling them to quickly and continually implement changes to streamline the origination process. For example, a leading fintech FICO is working with saw dramatic improvements to their originations process after implementing automated solutions. Not only were they able to provide 95% of all applicants with a 100% automated experience but borrowers could also create accounts in less time than it takes some competitors to make a lending decision.

We Can’t Talk about Engagement without Talking about Digital Engagement

Whether it’s ordering a pizza or purchasing concert tickets, customers want some confirmation of their purchase. In the financial services arena this need for confirmation is even more important. Leading institutions are increasing the level of engagement that consumers feel throughout the origination and new customer onboarding process.

To keep up with the shifting customer expectations, banks are utilizing automated communication capabilities that proactively reach out to applicants to keep them updated on the status of any requests, enlist their help where necessary, and welcome them as new customers.

Once they’ve opted in, consumers can be engaged throughout their journey with the financial institution, whether it’s alerts for offers that customers qualify for, or receiving reminders for payments and other collections activities.

One leading retail finance organization was able to contact 65% of the people who had been approved for credit services but had not used them - without human intervention, freeing up associate time to help the customers that needed assistance.

How businesses interact with customers has dramatically changed in the last five years. For financial institutions, customer engagement today means creating the ideal experience for each current and new customer. These experiences have to be delivered quickly, efficiently and most important, digitally. In my third and final blog in this series, I will be discussing best practices for improving the decisions that drive the customer experience: analytics for offer determination and decision accuracy.

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FICO’s latest research on <a href="http://www.fico.com/en/blogs/risk-compliance/us-credit-quality-rising-the-beat-goes-on/" target="_blank">national FICO® Score distribution</a> shows that US credit quality continues to trend upwards, with an increasing number of consumers scoring in the highest scores ranges. Given that, we decided it was time to refresh our study on “<a href="http://www.fico.com/en/blogs/risk-compliance/infographic-what-does-a-high-credit-scorer-look-like/" target="_blank">FICO® Score high achievers</a>,” where we examine the credit behavioural profiles of consumers with higher credit scores. As expected, our latest study showed that older people generally have higher scores, as has been the case in our <a href="http://www.fico.com/en/blogs/risk-compliance/age-before-beauty-credit-worthiness-before-youth/" target="_blank">past research</a>. This is largely because they have trade lines that have been open longer, which leads to higher scores (assuming the trade lines are in good standing and all other things equal). The most credit savvy among you will remember that length of credit history accounts for roughly 15% of the overall <a href="http://www.myfico.com/CreditEducation/WhatsInYourScore.aspx" target="_blank">FICO® Score calculation</a>. But for younger consumers, it isn’t too helpful to say, “just wait until you are 50 years old, and that will fix things!” Thus, I decided to dive deeper with our analysis, including looking at the credit behavioural characteristics of younger consumers with high FICO® Scores. In this analysis, I looked at credit characteristics for the two highest score bands, 750-799 and 800-850, which have about 16% and 23% of the population, respectively. I further broke this down by looking at the characteristics of the youngest 15% in each group, which occurs at age 29 for the 750-799 group and 43 for the 800-850. We used FICO® Score 9 for our analysis, and examined typical variables of the categories that go into the make-up of the score. <a href="http://www.fico.com/en/blogs/wp-content/uploads/2016/10/FICO-Score-High-Achiever-table.png"><img class="alignnone size-full wp-image-29367" src="http://www.fico.com/en/blogs/wp-content/uploads/2016/10/FICO-Score-High-Achiever-table.png" alt="fico-score-high-achiever-table" width="715" height="747" /></a> Since there’s a lot to dissect in this chart, I’ll highlight a few findings that struck me: <ul> <li>Credit history. Higher scores are undoubtedly associated with a longer time on file. What’s striking is the higher average time on file for the 800+ group, both overall and for revolving accounts (the most common trade line). Clearly, it helps to start credit use early in life – but that’s not the sole determining factor for high scoring. The younger cohorts in both the 800+ and 750-799 groups have time on file medians significantly less than their older counterparts.</li> <li>New credit. High credit scorers do, in fact, pursue new credit. We see little variation in months since last trade line opening and last inquiry among all groups observed.</li> <li>Pay on time. As you might expect, the further in the past the delinquency, the higher the score – and that’s if a delinquency ever happened. 95% of the 800+ people and 72% of the 750-799 group have never been delinquent, which is a striking contrast to the 57% for the total population. The percentages for the younger groups are even higher, especially so for the 750-799ers. Collection items are also scarce for these high scorers. While 23% of the national population have collection items greater than $99, the figures are only 0.5% for the 800+ group and 3% for the 750-799 group. It is clear that, in conjunction with starting a credit file early, paying on time is a key trait of the FICO® Score high achiever.</li> <li>Balance and utilization. Finally, we look at how credit is being used, focusing on revolving product use. (Since most people only have one mortgage or one auto loan, variation in instalment product figures is minimal and driven by payment history, which is near perfect for high scorers, as we’ve seen.) FICO® Score high achievers tend to have more open revolving accounts. While the % active trades and utilization are generally lower, by no means do high scorers avoid the use of credit products. What drives the difference here is the amount of available revolving credit utilized. The 800+ group is roughly 1/4 of the national median, both in total and on their highest utilized card; they also have lower balances and more cards. The 750-799 group is more active and higher utilized, but still only at 2/3 of the national figures. The young 750-799 group compensate with lower revolving balances and, as a result, lower utilization, which is in line with what we see for the 800+ group.</li> <li>Benchmarks. I’d like to point out that while this study provides good benchmarks of the typical credit traits of the FICO® Score high achiever, individual credit profiles will vary widely. And keep in mind that when we sort groups of consumers as a whole by different behaviours, some results may look superficially odd. For example, the 800+ band has a longer median average open account time (128 months) than average revolving months on file (140 months).</li> </ul> So, what do we conclude? A huge takeaway is that high scorers don’t have too much in the way of serious delinquencies and negative public record data. In most respects, the young 800+ people are like their peer group. They really only differ markedly in their shorter credit history and higher non-mortgage balance, both of which are a function of life stage. Our results show that you don’t have to be a credit product hermit; these high scorers have more credit cards. The takeaway is to start credit activity early and maintain well-managed and moderate usage. In many ways, the young 750-799 people are more interesting because their age profile is much younger. Their credit characteristics differ more from their peer group, particularly in terms of length of credit history. They compensate by having almost pristine credit records and lower balances. Ultimately, 39% of US consumers are FICO® Score high achievers, which they accomplish by following common-sense credit practices. It ain’t rocket science!

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