UK Bank and operational credit risk

Back in 2002 a major UK online bank set out to implement a new credit management system. This was intended to:

• Improve the operational management of credit risk
• Reduce the effort expended in manual interventions
• Reduce disparate IT systems into a cohesive whole
• Develop a customer-level decisioning capability
• Provide readily available data for credit analytics

The bank set out to make more informed decisions and reduce bad debt, increased acceptance rates and ensure more appropriate allocation of limits. They also hoped to improve the customer experience and decrease costs while increasing revenue.

They selected Fair Isaac Blaze Advisor for this program based upon 6 key areas:

• Flexibility
• Business ownership of scorecards, strategies and policies
• Minimal IT involvement post implementation
• Time to market

The front-end decisioning process deals with customer or prospect initiated contacts, categorises customer contacts, manages limit increases or decreases as well as payments holidays. Customer-driven product feature personalisation was also key as was communicating the decision at the point of request.

So how well did this work for them? Published results include:

• Average rule change time reduced from 35 days to 2
• Manual referrals reduced from 35% to 9%
• Income through raised acceptance rates increased by 1.5%
• Provision for bad debt reduced by 1%
• “What if” facility identified potential increase in credit risk of 4.5%
• 0% downtime since it went live in February 2003!
• ROI ~6 months with subsequent savings >£5M pa (>$9M pa)

In addition they report overall satisfaction is very high and that they have required zero IT investment post roll-out with the rule engine performance satisfying all requirements.