Telecommunications, Cable & Utilities
Telecommunications, Cable & Utilities
By: Stacy Schulman Earlier this week the CFPB announced a final rule addressing its role in supervising certain credit reporting agencies, including Experian and others that are large market participants in the industry. To view this original content, Experian and the CFPB - Both Committed to Helping Consumers. During a field hearing in Detroit, CFPB Director Richard Cordray’s spoke about a new regulatory focus on the accuracy of the information received by the credit reporting companies, the role they play in assembling and maintaining that information, and the process available to consumers for correcting errors. We look forward to working with CFPB on these important priorities. To read more about how Experian prioritizes these information essentials for consumers, clients and shareholders, read more on the Experian News blog. Learn more about Experian\'s view of the Consumer Financial Protection Bureau. ___________________ Original content provided by: Tony Hadley, Senior Vice President of Government Affairs and Public Policy About Tony: Tony Hadley is Senior Vice President of Government Affairs and Public Policy for Experian. He leads the corporation’s legislative, regulatory and policy programs relating to consumer reporting, consumer finance, direct and digital marketing, e-commerce, financial education and data protection. Hadley leads Experian’s legislative and regulatory efforts with a number of trade groups and alliances, including the American Financial Services Association, the Direct Marketing Association, the Consumer Data Industry Association, the U.S. Chamber of Commerce and the Interactive Advertising Bureau. Hadley is Chairman of the National Business Coalition on E-commerce and Privacy.
Previously, we looked at the various ways a dual score strategy could help you focus in on an appropriate lending population. Find your mail-to population with a prospecting score on top of a risk score; locate the riskiest of all consumers by layering a bankruptcy score with your risk model. But other than multiple scores, what other tools can be used to improve credit scoring effectiveness? Credit attributes add additional layers of insight from a risk perspective. Not everyone who scores an 850 represent the same level of risk once you start interrogating their broader profile. How much total debt are they carrying? What is the nature of it - is it mortgage or mostly revolving? A credit score may not fully articulate a consumer as high risk, but if their debt obligations are high, they may represent a very different type of risk than from another consumer with the same 850 score. Think of attribute overlays in terms of tuning the final score valuation of an individual consumer by making the credit profile more transparent, allowing a lender to see more than just the risk odds associated with the initial score. Attributes can also help you refine offers. A consumer may be right for you in terms of risk, but are you right for them? If they have 4 credit cards with $20K limits each, they’re likely going to toss your $5K card offer in the trash. Attributes can tell us these things, and more. For example, while a risk score can tell us what the risk of a consumer is within a set window, certain credit attributes can tell us something about the stability of that consumer to remain within that risk band. Recent trends in score migration – the change in a level of creditworthiness of a consumer subsequent to generation of a current credit score – can undermine the most conservative of risk management policies. At the height of the recession, VantageScore LLC studied the migration of scores across all risk bands and was able to identify certain financial management behaviors found within their credit files. These behaviors (signaling, credit footprint, and utility) assess the consumer’s likelihood of improving, significantly deteriorating, or maintaining a stable score over the next 12 months. Knowing which subgroup of your low-risk population is deteriorating, or which high risk groups are improving, can help you make better decision today.
One of the most successful best practices for improving agency performance is the use of scorecards for assessing and rank ordering performance of agencies in competition with each other. Much like people, agencies thrive when they understand how they are evaluated, how to influence those factors that contribute to success, and the recognition and reward for top tier performance. Rather than a simple view of performance based upon a recovery rate as a percentage of total inventory, best practice suggests that performance is more accurately reflected in vintage batch liquidation and peer group comparisons to the liquidation curve. Why? In a nutshell, differences in inventory aging and the liquidation curve. Let’s explain this in greater detail. Historically, collection agencies would provide their clients with better performance reporting than their clients had available to them. Clients would know how much business was placed in aggregate, but not by specific vintage relating to the month or year of placement. Thus, when a monthly remittance was received, the client would be incapable of understanding whether this month’s recoveries were from accounts placed last month, this year, or three years ago. This made forecasting of future cash flows from recoveries difficult, in that you would have no insight into where the funds were coming from. We know that as a charged off debt ages, its future liquidation rate generally downward sloping (the exception is auto finance debt, as there is a delay between the time of charge-off and rehabilitation of the debtor, thus future flows are higher beyond the 12-24 month timeframe). How would you know how to predict future cash flows and liquidation rates without understanding the different vintages in the overall charged off population available for recovery? This lack of visibility into liquidation performance created another issue. How do you compare the performance of two different agencies without understanding the age of the inventory and how it is liquidating? An as example, let’s assume that Agency A has been handling your recovery placements for a few years, and has an inventory of $10,000,000 that spans 3+ years, of which $1,500,000 has been placed this year. We know from experience that placements from 3 years ago experienced their highest liquidation rate earlier in their lifecycle, and the remaining inventory from those early vintages are uncollectible or almost full liquidated. Agency A remits $130,000 this month, for a recovery rate of 1.3%. Agency B is a new agency just signed on this year, and has an inventory of $2,000,000 assigned to them. Agency B remits $150,000 this month, for a recovery rate of 7.5%. So, you might assume that Agency B outperformed Agency A by a whopping 6.2%. Right? Er … no. Here’s why. If we had better visibility of Agency A’s inventory, and from where their remittance of $130,000 was derived, we would have known that only a couple of small insignificant payments came from the older vintages of the $10,000,000 inventory, and that of the $130,000 remitted, over $120,000 came from current year inventory (the $1,500,000 in current year placements). Thus, when analyzed in context with a vintage batch liquidation basis, Agency A collected $120,000 against inventory placed in the current year, for a liquidation rate of 8.0%. The remaining remittance of $10,000 was derived from prior years’ inventory. So, when we compare Agency A with current year placements inventory of $1,500,000 and a recovery rate against those placements of 8.0% ($120,000) versus Agency B, with current year placements inventory of $2,000,000 and a recovery rate of 7.5% ($150,000), it’s clear that Agency A outperformed Agency B. This is why the vintage batch liquidation model is the clear-cut best practice for analysis and MI. By using a vintage batch liquidation model and analyzing performance against monthly batches, you can begin to interpret and define the liquidation curve. A liquidation curve plots monthly liquidation rates against a specific vintage, usually by month, and typically looks like this: Exhibit 1: Liquidation Curve Analysis Note that in Exhibit 1, the monthly liquidation rate as a percentage of the total vintage batch inventory appears on the y-axis, and the month of funds received appears on the x-axis. Thus, for each of the three vintage batches, we can track the monthly liquidation rates for each batch from its initial placement throughout the recovery lifecycle. Future monthly cash flow for each discrete vintage can be forecasted based upon past performance, and then aggregated to create a future recovery projection. The most sophisticated and up to date collections technology platforms, including Experian’s Tallyman™ and Tallyman Agency Management™ solutions provide vintage batch or laddered reporting. These reports can then be used to create scorecards for comparing and weighing performance results of competing agencies for market share competition and performance management. Scorecards As we develop an understanding of liquidation rates using the vintage batch liquidation curve example, we see the obvious opportunity to reward performance based upon targeted liquidation performance in time series from initial placement batch. Agencies have different strategies for managing client placements and balancing clients’ liquidation goals with agency profitability. The more aggressive the collections process aimed at creating cash flow, the greater the costs. Agencies understand the concept of unit yield and profitability; they seek to maximize the collection result at the lowest possible cost to create profitability. Thus, agencies will “job slope” clients’ projects to ensure that as the collectability of the placement is lower (driven by balance size, customer credit score, date of last payment, phone number availability, type of receivable, etc.) For utility companies and other credit grantors with smaller balance receivables, this presents a greater problem, as smaller balances create smaller unit yield. Job sloping involves reducing the frequency of collection efforts, employing lower cost collectors to perform some of the collection efforts, and where applicable, engaging offshore resources at lower cost to perform collection efforts. You can often see the impact of various collection strategies by comparing agency performance in monthly intervals from batch placement. Again, using a vintage batch placement analysis, we track performance of monthly batch placements assigned to competing agencies. We compare the liquidation results on these specific batches in monthly intervals, up until the receivables are recalled. Typical patterns emerge from this analysis that inform you of the collection strategy differences. Let’s look at an example of differences across agencies and how these strategy differences can have an impact on liquidation: As we examine the results across both the first and second 30-day phases, we are likely to find that Agency Y performed the highest of the three agencies, with the highest collection costs and its impact on profitability. Their collection effort was the most uniform over the two 30-day segments, using the dialer at 3-day intervals in the first 30-day segment, and then using a balance segmentation scheme to differentiate treatment at 2-day or 4-day intervals throughout the second 30-day phase. Their liquidation results would be the strongest in that liquidation rates would be sustained into the second 30-day interval. Agency X would likely come in third place in the first 30-day phase, due to a 14-day delay strategy followed by two outbound dialer calls at 5-day intervals. They would have a better performance in the second 30-day phase due to the tighter 4-day intervals for dialing, likely moving into second place in that phase, albeit at higher collection costs for them. Agency Z would come out of the gates in the first 30-day phase in first place, due to an aggressive daily dialing strategy, and their takeoff and early liquidation rate would seem to suggest top tier performance. However, in the second 30-day phase, their liquidation rate would fall off significantly due to the use of a less expensive IVR strategy, negating the gains from the first phase, and potentially reducing their over position over the two 30-day segments versus their peers. The point is that with a vintage batch liquidation analysis, we can isolate performance of a specific placement across multiple phases / months of collection efforts, without having that performance insight obscured by new business blended into the analysis. Had we used the more traditional current month remittance over inventory value, Agency Z might be put into a more favorable light, as each month, they collect new paper aggressively and generate strong liquidation results competitively, but then virtually stop collecting against non-responders, thus “creaming” the paper in the first phase and leaving a lot on the table. That said, how do we ensure that an Agency Z is not rewarded with market share? Using the vintage batch liquidation analysis, we develop a scorecard that weights the placement across the entire placement batch lifecycle, and summarizes points in each 30-day phase. To read Jeff\'s related posts on the topic of agency management, check out: Vendor auditing best practices that will help your organization succeed Agency managment, vendor scorecards, auditing and quality monitoring
Organizations approach agency management from three perspectives: (1) the need to audit vendors to ensure that they are meeting contractual, financial and legal compliance requirements; (2) ensure that the organization’s clients are being treated fairly and ethically in order to limit brand reputation risk and maintain a customer-centric commitment; (3) maximize revenue opportunities through collection of write-offs through successful performance management of the vendor. Larger organizations manage this process often by embedding an agency manager into the vendor’s site, notably on early out / pre charge-off outsourcing projects. As many utilities leverage the services of outsourcers for managing pre-final bill collections, this becomes an important tool in managing quality and driving performance. The objective is to build a brand presence in the outsourcer’s site, and focusing its employees and management team on your customers and daily performance metrics and outcomes. This is particularly useful in vendor locations in which there are a number of high profile client projects with larger resource pools competing for attention and performance, as an embedded manager can ensure that the brand gets the right level of attention and focus. For post write off recovery collections in utility companies, embedding an agency manager becomes cost-prohibitive and less of an opportunity from an ROI perspective, due to the smaller inventories of receivables at any agency. We urge that clients not spread out their placements to many vendors where each project is potentially small, as the vendors will more likely focus on larger client projects and dilute the performance on your receivables. Still, creating a smaller pool of agency partners often does not provide a resource pool of >50-100 collectors at a vendor location to warrant an embedded agency management approach. Even without an embedded agency manager, organizations can use some of the techniques that are often used by onsite managers to ensure that the focus is on their projects, and maintain an ongoing quality review and performance management process. The tools are fairly common in today’s environment --- remote monitoring and quality reviews of customer contacts (i.e., digital logging), monthly publishing of competitive liquidation results to a competitive agency process with market share incentives, weekly updates of month-to-date competitive results to each vendor to promote competition, periodic “special” promotions / contests tied to performance where below target MTD, and monthly performance “kickers” for exceeding monthly liquidation targets at certain pre-determined levels. Agencies have selective memory, and so it’s vital to keep your projects on their radar. Remember, they have many more clients, all of whom want the same thing – performance. Some are less vocal and focused on results than others. Those that are always providing competitive feedback, quality reviews and feedback, contests, and market share opportunities are top of mind, and generally get the better selection of collectors, team /project managers, and overall vendor attention. The key is to maintain constant visibility and a competitive atmosphere. Over the next several weeks, we'll dive into more detail for each of these areas: Auditing and monitoring, onsite and remote Best practices for improving agency performance Scorecards and strategies Market share competition and scorecards
TRMA’s recent Summer 2011 Conference in San Francisco was another great, insightful event. Experian’s own Greg Carmean gave a presentation regarding the issues involved in providing credit to small-business owners. I recently interviewed Greg to get his impressions about last month’s conference. KM: I’m speaking with Experian Program Manager, Greg Carmean, who spoke at TRMA’s Summer Conference. Hi, Greg. GC: Hi, Kathy. KM: Greg, I know I’ve interviewed you before, but can you please remind everyone what your role is here at Experian? GC: Sure, I’m a Program Manager on the Small Business Credit Share side. I work with small- and medium-size companies, including telecom and cable companies, to reduce credit risk and get more value from their data. KM: Thanks, Greg. So last month, you spoke at TRMA’s Summer Conference. What did you discuss? GC: My presentation was entitled, “Beyond Consumer Credit – Providing a More Comprehensive Assessment of Small-Business Owners.” I talked about how traditional risk management tools can provide a point-in-time look at a business owner, but often fail to show the broader picture of the risk associated with all of their current and previous businesses. There is 3-4 times more fraud in small business than in consumer. Business identity theft has become a bigger issue, Tax ID verification is a common problem, and there’s a lot of concern about agents bringing in fraudulent accounts. KM: Why did you choose this particular topic? GC: Well, Kathy, small business is seen as a large area of opportunity, but there can be a lot of difficulty involved in validation, especially when it comes to remote authentication and new businesses. KM: Would you say there’s more fraud in small business than on the consumer side? GC: Believe it or not, there is 3-4 times more fraud in small business than in consumer. Business identity theft has become a bigger issue, Tax ID verification is a common problem, and there’s a lot of concern about agents bringing in fraudulent accounts. Many telecom and cable companies are beginning to adopt more aggressive, manual processes to lower the risk of fraud. Unfortunately, that usually results in lower activation. KM: What can be done about it? GC: Many telecom and cable companies are beginning to adopt more aggressive, manual processes to lower the risk of fraud. Unfortunately, that usually results in lower activation. KM: Sounds like it can be frustrating! GC: It can be, especially for the salespeople who bring in an account, and then find it’s not approved for service. Sometimes clients will pass a fraud check, but not a credit check. One of the topics I touched on is better tools that more accurately identify a small business owner\'s risk across all of their current and previous businesses to alleviate some of these problems. KM: Is there anything else telecom and cable companies should be doing? GC: I think the best risk-mitigation tool when it comes to account acquisition is leveraging information about both the small business and its owner. As they say, knowledge is power. KM: Definitely! Thanks again for your time today, Greg. Share your thoughts! If you attended TRMA’s Summer Conference, and especially if you attended Greg Carmean’s session, we’d love to hear from you. Please share your thoughts by commenting on this blog post. All of us at Experian look forward to seeing you at TRMA’s Fall Conference in Dallas, Texas, on September 20 – 21, 2011.
Like their utility counterparts, communications providers routinely participate in federally subsidized assistance programs that discount installation or monthly service for qualified low-income customers. But, as utilities have found, certain challenges must be considered when mining this segment for new growth opportunities, including: Thwarting scammers who use falsified income data and/or multiple IDs to game the system and double up on discounts Equipping internal teams to efficiently process the potential mountain of program applications and recertification paperwork The right tool for the job Experian’s Financial Assistance CheckerSM product is a powerful scoring tool that indicates whether consumers may qualify for low-income assistance programs (such as LifeLine and LinkUp). Originally designed for (and currently used by) utilities, Financial Assistance Checker offers risk-reduction and resource utilization efficiencies that also benefit communications providers. Automation saves time For example, Financial Assistance Checker may be used to help qualify specific individuals among new and existing low-income program participants, as well as others who may qualify but have not yet enrolled. The solution also helps automate labor-intensive manual reviews, making the process less costly and more efficient. Some companies have reduced manual intervention by up to 50% by using financial assistance scores to automatically re-certify current enrollees. Strengthen your overall game plan Experian’s Financial Assistance Checker may be used to: Produce a score that aids in effective decisions Reduce the number of manually reviewed applications Facilitate more efficient resource allocation Mitigate fraud risk by rejecting unqualified applicants Cautionary caveat Financial Assistance Checker is derived exclusively from Experian’s credit data without demographic factors. While it’s good at qualifying applicants and customers, it may not be used as a basis for adverse action or removal from a program — only to determine eligibility for low-income assistance. Today, acquisitions is the name of the game. If your growth strategy calls for leveraging subsidized segments, consider adding Experian’s Financial Assistance Checker product to your starting lineup. After all, the best offense could just be a strong defense. Link & Learn This link takes you to a short but informative video about LifeLine and LinkUp. See the FCC’s online Lifeline and Link Up program overview here. Hot off the government press! Click to see the FCC’s 6/21/11 report on Lifeline and LinkUp Reform and Modernization
For communications companies, acquiring new accounts is an ongoing challenge. However, it is critical to remember that managing new and existing accounts – and their respective risks – is of tremendous importance. A holistic view of the entire customer lifecycle is something every communications organization can benefit from. The following article was originally posted by Mike Myers on the Experian Business Credit blog. Most of us are pretty familiar with credit reports and scores, but how many of you are aware of the additional tools available to help you manage the entire credit risk lifecycle? I talk to credit managers everyday and as we’re all trying to do more with less, it’s easy to forget that opening accounts is just the first step. Managing risk on these accounts is as critical, if not more so, than opening them. While others may choose to “ship and chase”, you don’t need to. Proactive alert/monitoring services, regular portfolio scoring and segmentation are key components that a successful credit department needs to employ in the constant battle against “bad” accounts. Use these tools to proactively adjust credit terms and limits, both positively and negatively. Inevitably some accounts will go bad, but using collection research tools for skip tracing and targeting services for debt collection will put you first in line for collections. A journey of 1,000 miles begins with a single step; we have tools that can help you with that journey and all can be accessed online.
By: Staci Baker It seems like every time I turn on the TV there is another natural disaster. Tsunami in Japan, tornadoes and flooding in the Mid-West United States, earthquakes and forest fires – everywhere; and these disasters are happening worldwide. They are not confined to one location. If a disaster were to happen near any of your offices, would you be prepared? Living in Southern California, this is something I think of often. Especially, since we are supposed to have had “the big one” for the past several years now. When developing a preparedness plan for a company, there are several things to take into consideration. Some are obvious, such as how to keep employees safe, developing steps for IT to take to ensure data is protected , including an identity theft prevention program, and establishing contingency business plans in case a disaster directly hits your business and doors need to remain closed for several days, weeks, or …. But, what about the non-obvious items that should be included in a disaster preparedness plan? When a natural disaster hits, there is an increase in fraud. So much so, that after Hurricane Katrina battered the Gulf, the Hurricane Katrina Fraud Task Force, now known as the National Center for Disaster Fraud, was created. In addition to the items listed above, I recommend including the following. Create a plan that will put fraud alerts in place to minimize fraud. Fraud alerts are not just to notify your clients when there is fraudulent activity on their accounts. Alerts should also be put in place to let you know when there is fraudulent activity within your own business as well. Depending on the type of disaster, delinquency rates may increase, since borrower funds may be diverted to other needs. Implement a disaster collections strategy, which may include modifying credit terms, managing credit risk, and loan loss provisioning. Although these are only a few things to be considered when developing a disaster preparedness plan, I hope it gets you thinking about what your company needs to do to be prepared. What are some things you have already done, or that are on your to do list to prepare your company for the next big event that may affect you?
Unless you’ve been hiding under a rock, you are undoubtedly aware that the 4G ship has sailed into port. The 4G network is a completely different technology as compared to 3G, the network it is replacing. 3G was fast, but 4G will set the world on fire. It’s kind of like the difference between a farm tractor and a Lamborghini. Rather than just being able to check email and (slowly) surf the net (as with 3G), 4G users will be able to watch live television and rip through online content like nobody’s business. So what does this mean for communications companies? Change device, change carrier? The big question for wireless providers is whether or not customers will change carriers as they upgrade to new, 4G-supported devices. The simple answer is, it depends. Customers who are currently under contract will not likely jump ship for the simple fact that it will cost too much. For example, let’s say I want to upgrade five devices. I can probably buy these less expensively by changing carriers (due to attractive introductory offers). However, if I have to cancel three contracts prior to term end to do it, it may cost me upwards of $1,000—probably more than I can save by changing carriers. For customers who are at the end of a contract term, upgrading to 4G presents a golden opportunity to change providers, if that’s something they’ve been considering. Wireless providers will obviously need to contact these customers well before their contracts are up and make them an offer they simply can’t refuse. Other concerns for wireless providers Obviously, key players in the market have invested a significant amount of money to develop the 4G infrastructure, and sooner or later they’re going to want to recoup those costs. Introductory offers will motivate many to upgrade to 4G, but will all these new/upgrade customers be able to pay the higher monthly bills that will likely come with their new 4G devices? While locking in all these new contracts will positively affect sales quotas, it will be more important than ever to assess these customers’ cash flow situations and credit-worthiness, so they don’t end up negatively affecting the bottom line. Concerns for other telecommunications companies One other interesting aspect to consider is this: With a 4G device, consumers can effectively create their own “hot spot.” So the question is, just as many people are dropping their landlines in favor of wireless, will 4G device users decide to drop their Internet providers? How about their cable television service? I intend to revisit this topic in 3-6 months to see whether early 4G adopters are in fact jumping to different carriers and/or dropping other services. What do you think might happen as 4G becomes the new normal? Leave a comment and share your thoughts.
This paraphrased lament from Coleridge’s Rime of the Ancient Mariner may loosely reflect the predicament facing many communications companies today: afloat on vast sea of customer information, yet, lacking resources or expertise, unable to draw from it much new or actionable intelligence. Not that data mining is ever a small or insignificant task. It isn’t. Even when resources are plentiful, obstacles can loom large—especially across numerous lines of business, where risk can multiply exponentially. Siloed data, disparate customer records and other challenges also make the work difficult, as do: The dynamic nature of consumer information Inconsistent data quality and match logic throughout the enterprise The inability to reliably link active and inactive accounts failing to identify existing customer relationships at the point of application The missing link Experian has seen many communications companies overcome these issues through database linking—that is, connecting, integrating and packaging customer information from several sources into a more cohesive and accessible structure. Linking reduces risk by identifying overlap of consumers with multiple accounts across several lines of business. It also reveals duplicate records, as well as active accounts that may be current in one line of business, but delinquent or inactive in another. The benefits The broader perspective gained through database linking can drive new efficiencies and profitability in many vital areas of your business, from fraud prevention to skip tracing and collections. Should the need arise, newly linked information can also be used to locate elusive customers or former employees for legal purposes. What you can do right now Even if resources are currently limited you can still begin discovery—the process of identifying precisely what data you have, where it resides within the enterprise, how it’s being used, and by whom. This information, perhaps combined with guidance from an experienced external service, can provide a solid foundation from which to begin leveraging (and if indicated, supplementing) existing customer data. We know communications clients who have identified millions of dollars in uncollected bad debt that was linked directly to current, active customers, using a couple of “next generation” data tools. Like the old Mariner, your in-house data has a big story to tell. Question is, are you equipped to hear it? If you like this topic, click here to read the post entitled “Leveraging Internal Data to Create a Holistic View of Your Customers.
As a global leader in providing credit-decisioning information, analytical tools and marketing services to organizations and consumers, Experian is no stranger to telecommunications or to TRMA. In fact, the current TRMA home page reflects this connection, listing Experian as TRMA’s 2009 Best In Class Affiliate Award recipient and leader atop the Fall, 2010 Affiliate scorecard. Finding treasure in Vegas More importantly, however, the page reminds visitors that TRMA’s primary goal is “reducing fraud and uncollectibles in the telecom industry.” Toward that end, they’ve put together a dynamic, information-rich conference for February 22-23 entitled “Sailing towards Treasured Results.” This year, several Experian executives – including myself – will have the privilege of contributing knowledge and expertise to the proceedings. Get connected before, during and after TRMA In these days before the event, I’ll virtually introduce you to each of Experian’s TRMA speakers and give you the opportunity to learn more about them and their topics. During the conference, as time permits, some will be tweeting and blogging their thoughts, opinions and observations. They’ll analyze and unpack conference developments, and share their analysis with our followers and readers. Stop wondering, start following We expect a lot of actionable information from TRMA. So if you aren’t following us on Twitter (@experiancredit) or checking this site regularly, before, during or after the event would be the ideal time to start. You’ll gain a lot of insights from people who really understand telecom’s unique credit challenges and opportunities. And if you\'re attending TRMA, I certainly hope to see you there.
I love a good analogy, and living in Southern California, lately I’ve been thinking a lot about earthquakes, and how lenders might want to start thinking like seismologists when considering the risk levels in their portfolios. Currently, scientists that study earthquakes review mountains of data around fault movement, tidal forces, even animal behavior, all in an attempt to find a concrete predictor of ‘the big one’. Small tremors are inputs, but the focus is on predicting and preparing for the large shock and impact of large earthquakes. Credit risk modeling, conversely, seems to focus on predicting the tremors, (risk scores that predict the risk of individual default) and less so the large-shock risk to the portfolio. So what are lenders doing to forecast ‘the big one’? Lenders are building sophisticated models that contemplate the likelihood of the big event – developing risk models and econometric models that look at loan repayment, house prices, unemployment rates – all in an attempt to be ahead of the credit version of ‘the big one’. This type of model and perspective is at a nascent stage for many lenders, but like the issues facing the people of Southern California, preparing for the big-one is an essential part of every lender’s planning in today’s economy.
Experian Decision Analytics has recorded increased demand from the marketplace for service integrations with interactive voice response (IVR), a phone technology that allows for automated detection of both voice and touch–tones. In the past quarter, there has been a more than 70 percent increase in IVR interest and it continues to grow. Why is there a demand for knowledge based authentication through IVR? Besides consumer acceptance of out of wallet questions, there is a dramatic increase in the need for remote authentication and fraud analytics that are accurate, not a burden to the consumer, cost–effective for organizations and part of an overall risk based authentication approach. Consumers stay connected in a number of ways — phone, online, mobile and short message service (SMS) — and are demanding the means to remain safe without compromising convenience. Knowledge based authentication through IVR provides this safety. Organizations must consider all the tools at their disposal to keep consumer data protected while preserving and promoting a positive customer experience. Given the interactive nature of knowledge based authentication, it is quite adaptable to various customer access channels, such as IVR, and it enables full automation of both inbound and outbound authentication calls. We know from both our own experience and from working with clients that consumers are more connected, more mobile and more networked than ever before - and fraud trends demonstrate this increases risk. As consumers continue to expand online profiles and fraud artists continue to seek out victims, successful fraud prevention will become paramount to financial survival. Leveraging products already in use by combining the technology capitalizes on an existing investment and is good business.
In the communications industry, effective acquisition is a multi-step process, best begun by asking (and accurately answering) simple, but critical questions: Who are our best prospects? Where can we find them? What should we offer them and how? Of course, the “why” is obvious—beating competitors to the punch. The similarities of today’s increasingly undifferentiated products and services make attracting high-quality customers more critical than ever. On the surface, the “who” seems equally straightforward. But it’s surprising how many communications companies still blanket the nation with ads and offers without knowing whom they want to reach or which messages to lead with. This brings us to the “how” of effective acquisition. Banks get it right Banks provide a good acquisition model. In these days of tight budgets and high expectations, most would never dream of investing in a campaign without first creating a well-defined, data-driven segmentation strategy. To get the results they want, institutions usually establish some credit-score threshold, check past payment history and assess other factors and behaviors, before starting up their marketing machine. Not surprisingly, the rewards for this foresight often include higher response rates, lower costs and greater value per promotional dollar. What’s next? Once you zero in on a fresh crop of qualified prospects the “whats” come next: what’s the best marketing channel? What products or services should we offer? What terms? Again, clean historic data, combined with up-to-date information from surveys and questionnaires can reveal surprising insights into why customers choose your company or offer over your competitors’. In communications, as in banking, reliable data is a proven source for answers to a whole slew of customer-acquisition questions. But does it offer similar value in other phases of customer lifecycle management? And if so, how? Funny you should ask. Because that’s exactly what future posts here will cover, so please check back often.
Cell phone use on the rise A Wikipedia list of cell phone usage by country showed that as of December 2009, the U.S. had nearly 286 million cell phones in use. In parallel, a recent National Center for Health Statistics study found that one in every seven homes surveyed received all or almost all their calls on cell phones, even though they had a landline. Study results further indicated, one in four homes in the U.S. relied solely on cell phones. This statistic highlights these households had no land line at all during the last half of 2009. Since this time, the number of households that fall within this category have increased 1.8 percent. Implications for communications companies The increasing use of cell phones, coupled with the decreasing use of landlines, raises some very important concerns for communications companies: The physical address on file may not be accurate, since consumers can keep the same number as they jump providers. The increased use of pre-paid cell phones shines a new light on the growing issue that contact numbers are not a consistent means of reaching the consumer. These two issues make locating cell phone-only customers for purposes of cross-selling and/or collections an enormous challenge. It would certainly make everyone’s job easier if cell phone providers were willing to share their customer data with a directory assistance provider. The problem is, doing so, exposes them to attacks from their competition and since provider churn rate concerns are at an all-time high, can you really blame them? Identifying potentially risky customers, among cell phone-only consumers, becomes more difficult. Perfectly good customers may no longer use a landline. From a marketing point of view, calling cell phones for a sales pitch is not allowed, how then do you reach your prospects? What concerns you? Certainly, this list is by no means complete. The concerns above warrant further discussion in future blog posts. I want to know what concerns you most when it comes to the rise in cell phone-only consumers. This feedback will allow me to gear future posts to better address your concerns.
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