Experian Panorama

In-depth articles, interviews and debates covering local and global topics related to the Experian business expertise.

Strategic Customer Management for SME portfolios

Stephen Gildert
Head of SME Lending EMEA

Customer Management (or account management) has been a defining feature of Retail Banks for many years, particularly in the field consumer lending. However, within Small to Medium Enterprises (SME) portfolios, this feature has been adopted in a less uniform manner, going from some of the most sophisticated and leading-edge practices within Retail Banking as a whole through to very rudimentary practices with offline scores created but utilised infrequently.

This series of two articles will explore SME customer management and the benefits that can be realised from introducing a strategic approach. It will look at the features of a leading-edge approach to SME customer management and provide practical insights on key areas. This first article will focus on the concept of customer management in the context of SME lending, and the benefits of automation. The second part of this article, that will be published in the Spring edition of Panorama will describe the Experian approach to optimize SME customer management, with two case studies where this has been implemented.

Using automated tools for customer management has enabled retail lenders to materially reduce the cost of lending and improve service to customers whilst maintaining portfolio quality within the lenders’ risk appetite. Typical results include: 

  • Time to decision reduced by 20 percent to 30 percent
  • Cost efficiencies of 5 percent to 10 percent
  • Improved Bad Debt rates of between 1 percent and 5 percent

The tools described currently are used extensively in the consumer lending arena but are equally as capable of being used within the SME environment with similar results. Most SME lenders are not as advanced in terms of automation as Retail Consumer lenders.

Customer management and benefits from automation

Strategic SME Customer Management Components

Customer management is the systematic use of data, analytics and software to create customer insight and intimacy to undertake actions and generate better returns on SME portfolios, particularly from Lending activities. This includes, though is not limited to:

  • Behavioural Scoring
  • Basel Models and Use Test
  • Forecasting of Bad Debt and Provisioning levels
  • Limit Management (Increases and Decreases)
  • Automated Renewal of facilities
  • Risk-based Pricing
  • Pay / No-pay decisions
  • Early Warning
  • Early Collections
  • Cross-sell and Up-sell

Many institutions with large SME customer bases find it impossible to cost-effectively address the needs of SMEs without a strategic set of tools and processes to help them. With effective customer management tools, vast swathes of the above areas can be automated to reduce human intervention and thus costs and simultaneously improve customer service. The use of automation also enables staff to be targeted into the most appropriate tasks, such as revenue-generating activities (knowing what the limitations on lending are up front and thus reducing research for relationship managers) and bad debt management.

Where automation has been successfully implemented, organisations benefits have included:

For customers

  • Faster response to their requests, e.g., cutting the time to decision from days to minutes. Speed of lending decisions is of primary importance to SMEs and tends to override any price sensitivity.
  • Less time wasted reproviding information that already has been supplied and that the organisation should know already, e.g., length of time the business has been in operation.
  • Better intimacy as their lender uses the information it has to proactively manage the customer, e.g., calling when there is change in payment patterns.

For the organisation

  • Lower cost of operation from quicker decision making, optimised processes and reacting quickly to a customer’s change in circumstances. It is not uncommon to see 5 percent to 10 percent operational cost saving.
  • Consistent treatment of customers and the same decision regardless of who provides it.
  • Credit policy applied effectively, with credit risk managers having full control over it.
  • Enterprise-wide customer risk knowledge.
  • Higher profitability from better pricing decisions.
  • Lower cost base from effective use of
  • Lower bad debt rates, typically between 1 percent to 5 percent.
  • Higher quality of customers.

For the staff

  • Less time spent collecting information that is already available. Some organisations key the same data five times as part of a lending decision for a strong existing customer. Automation removes this.
  • Faster processes.
  • Less paperwork to complete.
  • More knowledge of their customers’ financial behaviour.
  • Risk data at their fingertips.

This is the first instalment in a series of 2 articles that will explore a strategic approach to SME costumer management in Banking. The second part will be published in the Spring edition of Experian Panorama.

This article is based on extensive research presented in the whitepaper Customer Management for SME portfolios. If your organization would like to learn more on how to optimize SME customer management, please fill the form below to request a copy.

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