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Strategic Customer Management for SME portfolios - Part 2
Head of SME Lending EMEA
This article is second in a 2-part series that explores SME customer management. The first article focused on the concept of customer management in the context of SME lending, and the benefits of automation for the organisation, for its customers and its staff. This second part will describe the Experian approach to optimize SME customer management, with two case studies where this has been implemented.
Customer Management Solution
The diagram below outlines Experian’s best-practice architecture, highlighting the use of data, decisioning and MI across the originations, customer management and collections arenas, with control maintained by the business.
Taking each element in turn:
- In-House Data — Core Banking systems will hold all key data on how accounts are currently being operated, covering transactions, limits, missed payments, etc. To enable a Customer-Level View to be held, the customer management system will maintain the linkage between individual accounts and customers.
- Credit Bureau(x) — These will hold information on how a customer is performing with credit agreements both within an organisation and, more important, outside of that organisation. This information provides a holistic view of the customer — both the business and the people behind it. Using full personal and business information can improve decisioning discrimination by up to 49 percent. The data held can be used to:
- Verify and authenticate the applicant’s identity.
- Check the entity’s payment performance history with other lenders and suppliers
- Check the entity’s financial statements
- Check for inconsistencies in personal details
- For Originations and Customer opening, checking against internal customer performance data sources should be carried out in real time to identify previously rejected applications, existing bad accounts or known high-risk profiles. It is equally important to acknowledge established good-risk customers where a quick decision can be reached. For many banks, lending to existing customers accounts for nearly 80 percent of their total lending. The information that the Banks have via the customer’s account transactions and behaviour provides a powerful insight into the financial health of the customer’s business. This contrasts sharply with a new customer (start-up or switcher from another bank), where all information has to be requested.
The customer management system controls all aspects of ongoing credit risk management. As in the Origination process, consumer and business credit bureau data should be used in conjunction with internal customer performance data (e.g., current account data and customer contact history, if available).
A suite of customer-level behavioural scores should summarise all available data into key indicators of future behaviour and applied to key segments such as strength of relationship, time delinquent and product type. The customer management solution should be able to run monthly and daily. From a monthly perspective, behavioural scores can be set along with lending limits, shadow limits, etc.
With daily processing, this will be more “event based” and will be driven by either changes in internal data (missed payment, increased utilisation, excesses and customer contact) or bureau data (CCJ noted, missed payments elsewhere and legal notices, e.g., liquidator appointed).
“Real-Time” processing also will be required in this area to make decisions driven by interactions with the customer such as authorisations, customer contact and real-time collections (following a customer flagging an event), etc.
- With the strategic Collections solution, all available data is used to assess triggered customers. This will be internal behavioural data covering both the customer and his or her associated accounts, bureau data and events as well as current and previous information to assess whether contact should be made and the harshness therein. This could be from Pre Delinquency through to Collections and onto Recoveries. Within this whole process, data from all areas is used to assess the customer and what actions should be taken.
In the Originations, Customer Management and Collections processes, segmentation, scoring, setting of limits/actions and strategies should utilise a highly flexible, enterprise-wide decision management tool with test/control facilities that is controlled by the business.
This area should have access to all relevant data from all points in the process along with the appropriate outcome data to enable:
- All MI to be produced
- The value of both internal customer data and external credit bureau data to be maximised
- The ability to “simulate” change in order to make the most effective decisions
- Strategy changes to be robustly tested
- Enterprise-wide decisioning to be applied
As can be seen, the customer management system sits at the heart of this whole infrastructure. As 80 percent to 90 percent of all interactions within SME in a Retail Banking environment are with existing customers, the importance of a strategic customer management platform sitting at the centre of everything, helping to drive all aspects of interaction with a customer, cannot be understated.
Conclusion and case studies
As can be seen above, there are multiple benefits around the adoption of a strategic approach to customer management. Where automation has been successfully implemented, organisations have seen significant benefits in terms of:
- Faster responses to customer requests
- Better customer service
- Lower cost of operation from quicker decision making
- Consistent treatment of customers; the same decision regardless of who provides it
- Credit policy applied effectively and with credit risk managers having full control over its use and application
- Increased profit
- More time available for staff to devote to profit-generating activities such as cross-sell and up-sell
The case study below highlights the benefits that one leading Banking organisation realised from moving to a strategic approach to customer management.
Case study 1
As can be seen with the lender above (a large Retail Bank), the lender implemented a strategic customer management solution in the 1990s and has gradually improved elements of the overall solution by including additional levers and drivers to it and enhancing with daily processing to the position where it is a world-class solution. The benefits realised and rewards for the organisation have continually outstripped the Return on Investment at each stage.
Case study 2
Benefits realised by a European bank on implementing a full customer management solution:
- Significant decrease in customers becoming delinquent through early warning of risk and proactive action
- Decrease in nonperforming lending ratio of 35 percent for small business since implementation
- New provision cost decreased by more than 20 percent for the small-business segment, with better risk control
- Decrease of 25 percent in exposure to risky customers with suitable management strategies and timely collections activity
- Improved collections results through targeted strategies and focused resources