Customer Centricity = Profit Centricity
Janice Horan
Sr. Director, Pre-Sales EMEA
FICO
11 November, 2010
Confidential. This presentation is provided for the recipient only and cannot
be reproduced or shared without Fair Isaac Corporation's express consent.
1
© 2010 Fair Isaac Corporation.
Daniel Melo
Director, Pre-Sales EMEA
FICO
Agenda
» Setting Context: Intensified Competition
» Historical Trend: Personalizing Products,
Depersonalizing Treatments
» Customer Centricity in Practice
» Summary
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© 2010 Fair Isaac Corporation. Confidential.
© 2010 Fair Isaac Corporation. Confidential.
Indebtedness Rose as Consumer Inhibitions
Relaxed
Global consumerism driving increased
indebtedness and insolvency
Relaxed attitudes toward debt evident higher delinquencies, more bankruptcies
and foreclosures
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© 2010 Fair Isaac Corporation. Confidential.
Europe, Middle East, Africa All Experienced
Sizeable Expansion of Credit Markets
» 2003 — 2006 represented remarkable growth European, Middle Eastern and
African markets with 11 markets having almost € I Trillion in outstandings, and
total period growth at 21%
TOP EMEA MARKETS
Consumer Credit Outstanding, 2003—2006
percentage growth
UK
ESP
NL
IT
GRE
GER
FR
20,096
ESP
33%
RUS
POL
280,810
TKY
253%
581%
RSA
€ mm
UK
15%
TKY
TOP EMEA MARKETS
Consumer Credit Outstanding, 2006
74,159
RUS
1,772
RSA
92%
POL
40%
77,585
843
NL
2%
IT
43%
GRE
25%
64,390
15,550
GER
5%
FR
14%
All data sourced through Euromonitor, January 2007
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17,611
© 2010 Fair Isaac Corporation. Confidential.
242,700
129,100
Most European Markets Expected To Continue
Growth Through 2010
IMMATURE WESTERN EUROPEAN MARKETS EXPECTED TO HAVE MOST RAPID GROWTH, 2006-2010
Turkey
Turkey
17.6%
Greece
Greece
14.8%
Spain
37,558
Spain
10.4%
Ireland
7.2%
Ireland
France
7.0%
France
Belgium
6.9%
Belgium
UK
169,090
87,048
13,280
206,644
13,602
UK
6.2%
437,817
Denmark
5.9%
Denmark
39,972
Norway
5.7%
Norway
44,336
Portugal
5.6%
Portugal
7,490
Austria
5.6%
Austria
8,861
Sweden
Luxembourg
Italy
Finland
4.8%
Sweden
4.2%
Luxembourg
4.2%
Italy
3.5%
Finland
Germany
2.6%
Germany
Netherlands
2.4%
Netherlands
Forecasted annual growth in gross advances,
CAGR 06f-10f
11,982
2,266
68,332
17,242
96,622
11,566
Forecasted gross advances in 2010,
EURm
Note: Please refer to the country profiles for detailed information on the forecasts for each market.
Source: Datamonitor, central banks and other statistical sources
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© 2010 Fair Isaac Corporation. Confidential.
Mortgage and Consumer Credit Dominate Debt
Loads for G-7 and EU Countries
COMPOSITION OF OUTSTANDING LOANS TO THE HOUSEHOLD SECTOR IN EU COUNTRIES,
THE US, JAPAN, CANADA AND AUSTRALIA, BY TYPES OF LOAN (2006)
Source: ECRI Statistical Package 2007
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© 2010 Fair Isaac Corporation. Confidential.
Global Credit Environment – The Economy Today
» Economic Turmoil: Unprecedented and continuing combinations of
recovery and reversals
» Reduced Public Spending: General concerns over withdrawal of
stimulus, reduction in fiscal spending, government budget cuts
throughout EU
» Sovereign debt a concern especially for Portugal, Ireland, Greece and
Spain
» UK: Growth with disturbing continuance of unemployment, housing
malaise
» Ireland: 36% average reduction in housing prices with market still
falling
» Spain: Unemployment above 20%, property market still falling
» US: Bailouts being paid back, increased regulatory control of credit
markets, reduced credit demand, lack of consumer confidence, lingering
foreclosure problem hampering housing market recovery
Source for all data: www.Dismal.com Moody’s Economy.com, October 2010
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© 2010 Fair Isaac Corporation. Confidential.
The Environment in Which You Manage
» Grow the portfolio
» Increase margins
» Reduce losses
» Enhance profitability
» Integrate acquisitions
» Spend less to process more
» Comply with an increasing
number of regulations
» Insure data security
» Avoid public relations
embarrassment
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© 2010 Fair Isaac Corporation. Confidential.
More Complex Relationships, More Channels, More
Payment Competition
» Creditors increasingly interacting
with customers on the basis of
their preferences and
convenience
» Utilizing letters and phone calls
almost universally
» Increasingly, experimenting with
SMS text messaging, e-mail
contact, contact with cell phones
» Mobile banking another wrinkle
» Anonymity of internet payment
portals proving very attractive to
debtors
» Higher payment amounts
» Higher rate of kept promises
» Lower collection cost
» Customers have gained leverage
through ease of information
access, convenience of mobile
access
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© 2010 Fair Isaac Corporation. Confidential.
Fighting for Payment Share
» Evidence that payment hierarchy has evolved, making capture of
payment share increasingly difficult
Then
Now
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© 2010 Fair Isaac Corporation. Confidential.
Targeted Risk Approaches All the More Critical
» Most consumers averse to debt
» Many consumers reluctant to
spend
» Debtors experience profound
humiliation when delinquent,
react badly to brute force
collection techniques
» ‘Cumulative effect’ of all collection
efforts reinforces humiliation
» Almost half (49.8%) of the
individuals filing bankruptcy said
that aggressive collection
tactics caused their decision to
file
» Collectors report that others who
are “nicer” to the delinquent
customer got paid; they didn’t
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© 2010 Fair Isaac Corporation. Confidential.
Evolution of Attitudes Towards Credit:
A Return to Lenders’ Historic View
» Give credit only to people who don’t
need credit. Increase approval
standards or exit higher risk product
areas in economic down-turn
» Rely on the 5 C’s, personal
references, and status of existing
customer relationships in decisionmaking for consumer credit
» Aggressively pursue delinquent
payment through phone calls, letters,
statement messages, sometimes
using harsh tone of voice and
dialogue. Rely on manual
intervention to execute collections
strategy
» View use of cash advances and high
revolving utilization as high risk
behaviours
» View ‘the coupon book’ or monthly
statement as the primary customer
account management communication
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© 2010 Fair Isaac Corporation. Confidential.
Traditional Attitudes Had Evolved To Create Credit
Products Emphasizing Flexibility and Convenience. . .
» A more savvy, demanding consumer
» Multiple communication channels, including branch, mail, phone
and internet driving change in consumer leverage
» Significant increase in competition for wallet share even as
financial service and banking sectors consolidate
» One-size-fits-all products giving way to targeted marketing and
flexible product design
» “Rewards” for transaction volume increases
» Low financing rates promoting balance transfers
» “Marketing to one” and “CRM” sales focus
» Fewer customers interested, fewer able to qualify
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© 2010 Fair Isaac Corporation. Confidential.
Changing Consumer Attitudes Through Product and
Technology Advancement.
» ATM transactions encouraged – fees
charged for more expensive teller
transactions
» Online banking emerged, begat mobile
banking
» Websites promoted borrowing tools,
wealth, investment services and
business services, including “easy online instant applications.”
» Together with utility, retailer and lenders,
bank websites that offered:
» Great rates, rewards, sweepstakes,
balance transfer offers and usage
promotions – Choose the product
that’s right for you!
» Market to niche populations for credit:
affinity groups; preferred customers;
ethnic communities; specific
demographic and lifestyle segments.
» One-stop product and service
bundling.
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© 2010 Fair Isaac Corporation. Confidential.
Proliferation of Channels, Products Perceived
Differently by Banks, Consumers
Bank Self-Perception
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© 2010 Fair Isaac Corporation. Confidential.
Consumer Perception
of Banks
Adaptive Control Systems Created Benefit at the
Account Level, yet…
» Focus on product or product sub-population misses “halo
effect”
» Studies since the early 90’s suggest a “Halo Effect” –
Customers having multiple relationships with a bank
tend to behave better and more profitably across all
relationships than do customers with only a single
relationship
» Halo Effect may be
» a form of ‘brand loyalty’ or
» a fear of embarrassment (will my local teller know that I
missed a loan payment?)
» Halo Effect is associated with very real benefits
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© 2010 Fair Isaac Corporation. Confidential.
Technology and the CRM Dynamic Caused
Depersonalisation
» As product designs and marketing worked toward marketing to
one, collections processes became increasingly
depersonalised
» Branch functions moved to centralized call centres and processing
locations, sometimes offsite, sometimes off-shore
» Data came from centralized repositories and databases, instead of
from hand-written files and notes
» Scoring became the determinant of ‘character’ and ‘capacity’
» “Dialling for dollars” replaced by the auto-dialler / predictive dialler
function
» Speaking to a collector replaced by
“Please touchtone or speak your
account number . . . and press “0” to
speak to an operator”
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© 2010 Fair Isaac Corporation. Confidential.
Customer Centric Management:
The Business Case
» Customer centric risk management
means greater exposure control
» Customer centric risk management
means significantly improved
customer retention
» Customer centric risk management
enables balancing of liability and credit
opportunities across the customer
relationship
» Customer centric risk management
means lower credit losses
» Customer centric risk management
can create regulatory compliance and
may ultimately lower capital
requirements
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© 2010 Fair Isaac Corporation. Confidential.
Customer Management:
The Value of a Customer View
» Regulation increasingly stressing need for identification of borrower
exposure across the enterprise
» Today, only 31% of responding North American issuers have systems
allowing customer view and more than 85% of issuers set policies at
account level
8.8
Coincident Loss Rate
8.6
Coincident loss rates are
14% lower on average for
issuers with customer
views, while Fair Isaac
experience suggests
even greater difference in
results.
8.4
8.2
8
Rate 7.8
7.6
7.4
7.2
7
6.8
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Account-Only View
© 2010 Fair Isaac Corporation. Confidential.
Customer View
Results of Adaptive Control and Collections
Automation Techniques at the Customer Level
» Increasingly, FICO clients seek to bundle financial service products,
and address their customer’s credit performance across all of their
product relationships.
» One TRIAD Customer Manager client using its full customer view
Doubled size of its client base in one year.
Reduced 90 day delinquency by over 40%.
Reduced loan loss provisions by 60%.
» Another TRIAD client using it for multiple relationship view, and
seeking to automate its account management functions while not
losing site of high risk accounts:
Increased response rates and amounts borrowed by 17% on key products
while reducing losses.
Reduced back office staffing by 90%.
» Benefits derived through combined effect of better resource
prioritization and allocation while seeing the sum of the parts to address
the whole customer relationship.
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© 2010 Fair Isaac Corporation. Confidential.
Where Customer Centric Focus Exists….and Where
It Does Not: Database Marketing
» Market saturation, affinity products, aggressive growth strategies create
multiple exposures within the same customer and household wallet
» Aggressive pace of mergers and acquisitions created overlapping
product exposures within the organization
» Focus toward Customer Centricity first began through a process of
investment in CRM databases
Combined portfolio
Original
Lender
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© 2010 Fair Isaac Corporation. Confidential.
Acquired
Lender
with overlapping
customer
relationships
Where Customer Centricity Is Practiced….and
Where It Is Not: Sales
» Frequently associated with sales and marketing CRM
focus
» Multiple surveys showed that CEOs could not determine
return on CRM investments if database or sales only focus
» CEOs could define operational and loss savings where
customer view fully embraced in risk management and
corporate psychology
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© 2010 Fair Isaac Corporation. Confidential.
Where Customer Centricity Is Practiced….and
Where It Is Not: One -Stop Collections
» Second most frequent
early adoption of customer
focus was in the
collections function
» One-stop collections
processing grew through
customer demand
» Customers complained
about receiving 3 calls
about 3 different
delinquent products with
the same organization,
creating stronger sense of
humiliation
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© 2010 Fair Isaac Corporation. Confidential.
Where CRM Is Practiced…. Europe, Canada, South
America….
» Europe, Canada and South America embraced
the customer management model first
» Privacy restrictions preventing pre-screening
caused financial service companies to look
inward
» Less likelihood of access to positive data within
bureaux data required closer look at customer’s
internal behaviour
» Economically proven more expensive to book
new customers than to cross-sell to existing
customers
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© 2010 Fair Isaac Corporation. Confidential.
Where CRM is practiced…. Asia Pacific
» Asian market lagged in
infrastructure investment
» Past reliance on labour
intensive methods – now
intent on “leap-frog”
development of infrastructure
» Bureau data typically ‘negative
only’ or restricted use
permitted
» Yet World Bank indicates Asia
ahead of Europe in bureau
sophistication and access
» And Australian banks highly
customer focused
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© 2010 Fair Isaac Corporation. Confidential.
Where CRM Is Practiced….and Where It Is Not:
The United States….
» US growth and account focused
» Pursue growth through mass marketing,
enabled by pre-screening
» Positive bureau data, bureau scores
created external customer view
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© 2010 Fair Isaac Corporation. Confidential.
CRM – Customer Relationship Management
vs. CCM – Customer Centric Management
» Highest investment returns for CRM
occur where Centricity involves Risk
Management
» Current customer risk management
capabilities include:
» Customer level scores, analytics,
treatments
537 - 616
429 - 588
278 - 783
690 - 631
454 - 166
583 - 926
» Inclusion of deposit, current account
»
»
»
»
relationships
Customer delinquent and overlimit
collections
Customer exposure management
Customer communications and crossselling
Customer level authorizations
» Customer level reporting and analysis
» Customer Centric Decision Models
(optimised strategies)
» Economic Impact Assessment
» Decision Graph strategy visualization
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© 2010 Fair Isaac Corporation. Confidential.
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Chief Challenges of Customer Centricity
537 - 616
429 - 588
Defining “Customer”
Defining Strategy
Ownership
278 - 783
690 - 631
454 - 166
583 - 926
Agreeing to “Bad”
Definitions
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Aggregating
Development Data
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© 2010 Fair Isaac Corporation. Confidential.
Coordinating
Product and
Customer Issues
Maintaining
Political Will to
Manage the
Customer
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Summary and Conclusions
» Technology has simultaneously
enabled the development of highly
targeted, flexible and convenient
contact, and the depersonalization of
the customer interaction
» Debtor payment priorities and
customer loyalties are influenced by
both technical and philosophical /
‘friendly’ treatment approaches.
» ‘Friendly’ treatment requires more
targeted and precise approaches,
supported by customer level
analytics, treatments and decision
models.
» Customer Centricity drives Customer
Profitability, increases satisfaction,
decreases losses and capital needs
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© 2010 Fair Isaac Corporation. Confidential.
537 - 616
429 - 588
278 - 783
690 - 631
454 - 166
583 - 926
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THANK YOU
11 November, 2010
Confidential. This presentation is provided for the recipient only and cannot
be reproduced or shared without Fair Isaac Corporation's express consent.
30
© 2010 Fair Isaac Corporation.