Top 5 Customer Development Posts of 2021

Managing risk and improving the customer experience during a pandemic presented credit professionals with new sets of challenges. The most popular posts in our Customer Development category dealt with credit card payments, open banking, trends for financial services and small business lending - as well as FICO's listing as a top risk management firm.

Here are extracts from those posts.

The Impact of Covid-19 on Credit Card Payments

Stacey West wrote: The US started to see the decline in the percentage of delinquent accounts a month earlier than Canada and two months earlier than the UK, and overall did not experience the peak as per the others. The UK increase lasted a month longer. Canada has the highest percentage of delinquent accounts, over 2.5 times the proportion seen in the UK, which produces the lowest percentage. This is influenced by the significantly higher one-missed-payment rates, due to the UK having a much higher take-up of accounts paying by direct debit (automatic payments), 43% compared to approximately 15% in the US and 9% in Canada.

The UK government support and US and Canadian stimulus packages combined with the extra savings and "payment holiday" programs have resulted in low delinquency rates, masking the numbers of consumers in financial difficulty.

As with the percentage of delinquent accounts, the US did not experience the peak for the percentage of delinquent balances compared to total balance. Again, Canada produced a much higher percentage than the UK (+63%) and US (+42%). The US has experienced two months of growth as per the percentage of accounts. The UK furlough scheme started to wind down as of 1st July, with the government support deceasing from 80% to 70%, so we will start to see the impact of this in the coming months.

For two-missed-payment rates, all regions have seen much lower results compared to last year and before the pandemic. The US again did not see the same uplift in the early months that both the UK and Canada experienced due to the slower release of stimulus in the US. Canada produced the highest proportion of accounts and balances missing two payments and the UK the lowest. The US is currently trending towards exceeding Canada for percentage of accounts missing two payments.

However, the UK produces the highest average two-missed-payments balance, despite the lower limits. It is the only region to be higher than June 2019, prior to the pandemic, by 5%, compared to a drop of 9& in Canada and 23% in the US. In January 2020 the UK reported £31 below the Canadian average and by June 2021 the UK was £347 above. This indicates that in the UK those most under financial pressures are those with the higher balances, and this may also be the result of more lax collection approaches taken earlier in the pandemic. The US reached over a two-year low in June, falling $440 in two months, so the additional consumers missing two payments are doing so with lower balances. The UK has higher balances compared to the US, and this could be due to several factors, including higher initial limits with limited or no affordability checks on unused credit on a regular basis, less stringent affordability checks for new limits and increases in limits, and less focus in collections on higher-balance accounts.

Over the coming months, having a strong collections process will be essential. It is still unclear how many consumers will suffer financial hardships due to ended support, and, in the UK, due to the "no payment" period for the early adopters of government business loans starting to expire. Lenders with a variety of communication channels open to them and the ability to choose the most appropriate for each of their customers will provide the best service to their customers.

Read the full post: The Impact of Covid-19 on Credit Card Payments

Open Banking: Are You Ready to Become a Banking Ecosystem?

Zeynep Salman wrote: The 2020s will be the age of Open Banking. The winners will be providers offering a platform showcasing a mix of in-demand products and services that go far beyond customers' traditional financial needs.

In a 2019 Accenture poll, the vast majority (88%) of executives from 120 global banks said emerging ecosystems would change the bank-customer relationship forever.

Are You Ready?

Building a successful ecosystem is no mean feat. Having determined the key customer segments to focus on, identified how to get the maximum value from your platform, and designed a multi-year strategy and operating model, there's also the tricky question of analysing the technological capabilities your ecosystem needs.

1. Data ingestion - Data feeding your ecosystem will come from numerous sources and multiple formats. Can you access all internal data regardless of its location or format? Differing customer activities happening right now need to be captured to trigger and inform real-time decisions. Are you able to accurately capture real-time, streamed data?
2. Use of external data - Several third-party data providers and partners can be plugged into your ecosystem. Are you able to access, gather and transform valuable external data to help drive appropriate real-time customer decisions?
3. Characteristic library - Success hinges on creating predictive characteristics from the ecosystem's available data and turning them into usable insight to offer the right customer decisions at the right time. How quickly are you able to do this today?
4. Microservices - As business users in your ecosystem gather and enrich data to develop analytical models, models will need to be refined and operationalised to deliver appropriate customer decisions - across credit, risk, fraud and other decisions. For example, is application fraud or suspicious behaviour being flagged up accurately?
5. Data orchestration - At any given moment, numerous complex decisions between business users and partners will be underway and will need to be understood. Are you able to accurately visualise and understand the complex decision-making processes?
6. Data governance and reporting - Naturally, there will be high volumes of data transactions constantly underway within the ecosystem. Complex automated decisions are being made in fractions of a second, constantly challenging your ability to leverage and track streamed data. Do you have a robust tracking repository for reporting data across ecosystem users?
7. Business authoring - Ecosystems within other sectors often have authoring environments shared with fellow commercial partners. They're kept open to any ecosystem member so that they can add new capabilities and activities to the ecosystem. Are your non-technical users able to create decision services? Are you able to test and verify new business authoring rules before deploying into production?
8. Simulating business outcomes - Before accepting a new partner or adding a new component, understanding its potential impact on the ecosystem users is vital. Can you create differing scenarios and apply 'what-if' analysis to understand the impact?
9. Customer lifecycle services on a single platform - Assuming your ecosystem is built to mainly focus on the financial needs of your customers, it's likely to be a marketplace for banking services, insurance, car rental, home ownership, travel money and more. But an equally accurate understanding and 360-degree view of customer data, including demographics, payment behaviour, spending, location, activity, or favoured device, are all vital in providing timely, personalised and precise customer decisions. Offers can underpin the marketing of a new product/service, new financing, expansion of a new credit line, delinquency management, or fraud prevention, right across the customer lifecycle. But can you consistently provide the right collaborative and efficient approach across separate teams? Are they siloed, or can they get access to the same level of data to continually offer the best customer decision?

FICO can provide you the technology platform you need to transform your company into a modern age financial ecosystem.

Read the full post: Open Banking: Are You Ready to Become a Banking Ecosystem?

FICO Is a Top 10 Risktech Company in the 2022 Chartis Risktech100® Report

Darryl Knopp wrote: The 2022 Chartis RiskTech100® Report is live, and I am proud to announce that FICO ranked 6th overall in the annual report and was named the category winner for:

• Innovation (5th consecutive year)
• Artificial Intelligence Applications
• Financial Crime - Enterprise Fraud
• Retail Credit Analytics

What a way to wrap the year! We are honored to be included and congratulate all the organizations who were also recognized.

In support of our win, Sid Dash, research director at Chartis Research stated, "FICO's top-ten ranking reflects its focus on a cloud-based applied intelligence platform. This involves operationalizing AI and predictive analytics to break down silos and become central to client operations. FICO's win in the Innovation category for the fifth consecutive year highlights its commitment to innovation and developing technology that is relevant in today's market."

FICO remains at the forefront of the industry with our responsible artificial intelligence and machine learning technology. We are committed to helping financial institutions deliver on their digital initiatives while meeting and exceeding customer expectations. FICO's analytics solutions empower clients to better utilize large volumes and variety of data from across the enterprise to make real-time decisions. The FICO experience in applying predictive analytics to critical risk management and profitability challenges are unparalleled in the industry.

Read the full post: FICO Is a Top 10 Risktech Company in the 2022 Chartis Risktech100® Report

Report: 2022 Trends for Financial Services

Darryl Knopp wrote:

After conducting numerous surveys and a great deal of research during the past year, FICO has uncovered several illuminating trends that are emerging in the financial services industry. These five trends have been compiled into the new FICO 2022 Trends Report, which discusses each trend and highlights what organizations should be doing to succeed in the coming year (and beyond).

Playing Digital Catch-Up

According to a report by Deloitte, 80% of consumers who depended on cash and checks as their main forms of payment before to the pandemic said they plan to use more digital payment tools in the future. However, the report also revealed that 90% of banks experience issues related to digital transformation - including lack of enterprise preparedness, inconsistent data regimes, and constraining investor expectations.

It's clear that banks have been struggling to keep up with the already growing demand for digital solutions that was suddenly accelerated by the pandemic. "Parts of many industries are process-heavy and people-reliant, and are not able to detach themselves from the classical ways of doing things," says Bart Pietruszka, CDO and Head of Analytics at HSBC.

The digital experience landscape will be different going forward - now it's the battleground. In fact, the main attrition driver for financial institutions is a poor banking app. Over 50% of customers said that a well-designed banking app is a primary consideration factor when choosing a bank.

Read the full post: Report: 2022 Trends for Financial Services

Filling the US$3.4 Trillion SME Funding Gap

Nick Myatt wrote: Even before the impact of the pandemic started to bite, banks were being asked to help bridge an estimated US$3.4 trillion SME funding gap in unmet trade finance, with demand for funding of small businesses rapidly becoming an acute challenge.

Rejection rates have always been higher among micro-businesses, small and medium-sized enterprises, due to the higher costs of serving customers, higher risk profiles for banks, alongside a lack of traditional data to enable accurate evaluation.

As a result, there's a tendency to over-compensate when lending to SMEs, due mainly to lack of viable application information, lack of industry knowledge, gaps in financial performance, or missing collateral guarantees. Know-your-customer (KYC) concerns and the need for more comprehensive information about applicants are among the two top reasons for rejecting SME borrowing. But access to the broadest datasets available, investment in the right technology and application of AI and automation, can be a win-win for all parties.

Data

SME lending often gets turned down due to lack of information about the applicant, limited transaction history from being too new, or the wrong data being provided for funding applications. But as the global data universe expands with access to new and alternate datasets, in part driven by Open Banking, social media insights, web data, analysis of order books via the integration of accounting software, so does the scale of lending opportunities - as long as the mass of information can be accurately shared, segmented and analysed appropriately.

Technology

Lenders and banks believe new technologies from artificial intelligence, machine learning and even blockchain could help significantly improve an SME's access to trade finance. Technology can help deliver accurate KYC and financial crime checks through automation, AI and machine learning techniques. Machine Learning can also assist with categorising bank statement data to calculate accurate levels of income, expenses, and affordability for businesses.

Plugging In to Accurate Insights

Cost-effective SME financing can be quickly improved by plugging directly into APIs that offer investment, transactional bank and financial information underpinned by alternative scoring models based on enriched data. So-called 'open APIs' help both companies and their lenders share crucial information in near real-time to get a better understanding of affordability levels and make better-informed decisions. Companies can automate their payments and cash management from a single portal across multiple banks, while lenders can use open APIs to connect and share information with each other. It's also a fast route to new financial eco-systems.

Read the full post: Filling the US$3.4 Trillion SME Funding Gap

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