Preventive Collections - FICO presentation is provided for the recipient only and cannot be...

Confidential. This presentation is provided for the recipient only and cannot be reproduced or shared without Fair Isaac Corporation's express consent.

© 2010 Fair Isaac Corporation. 1

Preventive CollectionsDealing with Distressed Customers

June 2010

Daniel MeloDirector, Pre Sales EMEA+34 608 477 [email protected]

© 2010 Fair Isaac Corporation. Confidential.2 © 2010 Fair Isaac Corporation. Confidential.2

Agenda

» Defining “preventive” collections

» Identifying portfolio segments

» Current “best practices”

» What’s on the horizon?

» Conclusion

© 2010 Fair Isaac Corporation. Confidential.3

Objectives for Consumer Lending Collection Processes

Source: TowerGroup

Know Your Customers

» Identify risk of default each customer represents, propensity to go delinquent and to roll

» Use internal and external data sources to create customer insight and for tracing

Understand Customer Behaviour

» Use analytics and data intelligence methods to assess customer abilityand propensity to pay

» Prioritise cases to drive increased returns

Target Customers

» Use segmentation and scoring to develop and execute best collection strategies for collection operative use

» Optimise contact channel usage

Interact with Customer

» Use workflow and case management tools

» Adopt champion/challenger strategies: continually ask, “Are we doing all we can to achieve payment in the most cost-effective way?”

Customer Management Strategies:Access and Manage Data to Gain Customer Insight

Collection Process Management Strategies: Minimise Cost


How Is Your Organisation Organising Collections Management Strategies?

Data-Driven Event and Strategy Triggers

Cross-sell, line increase, retention strategies

Immediate action required: line decrease, freeze, closure; determine best collection strategies

Action required, strategies for varying levels of risk

Determine best strategy when customer profile changes: score migration, new trades, derogatory information

Majority of losses come from minority of accounts: analytics and segment for best treatment—may require new info at origination

StatusCurrent

High

DelinquentLow

Risk

Source: TowerGroup


Outsourcing

The Collections & Recovery Continuum

» Preventive Collections

» Currently a focus of initiative in many markets.

» Taking an action on an account that is not delinquent and not over-limit.

» Set of actions to help reduce or manage future losses on high risk or stressed customers.

Debt SalePre-

Collections

Early

Stage

Collections

Mid-Late

Stage

Collections

Recoveries

Non-Delinquent Day 1 Delinquency Charge Off Asset Transfer


How to Identify the Proper Segments

» A combination of internal, external and transaction level data:

» The behaviour risk score should be used to segment high risk customers. » In markets with credit bureau scores

a combination of credit bureau score, behaviour risk score and transaction score

» In markets without bureau scores, a check for negative bureau. This can be considered an external “knock-out” rule or disaster check.


How to Identify the Proper Segments

» Other criteria that can be used to segment high risk accounts include:

» Low balance amount

» Habitual delinquency and balance building pattern exists

» Recent activity—including:» Out of pattern large purchases

» Increased time since last payment

» Increase in number of payments

» Shift to payment of minimum due rather than balance in full or payment received progressively later in each billing cycle


Actions to Be Taken

» Once the pre-delinquent population has been identified, there are 3 categories of action that can be taken:

1. Contact details improvement

2. Decreasing of exposure

3. Collections action

A call is the last action!


Contact Details Improvement

» Accounts should be flagged in customer service.

» This should include all points of contact. Customers should also be asked for their contact preference

» There have been return statements or other undeliverable mail sent to the current mailing address for the customer?

» In such cases, it is appropriate to also check telephone numbers for viability.

» Skip tracing action should occur as soon as the lack of contact viability be determined.


Decreasing of Exposure

» Consideration should be given to whether exposure limits should be moved down.

» Line decreases should allow accumulation of potential interest and penalty fees under the assumption that the current balance may not be paid on a timely basis.

» Other accounts held by the customer could also potentially be examined.

» The creditor for revolving accounts may determine that future purchases and cash requests should be blocked systemically.

» Use of dialler systems enables the creditor to check the entire segment of high risk accounts for contact viability.

» Various services which provide electronic telephone directory services can be enabled as part of this effort. Credit bureau information and skip trace or location services can also be engaged.


Collections Action

» If the creditor determines that it should make collections-type contact with some portion of very high risk accounts, collections representatives with strong negotiation skills should makethese calls.

» Creditors may wish to recommend credit counselling services, budgeting processes, credit education resources, or other third party negotiation tools.

» Creditors may also wish to provide customers with anonymous means by wish to make payment arrangements, including web portals.

» Pre-delinquent treatment culminating in customer contact may be perceived as being especially aggressive or threatening, and could cause the customer to stop making payment, or otherwise damage customer relationships, so this should be tested on a Champion/Challenger basis.


Discussion Questions

» How do you define “preventative” collections?

» How do you identify accounts or customers that warrant “preventative” collections?

» What collection actions have you taken with these customer segments?

» Which collection actions are producing the best results?

» What “preventative” collection actions would you like to take but have not or cannot?

» What are the obstacles to those new actions?

» How have you been overcoming obstacles?

© 2010 Fair Isaac Corporation. Confidential.14 © 2010 Fair Isaac Corporation. Confidential.14

“If you know the client and know yourself, you need not fear the result of a hundred challenges.

If you know yourself but not the client, for every victory gained you will also suffer a frustration.

If you know neither the client nor yourself, you will succumb in every challenge.”

Adapted Sun Tzu

Knowledge Source of Success!

Confidential. This presentation is provided for the recipient only and cannot be reproduced or shared without Fair Isaac Corporation's express consent.

© 2010 Fair Isaac Corporation. 15

THANK YOU

June 2010

Daniel MeloDirector, Pre Sales EMEA+34 608 477 [email protected]

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