» insights

satisfying Customers and Regulators: Five imperativesFocus on customer experience to increase compliance and relationship value

Regulators and consumers both want more from banks. While regulatory guidelines and

consumer rants in social media may use different language, they’re both aimed at the same

thing: improving customer experience.

There’s abundant evidence that falling short on customer experience is costly—from press

headlines about compliance penalties to rising numbers of consumers switching banks or

turning to alternative lenders. But there’s also growing evidence that focusing on improving

customer experience is rewarding. Banks that do it well benefit from an early warning system for

compliance risk exposure. And studies show that customer experience is also a powerful driver

of financial performance, including substantial gains in share of wallet, revenue and profitability.

This paper is about the new competitive ground in retail banking:

delivering impeccable treatment and outstanding customer experiences

to increasingly savvy and selective consumers. It’s based on FICO’s work

with banks moving to put customers at the center of their operations—

some undergoing massive organizational reinvention, some taking small

incremental steps.

We examine five imperatives—from the customer’s point of view—for

delivering a better customer experience:

1. “Treat me fairly”

2. “Understand me and show it”

3. “Make this fast, easy and secure”

4. “Don’t interrupt me unnecessarily”

5. “Assist and reward me”

The paper discusses the implications of these imperatives for originations, customer

management, collections and fraud management.

Number 75—February 2014

www.fico.com Make every decision countTM

Learn how a leading bank boosted customer profitability by 9%

www.fico.com page 2

Satisfying Customers and Regulators: Five Imperatives

» insights

The need to avoid financial and reputational damage from the consequences of noncompliance

is causing many banks to change how they operate. As global consulting firm KPMG points out,

“regulatory reform is perhaps the biggest driver of change” for European banks. In the Americas, “new

rules can lead to huge fines and successful compliance to great profit.” In Asia Pacific, increasingly,

bank “business models are being impacted by regulation.” 1

But regulatory pressure and the soaring costs of meeting it are not diverting the

savviest institutions from another operational transformation: becoming customer-

centric. Leading banks in markets around the world have put customer centricity at

the top of their agendas—some as the result of CEO mandates.

In fact, it’s becoming clear that these two efforts are complementary and most

effective when joined. Consulting firm PwC said in an August 2013 report that

banks need to expand the focus of their compliance efforts.2 “We see leading

banks shifting from a narrow, rules-based, technical focus to one that extends

to business acumen, improvement of the customer experience, and operational

understanding.” Without this more integrated approach, the PwC report concludes,

“many banks will continue to face high costs and losses in the form of escalating

litigation, penalties, and staffing needs.”

Case in point: Consider the misstep some US banks made in 2011 by trying to

charge fees for debit card transactions. In her article, “Why Customer Experience

Management Is the Antidote to Risk,” Patricia Sahm, of Carlisle & Gallagher

Consulting Group, says that if these banks had paid attention to data showing that

consumers abhorred such fees, they could have avoided the ensuing damage.3

“Within days, there were very public and loud outcries from consumers. In the end,

many banks retracted the fees, but at a significant reputational loss and regulatory

scrutiny.” Better customer experience management, says Sahm, “could have

prevented the introduction of risk to the system in the first place.”

Apart from the benefits for reducing compliance risk and costs, improving customer

experience is more important than ever for retaining and building valuable

relationships. Today, consumers can easily search for and compare banking products

and services from an expanding universe of possibilities. Habits and attitudes that

used to keep consumers with their banks year after year are falling away.

In fact, Ernst & Young’s 2012 Global Consumer Banking Survey found that the proportion of

customers planning to change banks had grown by 70% in just one year. The top reason, according

to the survey, was dissatisfaction with fees and charges; other reasons cited included more

personalized products and services, and better mobile and online technology.

» Two Winds Moving Banks in the Same Direction

1 Evolving Banking Regulation 2013, KPMG2 “Let’s Make a Difference: Managing Compliance and Operational Risk in the New Environment,”

PwC, August 20133 “Why Customer Management Experience Is the Antidote to Risk,” Patricia Sahm, n>genuity Journal, summer 2013

“For most of our clients, the current state of compliance has led to inconsistent application of compliance rules and a customer experience that is anything but seamless.”

Let’s Make a Difference: Managing Compliance and Operational

Risk in the New Environment, PwC, August 2013

“We expect firms to put their customers at the heart of their business…”

Martin Wheatley, Chief Executive, Financial Conduct Authority, UK,

speaking to The Guardian, October 2013

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Satisfying Customers and Regulators: Five Imperatives

» insights » insights

Also, as shown in Figure 1, more customers than ever had accounts

with multiple banks. According to the company’s 2013–14 Global

Banking Outlook, these trends are persisting.

Moreover, banks may not be realizing the full value of the customers

they retain. The 2013 Bain & Company Customer Loyalty in Retail

Banking report warns: “Most banks currently miss a significant

opportunity for cross-selling to their existing customer base.” This global

study of consumers found that while the percentage of current banking

customers purchasing a new banking product over the past year was

50% (developed countries) and 84% (developing countries), 35% of

these purchases globally were not with the customer’s primary bank.

Viewed by country, that figure, a low 19% in Denmark, rises to 54% in

Germany and a whopping 60% in the UK.4

How well a bank is likely to do in cross-selling, both currently and in the

future, can in part be predicted by customer loyalty, as measured by

the Net Promoter Score (NPS). The Bain study reports that customers

who are promoters of their primary bank buy more (14 % in developed

countries; 9% in developing) than detractors do.

Moving to more customer-centric operations can help banks improve customer loyalty. The Bain

report noted that the US bank with the highest product win rates (share of products bought by

customers at their primary bank) has been working to “consolidate customer data and build a unified

view across all locations and business units.” The US bank posting the biggest NPS gain in 2013 has

been making “a deliberate effort to become more customer-centered” and that the shift “has paid off

with gains in loyalty, new relationships and share of wallet.”

The power of customer engagement is further underscored by the

Gallup CE metric5, which captures emotional attachment as well as

rational commitment. The research and consulting firm, which has

applied the measure across a variety of industries and target audiences

(B2C and B2B), finds that it “has consistently demonstrated a powerful

link to key business outcomes.”

At a summary level, as shown in Figure 2, Gallup has found that

fully engaged customers (emotionally attached and rationally loyal)

“represent an average 23% premium in terms of share of wallet,

profitability, revenue, and relationship growth over the average

customer.” Actively disengaged customers (emotionally detached and

actively antagonistic) represent a “13% discount on the same measures.”

Clearly, the customer experiences a bank delivers can impact both

its success with consumers and its standing with regulators. How do

banks improve quality of experience? Here, from the customer’s point

of view, are five imperatives.

4 Customer Loyalty in Retail Banking: Global Edition 2013, Bain & Company, Inc.5 Customer Engagement as a Core Strategy: What’s Your Engagement Ratio? Gallup, 2009

87

99

107

123Fully Engaged

Engaged

Not Engaged

Actively Disengaged

Average = 100

Figure 2: The financial impact of customer engagementIndexed performance (share of wallet, profitability, revenue, relationship growth)

Source: Customer Engagement as a Core Strategy: What’s Your Engagement Ratio? Gallup, 2009

Figure 1: Percentage of retail customers with one vs. multiple banking relationships

3 or morebanks

2 banks

1 bank

2011 2012

21%

38%

41%

32%

37%

31%

Source: Global Consumer Banking Survey 2012, Ernst & Young

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Satisfying Customers and Regulators: Five Imperatives

» insights » insights

Statements and actions by regulatory agencies affect consumers. Most people are well aware of the

stiff fines recently meted out for bank misconduct and inconsistent or ill-managed processes. Their

banking choices may be shaped (especially for younger customers) by these reputational factors as

much as by their own experiences.

Conversely, what customers have to say about their banks affects regulators. Today, there are not

only more government channels for customers to lodge complaints, but more government scrutiny

of other forums where consumers air dissatisfaction. Speaking to Forbes, Dave Hoffman, PwC partner

and co-leader of the banking technology and operations group, said he expects the US Consumer

Financial Protection Bureau “will use social media to identify problems with financial services firms.”6

By making operations more customer-centric, banks can avoid becoming the target of complaints

and increased regulatory scrutiny over problems such as inconsistency. For instance, using

centralized decision engines, banks can apply business rules to ensure fair treatment and proper

conduct accessible across operational systems and processes. In addition, centralizing key functions,

like customer-level risk scoring and exposure decisions, can help banks act consistently.

For instance, a standardized exposure strategy ensures that two applicants in the same segment or

with a similar profile are not offered different rates purely because one has a lower elasticity to price

differences. Using the same process to make exposure decisions for existing customers and new

customers helps banks prove that all candidates for credit are being treated equitably.

Banks can also centralize the management of the analytic models used in making customer

decisions. Automated facilities reduce compliance and conduct risk by keeping track of model

versions, the decision processes where they are deployed, their ongoing performance and updates.

They also produce compliance and validation reporting along with accurate audit trails.

Intelligent communications services can help by documenting two-way interactions across multiple

channels. They prompt and orchestrate interactions to help ensure the bank is reaching out to

customers when and how it should: sending notifications to a customer’s current address, for

instance, or adjusting the interest rate being charged to existing customers to align with a lower rate

being offered on the same product to new customers.

6 “Feds Will Monitor Banking Customer Experience,” Forbes, August 2013

#1 “Treat me fairly”

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Satisfying Customers and Regulators: Five Imperatives

» insights

FICO also recommends ongoing analysis of unstructured data from customer interactions. Today’s

speech analytics, for example, can instantly monitor 100% of collections phone conversations. As

shown in Figure 3, the analytics can prompt agents to make required disclosures, immediately

alert supervisors to use of inappropriate language or misleading statements, and automatically

flag and report on any areas of concern.

People want to do business with banks that understand

them and value their business. When they initiate a contact,

they expect the bank to know who they are and respond

with some knowledge of the context of what they are trying

to accomplish (open an account, refinance a mortgage, etc.).

When the bank contacts them, customers don’t appreciate

being subjected to conflicting or uncoordinated treatments

and offers.

Speech analytics, which can monitor every conversation with customers, enables supervisors to know if agents are making required disclosures, using proper language and abiding by other bank interaction policies. Viewing statistics and alerts on a constantly updated dashboard, supervisors have the visibility to coach agents or even to intervene during a call. The data from this process also provides an audit trail, and it can be used to identify new predictive variables for analytic models and segmentation.

Figure 3: Making sure every conversation is compliant

#2 “ Understand me

and show it”

“Service stands as the dominant cause of loyalty in most markets. To delight customers these days, the banking experience must be consistent and seamless in person, online, on mobile and on the phone, because customers increasingly hop among channels to complete a task.”

Customer Loyalty in Retail Banking: Global Edition 2013, Bain & Company, Inc.

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Satisfying Customers and Regulators: Five Imperatives

» insights

To meet these expectations, as depicted in Figure 4, banks

need to see one customer (rather than unrelated accounts) and

act as one bank (rather than as uncoordinated channels and

product lines). What does this mean for bank operations?

To see one customer, banks must be able to combine more

data types and apply more analytics to them. Using additional

analytics to better understand customer behavior helps banks

improve and tailor customer experiences. It also helps them

comply with Know Your Customer laws and other anti-money-

laundering regulations.

To act as one bank, banks must be able to immediately

operationalize these analytic insights via decision engines. They

need to select the right channels and orchestrate interactions

across them with intelligent omnichannel communications.

Bank technology architectures for supporting these customer-

centric interactions vary. Established banks with legacies of

systems and processes siloed by product and channel have

different challenges and choices than new banks building

up “greenfield” operations. Figure 5, however, shows some

common elements. Most technology plans call for making

centralized resources—for analytics, decisions, customer

interaction management, etc.—available to existing

operational systems.

87

Figure 4: Building “one customer-one bank” relationships

Act as one bank to Jane

See Jane as one customer

Decision engines and intelligent communicationsorchestrate the right actions at the right time through Jane’s preferred channels.

Capture operational data for further analysis to understand Jane better.

More data sources and types of analyticspull insights from Jane’s activity across all accounts and channels.

Action-effect modeling and strategy optimization make the right decisions for meeting Jane’s needs and the bank’s portfolio and enterprise objectives.

ACT

LEARN

Figure 5: Simplified diagram of an infrastructure for customer-centric decisions

Summarizes and updates Jane’s transactional characteristics

Determines the best way and time to contact Jane for a particular purpose

Makes data-driven decisions about Jane, like setting her customer exposure

DATA

DATA

DATADATA

DATA

EXISTING HOST SYSTEMS

DAT

A LA

YERS

PROFILING ENGINEINTERACTION

MANAGER CHANNELS

OUTPU

TS

ODS

WORKFLOW MANAGEMENT/

TOOLS

MODELMANAGEMENT

REPORTINGENGINE

ANALYTICDATABASE

DECISION ENGINE

ANALYTICENGINE

LINK/MATCHINGANALYSIS

OUTCOMES

OUTCOMES

Profiles Models

Rules Models

www.fico.com page 7

Satisfying Customers and Regulators: Five Imperatives

» insights

For banks not yet ready to make such a complete

transformation, FICO is helping them take incremental steps.

At a basic level, banks can add a customer ID to account-

level records in order to identify and link activity by the same

individual. With this ID in place, they can begin to inject into

their account-level scores and decision strategies characteristic

variables from customer activity on other accounts. For

example, characteristics from a credit card account—number

of times delinquent, payment/balance ratio, utilization, etc.—

could provide a loan decision with more insight into the

customer’s borrowing and payment behavior.

Gradually, banks can work toward summarizing activity from

multiple product lines into customer-level characteristics. FICO

helped a large Asia Pacific bank, for example, make customer-

level data and risk grades as key inputs into account-level

decisions. This approach was first implemented in a credit card

line increase strategy, mathematically optimized to balance

offer response and profitable utilization. The result was an ROI

of more than 700% within the first year after implementation.

The next implementation was in an authorization strategy.

It’s projected to deliver 1200% ROI in the first year, through

an annualized revenue increase of $2.18 million with no

significant uptick in delinquency.

Another incremental move is to raise one decision strategy

to the customer level, as depicted in Figure 6. Risk exposure

is a good candidate, as it affects both originations and

customer management. Apply the same criteria for estimating

the customer’s capacity to borrow (rather than the bank’s

exposure to the customer) across all products—while allowing

some flexibility for product-level adjustments. This type of

comprehensive approach enabled one FICO client to increase

profit on new pre-approved accounts by 9% and another to

reduce credit loss rate by as much as 50%. (See “Strong payoff”

sidebar for more details.)

Using a centralized decision engine, banks can efficiently make

customer exposure available as service to multiple operational

systems. The service is dynamic, recalculating exposure

instantly on events—missed payments, balance pay-down,

account closures—with all subscriber systems having access

to the update. Authorized business users should be able to

control the policy rules and analytic models that determine

the impact of exposure changes on other potential decisions,

such as additional product originations, deposit holds,

authorizations and credit limit extensions.

Figure 6: Centralizing customer exposure decisions

Event-triggered recalculation

Current account/DDA

Unsecuredcredit line

Credit card #2

MortgageCredit card #1

Dynamic allocations of available exposure

Decision engine performs centralized

exposure service Customer-level and

account-level models, business rules and

optimized strategies

Strong payoff from customer-level decisions

A South American bank used customer-level analytic segmentation to

set pre-approved limits (cash, revolving, installments). Results:

� +9% profit � –18% attrition � –60% probability of default across all products

A North American bank used customer-level analytic segmentation to

set pre-approved limits for its unsecured personal lines. Results:

� –40–50% credit loss rates compared to account-level segmentation � +30% revolving account approvals � +14% credit line approvals

www.fico.com page 8

Satisfying Customers and Regulators: Five Imperatives

» insights

Consumers don’t have much time to spend on banking, Moreover, their service expectations are

being set by other online and mobile experiences, such as shopping on Amazon and getting

driving directions from Google. Banks need to meet consumer expectations for fast, easy and secure

banking, whether an interaction is taking place electronically or at a branch. Banks also must ensure

that how they interact with customers across all channels, as well as store information from these

interactions, complies with security regulations, such as the Federal Trade Commission’s Safeguards

Rule in the US.

Customer-centric operations increase speed and ease by making data and other necessary decision

inputs available to business processes, which can occur through any channel or mix of channels. In

originations, for instance, existing customers applying for additional credit shouldn’t have to fill in

data available from internal systems. A good first step to move toward customer centricity, therefore,

is to determine what information is needed to make an origination decision and where it might

already exist. This visibility is also essential for ensuring that consistent security controls are in place

to protect customer information.

Banks also benefit from adding additional data sources and analytics. In customer-centric

originations, for example, the aim is to eliminate the traditional trade-off between process speed

and accuracy by increasing the concentration of analytic insights brought to bear on rapid and even

real-time decisions.

In this way, banks can provide an application approval process that seems almost instantaneous,

but which nevertheless accommodates a very precise underwriting decision to minimize credit risk

while detecting fraud risk. Application fraud models enabled one banking client to improve fraud

detection at originations by 92%, reducing post-book fraud by 62%. Analytics aimed specifically at

detecting first-party fraud enabled another bank to achieve a 70% reduction in losses.

In the span of the same quick process, banks can also make sophisticated pricing and initial credit

line decisions. Employing mathematically optimized strategies that balance credit risk with customer

retention and profit potential—and bank capital management objectives—they can set the stage

for a successful, mutually beneficial relationship. A European banking client used this approach to

increase profit by 46% on loans to applicants with no previous relationship with the bank.

#3 “ Make this fast,

easy and secure”

www.fico.com page 9

Satisfying Customers and Regulators: Five Imperatives

» insights

When an instant decision isn’t possible, applicants

shouldn’t be left hanging. Making them wait—without

providing status updates—opens the door to competing

lenders. As shown in Figure 7, banks can employ intelligent

communications management to stay in touch via the

applicant’s channel of choice. They can request additional

information, help applicants submit it and inform them of

next steps.

Automated communications can be leveraged to improve

regulatory compliance. An email or SMS exchange, for

example, can confirm and document that the customer

understands the amount and key terms of a loan or credit

limit extension, and has explicitly accepted them.

For a European banking client, 78% of customers receiving

such automated communications said it improved the

overall level of service they were experiencing. The bank

also saw a 23% rise in ticket value per debit card spend.

Figure 7: Keeping customers engaged when instant decisions aren’t possible

Thank you!We value your business. We’ll let you know about your loan today.

There’s just one more piece of info we need.

Your loan is almost ready. We’ll be in touch before noon.

Congratulations! Your loan is approved. Please check your email inbox for the documents. Meanwhile, here’s a handy mobile app you can use to make and track payments.

Jane applies for loan on website

8:10 am

ReceivesSMS

9:30 am

Calls backwith info

ReceivesSMS

10:00 am

ReceivesSMS & email

11:30 am

$

While relevant contacts from banks improve the customer experience, contacts that lack purpose

and coherence, or occur too frequently, are counterproductive. They add friction to a relationship

that should be flowing smoothly toward ever-greater mutual value.

FICO research on thousands of smartphone users around the world underscores both the

opportunity and the peril for banks reaching out to customers via mobile channels: 53% of

respondents said they liked being contacted with relevant information; 71% disliked irrelevant

contacts.

In customer management, therefore, customer-centric banks are using more analytics to pinpoint

the right offers as well as timing for other relationship-building contacts. They’re coordinating these

communications across product lines (which we’ll examine further in imperative #5 next).

#4 “ Don’t interrupt me

unnecessarily”

www.fico.com page 10

Satisfying Customers and Regulators: Five Imperatives

» insights

In collections, additional analytics, such as collection scores, help banks reduce friction by knowing

which early-stage delinquent accounts are likely to self-cure. They can just monitor these accounts

or send a gentle reminder via the customer’s preferred channel, at the preferred time of day,

providing easy self-service options for making payments or promises to pay (see Figures 8 & 9).

One bank reported that 61% of its customers surveyed said they preferred an automated contact

(voice, email or SMS) over dealing with collection agents. Additionally, companies using this

approach generally achieve impressive efficiencies, such as a 42% increase in right-party contacts

and a 30% increase in payments made during the call.

Even in late-stage delinquencies, advanced analytics can help banks respond in a more flexible

way to still-valuable customers who may be experiencing a difficult financial patch. FICO helped

a European bank use decision modeling and optimization to offer more tailored and flexible loan

adjustments, while maintaining profitability. Take-up rates climbed from 27% to 47%, and 6-month

default rates dropped from 35% to under 10%.

Such measures are good initial steps toward the customer-level collections operations for which

many banks are aiming. Advantages include efficiencies and cost savings as well as reduced friction

for customers, who receive only one contact even if multiple accounts are delinquent. Banks can

also adjust treatment strength and timing based on customer-level predictions of risk across all

accounts balanced with the overall value of the relationship.

Interactive SMS—Average Response Rates

0%

30%

40%

50%

60%

70%

20%

10%

In hours After hours

Interactive Speed of Response

120%

100%

80%

60%

40%

20%

0% < 1 min

< 5 min

< 10 min

< 15 min

< 30 min

< 1 hour

< 2 hours

< 6 hours

< 8 hours

< 12 hours

< 24 hours

FICO worked with a large European credit card company to explore

the response to SMS contacts after work hours. We found that

customer response rates for simple, self-service transactions were

even higher (66%) in the evening than during the day (50%). Speed

of response also improved.

Figure 8: Providing customers with quick, easy self-service ways to resolve account delinquencies

Figure 9: Exploring after-hours, self-service contact

www.fico.com page 11

Satisfying Customers and Regulators: Five Imperatives

» insights

Fraud management is another decision area with potential to cause discord in customer

relationships. While customers appreciate being alerted to fraud incidents, having a legitimate

transaction blocked or referred can be a major source of embarrassment and annoyance. And even

if they don’t take place in public at the point of sale, too many fraud alerts can leave customers

wondering if the bank even knows who they are.

As banks move toward more customer-centric fraud management, there’s much they can do to

reduce relationship friction. One way is with additional analytics. Behavior Sorted Lists, for instance,

learn the habitual behavior patterns of customers, continuously updating with each transaction so that

the patterns evolve over time. Adaptive models learn from the changing behavior of fraudsters and

legitimate customers in the current production environment. Both of these FICO innovations improve

the ability of fraud systems to detect risky activity, thereby substantially reducing false positives

(legitimate transactions blocked or reviewed as suspicious) and improving customer experience.

Another way to reduce friction in fraud management is with intelligent mobile communications and

automated self-service resolution. These technologies improve fraud protection, while minimizing

delays, inconvenience and embarrassment for legitimate customers at the point of sale.

For example, when a fraud model scores a transaction as suspicious, depending on the level of risk

involved, the bank may block or allow a questionable transaction. Either way, an automated agent

immediately contacts the customer (SMS, email, voice) for verification. If the transaction is legitimate,

the customer simply taps a button to auto-resolve. Subsequent transactions can then go through

without a hitch. If fraud is occurring, the call can be passed to a human agent to resolve the situation

for the customer and implement protections against further fraud.

Automated alerts like these are appreciated by most customers. One bank reports that 95% of

its cardholders surveyed were satisfied with the service, and 94% would recommend it to family

and friends.

Such alerts are also the fastest, most efficient way to handle fraud cases. In 2013, on “Black Friday”

(in the US, the intense, bargain-inundated first day of the holiday shopping season), one FICO client

generated more than 950,000 alerts. Roughly half were auto-resolved, doing the work of more than

500 agents.

Clearly in today’s markets, customer loyalty can’t be

captured by a single low rate or special offer. Rather,

customer trust, repeat business and advocacy arise

from goodwill banks amass over time. Banks earn it

by delivering one excellent customer experience after

another, while helping customers achieve financial goals

and navigate financial challenges. They secure it by

rewarding customer loyalty as the relationship endures

and expands.

In customer-centric banking, therefore, a successful

customer relationship is best viewed as a journey through

stages of increasing mutual value. Today’s most successful

banks are purposefully planning this journey.

#5 “ Assist me and reward me”

www.fico.com page 12

Satisfying Customers and Regulators: Five Imperatives

» insights

As shown at the top of Figure 10, the journey begins with pre-qualification or origination of a new

customer’s first account. By incorporating customer-level data, predictions (e.g., attrition, lifetime

profit potential) and decisions (e.g., exposure) into this account-level decision, banks lay the

foundation for subsequent steps.

Throughout the relationship, those working in customer management have access to all these

originations inputs and outputs. If exposure has been set at the customer level, it’s automatically

recalculated upon events such as missed payments. Such actions ensure regulatory compliance and

clearly demonstrate fairness to both new and existing customers.

At the same time, by fully capturing and analyzing data from customer interactions, they can make

highly refined decisions about how to best allocate available customer exposure. They can use

these advanced analytics with a centralized decision engine to identify the best next action—given

portfolio and strategic capital management objectives—for building value in the relationship journey:

•  What additional service would be most helpful to this customer at this time?

•  How can we package this service to best meet this customer’s needs/preferences?

•  Can we offer pricing and added value features that reward the customer for taking this next step

with us?

Once the best next action has been identified, a centralized customer interaction management

engine should be used to orchestrate execution of the action across channels.

As depicted at the bottom of Figure 10, the foundation for a relationship plan is customer-level

segmentation. The primary purpose of this kind of segmentation is to organize customers for

purposes of identifying and understanding ways to increase their value to the business.

Figure 10: Customer-level segmentation and planning

Planned customer relationship journey toward increasing mutual value

OPENDDA

ACHDEPOSIT

ONLINEBANKING

MOBILEAPP

ACHWITHDRAWAL

STUDENTLOAN

MORTGAGE

WELCOMECONTRACT &

SURVEY

PERSONALALERTS

SAVINGSACCOUNT

AUTOLOAN

PAYMENTPLAN

PREDELINQUENCYTREATMENT

Reward customer with exclusive or discounted features

Reward customer with free additionalservices

Agility to respond tounplanned challengesand opportunities

RELA

TIO

NSH

IP P

LAN

NIN

GSE

GM

ENTA

TIO

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Purposeful decision makingapply additional analytics and optimized strategies to identify how to best provide personalized service and build relationship value

Value-based innovationorganize customers based on potential for increasing their value to the business

Customer-level core segmentationdifferentiate based on demographics, transactional analytics and behavioral risk/reward predictions

Younger customerswho want low cost, high rates, fast service

Good-credit customerswho have just switched banks

Older customers who want ease and assistance

Affluent customerswho want convenientpremium services

! !

í

Satisfying Customers and Regulators: Five Imperatives

» insights

The Insights white paper series

provides briefings on research

findings and product development

directions from FICO. To subscribe,

go to www.fico.com/insights.

FICO and “Make every decision count” are trademarks or registered trademarks of Fair Isaac Corporation in the United States and in other countries. Other product and company names herein may be trademarks of their respective owners. © 2014 Fair Isaac Corporation. All rights reserved.3074WP 2/14 PDF

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Banks are increasing segmentation precision by combining demographic data with analysis of

transactional data. The aim is to better understand the context of customer behavior and be

able to separate customers by characteristics such as product mix and channel usage. Moreover,

transactional analytics can help banks demonstrate to regulators that different treatments of

customers are justified by different behavioral characteristics.

Empirically derived segments can be used in customer-level predictive models and strategies. They

can also be applied as decision keys in account-level strategies. At a minimum, they can be used to

exclude some accounts from treatment eligibility.

Ultimately, banks are working toward creating dynamic customer-level profiles, which comprise

many customer-level characteristics as well as summaries of account-level and channel activity.

Profiles may be applied across decisions areas (originations, fraud management, etc.) and used for

segmentation, modeling and decision strategies. Maintained by a centralized analytic engine, they

should be accessible by multiple operational systems, and also dynamically updated by transactions

and other operational events originating from these systems. Companies should use judgment

around the use of customer profiles, to ensure they are providing welcome customer value and not

unwelcome intrusion on privacy.

Regulators and consumers expect a lot from banks these days. The challenge of meeting both sets

of expectations, as well as bank financial goals, can seem daunting.

Yet mounting evidence shows that by focusing on improving customer experience, banks can

satisfy both regulators and consumers. By paying more attention to how they treat customers,

banks avoid the financial and reputational costs of noncompliance. At the same time, they gain the

insights to engage and satisfy customers in ways that drive financial performance.

To learn more about building compliant, customer-centric strategies, visit the Banking Analytics Blog

and read these Insights white papers:

•  Is It Fraud? Or New Behavior? (No 69)

•  Building “Ability to Pay”-Compliant Growth Strategies (No 68)

•  When Is Big Data the Way to Customer Centricity? (No 67)

•  Five Imperatives in a Shifting Collections Landscape (No 66)

» Conclusion