Credit Lifecycle Solutions and Predictive Analytics
Way too often we meet with Financial Institutions who manage their customer portfolios mainly manually and through judgmental decisions.
This is true of companies spanning the array from Tier 1 Banks to small MFIs. And it encompasses essential business management points, such as Leads generation, Lending approval, Credit Limit assignment, Pricing, Collections and Fraud Prevention.
We have encountered this needless issue in every geographical region.
Conversely, the Industry Best Practices show that taking such decisions in automated environment and based on Predictive Modeling leads to more efficiency, effectiveness and customer satisfaction. Ultimately, this leads to improved KPIs and helps the company to achieve its corporate goals.
Before we analyze the typical obstacles to the adoption of Automated Decisioning, let us briefly examine its main financial advantages and soft benefits.
- Reduced Costs – the most expensive component of the business processes – the manual review and adjudication – is dramatically decreased! Based on the available Systems and the applied Strategies such reduction could exceed 90% of the standard costs. Naturally, such savings allow an FI to offer tangible Price reductions, such as lower interest rates, fees and even cash-back/loyalty programs; and gives them a competitive edge and growth potential.
- Faster Speed – even a moderately-priced, out-of-the-box Solution reaches astonishing processing rates. For example, automated Credit Lifecycle systems allow clients’ requests to be processed in milliseconds, rather than in hours or, sometimes, days. Here, again, the customer satisfaction upside and the resulting competitiveness are apparent.
- Higher Volumes – with higher speed comes greater processing capacities. Even when equipped with only entry-level Solutions a company is no longer limited by the number and the productivity of its staff, but can answer requests or initiate actions on an incomparably larger number of cases (with the added advantage of minimal to no additional costs)! This point is a “game changer” since it allows an FI to conduct previously impossible tasks (such as large-scale marketing campaigns, daily portfolio monitoring and account management, risk-based queuing and many others) for fraction of the cost, even for millions of subjects.
- 24/7 Availability – being independent of Work Shifts and Public Holidays, the automated systems can receive inputs around the clock and can perform maintenance at scheduled intervals and can execute actions when preprogrammed business rules are met. Such availability not only improves the customer experience, but also reduces the credit risk.
- Policy Compliance – since the decisions taken by the Risk Management solutions are automated and based on predefined business rules or algorithms, all Legal and Regulatory requirements can be enforced. This feature reduces or eliminates risks of non-compliance or reputational exposure.
- Corporate Standards and Strategy Adherence – similar to the previous point, non-manual decisions bring about greater consistency and more control in the way an FI enforces its Risk Management Strategies. All information is gathered and processed consistently as per pre-approved rules; the results are tracked, stored and regularly reported. The main benefits here are reduced error rates, improved measurement of KPIs, and the ability to Test & Control in a statistically sound manner with minimum human bias or mistakes.
- More Auditable – due to the fact that every action is recorded and reliably saved, historical reporting becomes possible and any over-rides or exceptions – easily identifiable. This is important in preventing and preempting internal Fraud Losses or the preferential treatment of some clients.
All of the above benefits, one way or another, make the Financial Institutions that use them more competitive; Contrariwise, a Business is at serious disadvantage in the Marketplace if they do not implement Risk Management automation in combination with Predictive Analytics!
In light of this reasoning it becomes truly perplexing why many Lenders around the world seem to resist embracing these Solutions or do so partially and at a slow pace. And here are the main reasons:
- Total Cost of Ownership – almost always the main stakeholders (e.g. CEO, CRO, Credit Managers) are aware of the existence of such solutions and know that they make significant contribution to the bottom line. However, these people are also the budget owners and decision-makers, and as such are very careful or, often, unable to make the necessary Capital Investment. The unprecedented global competition among Data and IT Solution providers has slashed the prices of all Risk Management Solution. However, they still represent a serious financial commitment for many. Some major global suppliers, such as Creditinfo Solutions, help clients by continued innovation, unrivaled prices, and by lowering the CAPEX in exchange for future royalties or revenue sharing. Furthermore, our specialists can assist an organization to estimate the financial gain from deploying our Solutions, thus help them in justifying the initial expenditures.
- Perceived Organizational Changes – this is the least justifiable and most easily surmountable hurdle; Yet, it is a common sentiment among Credit Managers and if not addressed could stand in the way of development. In a nutshell, the misconception goes that the usage of automated systems would cause the loss of jobs and will damage the image of the company in the community. I was once even asked half-jokingly be a credit manager: “Are you trying to eliminate my job?” In reality, the opposite is true – increased processing capacities and reduced prices lead to expansion of Market Share, development of new Products, ability to perform a whole new set of tasks and the overall growth of the business and the need and budget for more resources. The experienced consultants of Creditinfo Solutions can investigate the present state of the Business and the local market and present a projection of the consequences from the introduction of various Credit Lifecycle Solutions.
- Inadequate local infrastructure or IT capacities – it is not a trivial task to implement Risk Management Solutions in an environment of little to no automation, Data on paper and incompatible legacy IT systems. Add to this insufficient IT skills and half-hearted cooperation from some of the Client staff… In such circumstances most international providers are unable to deliver. Creditinfo Solutions, however, has specialized in such tasks and has a proven track record of numerous successfully completed Projects in very difficult and even dangerous areas. Our people travel around the world to meet the clients and to understand their needs; to propose the best solutions and to drive the development; But most importantly – to enjoy and to take pride in their work!
- Insufficient Knowhow – even when the Clients have advanced Risk Management and Analytics departments, it should be expected that they are not aware of all the Products and Services that could lead to significant optimizations in their organizations. In fact, this is one of our Core Competencies – to quickly identify such opportunities for Improvement and to consult the customer on the possibilities. Creditinfo excels in the transfer of Knowhow through Courses, Certifications, and its proprietary Partnership Program. And the flawless integration and operating of complex Systems in the Client’s business environment is ensured through professional Project Management, Trainings, Manuals and dedicated Support & Maintenance.
To sum it all up, the business benefits of automated Credit Lifecycle Solutions and Predictive Scoring are numerous and substantial. In today’s competitive and sophisticated business world it is no longer a question of if to invest in them, but rather – how to integrate as many of them as quickly as possible, in an affordable and smooth fashion. Creditinfo Solutions is the right partner to make this possible.