A new way for the retail credit business?
These are challenging times for financial institutions, in particular the credit market has rapidly changed in the last 18 months: growth has levelled off in mature and emerging markets, and while less credit is being granted, the quality of portfolios has also been deteriorating.
In these changing conditions, there is a need to find alternative ways to run retail credit businesses and to find a new equilibrium in the market. For certain, the credit industry must, and will find appropriate solutions.
As often happens in critical moments, this seems to be the ideal time to challenge the strategies, policies and processes currently in place, with the aim of finding new ways to manage customer relationships in each phase of the cycle: origination, customer management and collections.
From a business perspective, the faster this exercise is executed, the greater the potential business benefits and impact on performance. Moving first can present an opportunity to benefit from competitive advantage. For example, an organisation could adopt different strategies for different segments and products, as well as challenging the way to focus on the customer base.
This is, of course, not an easy exercise; you need to explore fields that might not currently be well understood, estimate impacts and implement changes under a strict control framework.
The basic rules of the game are always the very same; ‘what-if’ analysis in order to illustrate different scenarios and select the preferred one, a controlled approach to implement the new challenging strategy identified towards the current practice.
This can be summarised as a ‘test and learn’ approach, which is not really a new concept. What is different now is the level of maturity of the business decisions area, in terms of data availability and analytics, as well as technology tools and benchmarking experiences. This all makes a difference to the accuracy level of the analysis and implementation methods, and has, for sure, a direct influence on the overall business impact.
What is different now is the level of maturity of the business decisions area, in terms of data availability and analytics, as well as technology tools and benchmarking experiences.Analytics has a huge influence on the ability to accurately create different alternative scenarios. A new frontier is the ability to work at a single customer level in order to obtain a scenario analysis that estimates the impact of a given stressed condition for each individual. In this way, one can accurately estimate possible business impacts.
The development of optimised decision sciences has a significant impact on the ability to identify the best challenger strategy to be implemented from the very beginning. Instead of trying different options and waiting to assess the impact (time represents the most crucial factor here), optimisation techniques immediately identify the best possible approach taking into consideration all the known or estimated elements.
The third element is the implementation of the alternative challenger strategy in a controlled environment, strictly monitoring performance and having the ability to quickly adapt the strategy itself, if required. The adoption of specialised technological tools enables the process to be driven in a much smoother manner than in the past.
Finally, the availability of a track record of well documented experiences in the field of the retail credit business makes it possible to compare and benchmark strategies and processes. This is a key element that helps guiding each step of this approach.
Finding new ways is never easy, exploiting critical resources is a must and more than ever, the business decisions area plays a central role through its different components.
Luciano Bruccola
Director
Decision Analytics
Experian
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