Leading Chilean retailer invests in new processes and technology to allow for future growth
Hites is a leading retailer in Chile serving millions of customers through its 13 stores. In the growing Chilean retail market, Hites’ flagship stores attract thousands of shoppers every day, offering credit to customers for purchases through store cards at the point of sale and through their website.
The challenge
With applications increasing by nearly 25% in 2006, Hites recognised that its existing application processing operation was being stretched and could not support its current and potential growth. With the planned opening of three new department stores, the retailer wanted to increase its origination capacity to accommodate the increase in applications and allow for future growth without impacting on the service given to customers.
An additional driver was to manage risk effectively in the growing customer base, controlling credit losses and maintaining a good risk profile in the portfolio by taking on the right customers with the right terms. This has an immediate impact on provisioning requirements, improving the cash flow in the business.
Hites decided to invest in new technology and processes to achieve these objectives. “Our ambitious expansion plans required the support of robust systems and processes to enable us to serve our customers quickly and with confidence.” commented Sergio Lopez, Risk Manager at Hites.
The answer
Hites chose Experian to deliver its New Business SM system to manage origination decisioning across the organisation. The system automates and streamlines the process, consistently applying lending and risk policies to customers for an accurate decision before the credit is extended.
New Business SM is designed to streamline the origination decision, a key criteria for Hites which needed to increase capacity without reducing customer service. Following implementation, the number of applications processed through New Business SM in the first three months increased by 400% compared to the same period in the previous year.
With the new system 100% of applications are passed through automated decisioning. The system enables Hites to segment customers and apply a consistent, accurate risk and lending policy to every applicant, making more accurate decisions and setting lending terms that reflect the risk of the applicant.
Applications which cannot be decided on automatically due to policy or other exceptions, are passed to the underwriting team for referral who make a specialised decision on whether to accept or decline the applicant. The percentage of applications that are passed for referral has been kept within the targeted levels of less than 20%.
The results
With the increased accuracy of decisions, Hites has been able to increase the accept rate by up to 25% across the portfolio. However, at first it appeared as if the accept rate across the portfolio had actually declined, however this was due to the system processing all applications received. Previously a portion of applications were processed entirely manually and therefore were not included in the system or in the operational monitoring.
The increased accuracy of the risk management has also enabled the retailer to reduce credit losses across the portfolio. By declining high risk applicants and setting appropriate terms to manage exposure, losses have been reduced to less than 0.6% of the total loan portfolio value. This reduction in risk and losses has also enabled Hites to reduce its provisioning for bad debt by 14%.
Following implementation of the New Business SM system, Hites has fulfilled its risk expectations despite challenging macro-economic conditions including lower economic growth and higher inflation than forecast.
Sergio Lopez added “The New Business SM system from Experian has enabled us to take on more customers while managing our risk and losses.
With a global company offering us the local support and market knowledge, we know we have a long-term partner in Experian.”
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