By: Wendy Greenawalt
In my last blog post I discussed the value of leveraging optimization within your collections strategy. Next, I would like to discuss in detail the use of optimizing decisions within the account management of an existing portfolio. Account Management decisions vary from determining which consumers to target with cross-sell or up-sell campaigns to line management decisions where an organization is considering line increases or decreases. Using optimization in your collections work stream is key.
Let’s first look at lines of credit and decisions related to credit line management. Uncollectible debt, delinquencies and charge-offs continue to rise across all line of credit products. In response, credit card and home equity lenders have begun aggressively reducing outstanding lines of credit. One analyst predicts that the credit card industry will reduce credit limits by $2 trillion by 2010. If materialized, that would represent a 45 percent reduction in credit currently available to consumers. This estimate illustrates the immediate reaction many lenders have taken to minimize loss exposure. However, lenders should also consider the long-term impacts to customer retention, brand-loyalty and portfolio profitability before making any account management decision.
Optimization is a fundamental tool that can help lenders easily identify accounts that are high risk versus those that are profit drivers. In addition, optimization provides precise action that should be taken at the individual consumer level.
For example, optimization (and optimizing decisions) can provide recommendations for:
• when to contact a consumer;
• how to contact a consumer; and
• to what level a credit line could be reduced or increased…
…while considering organizational/business objectives such as:
• profits/revenue/bad debt;
• retention of desirable consumers; and
• product limitations (volume/regional).
In my next few blogs I will discuss each of these variables in detail and the complexities that optimization can consider.