Telecommunications, Cable & Utilities

  At midnight yesterday, Google sent me an email on how the new GoogleWallet update will now allow me to store my “Citi MasterCard” online. As other Google Wallet aficionados may recall (Bueller..? Bueller..?), Citi was the lone holdout in Google Wallet’s journey to the cloud and its race to conformity. Though to the untrained eye the Google Wallet app experience was mostly uniform irrespective of the card used to pay at the point-of-sale, behind the scenes, if the Citi MasterCard was used, Google had to do things one way versus another way for the rest of the brood. Furthermore, sharing the precious real estate that is the Secure Element with Citi meant that Google had very little room to maneuver. Embedded SEs, despite being newer to market than SIM-based SE’s, were limited in storage versus other chips. The initial embedded SEs that Google Wallet relied on had about 76KB memory, which once you factor in all the trimmings that come with provisioning a card to SE (MasterCard PayPass applet among others), left very little wiggle room. So Google, forced by a number of factors (resistance from the carriers and issuers, rising costs and complexities attributed to the multiple TSM model, a lack of SE space to accommodate future provisioning) migrated to the cloud — and left a MasterCard proxy on the wallet that it could use to funnel transactions through. The only standout to this model was the umbilical cord to the original Google Wallet partner: Citi. I had predicted last September that the partnership’s days were numbered. When the wallet is Google’s, and it needs to both reclaim the space on SE and reduce the provisioning or account management costs that it owes to its TSM (FirstData), the only reason for it to carry the torch for Citi would be if Google Wallet customers demanded it. But it so happens that any returns for items purchased using Google Wallet untill today had also been slightly broken. If you bought an item using the virtual MasterCard then the returns followed one route; of you purchased an item via the Citi card then returns were handled a different way. Additionally, It was disappointing for a customer to see “Paypass Merchant” instead of “McDonalds” and “Sent” instead of “$25.54″ when paying with the Citi card in GoogleWallet(unless one was planning to hide a fastfood habit from a spouse). A small mess – especially when it should be attributed to powers beyond the partnership, but still a mess for Google who demands conformity in customer experience across all its offerings. In the end, this partnership served no broader purpose for either partner to keep alive for any longer. Google is ready to move on beyond Wallet 1.0 and realizes that it can do so without issuers in tow. Furthermore, it had been expected for a better part of three months that Google will launch its partnership with Discover and this puts Google as an indispensable element back in the mobile payment narrative. For the issuers who were originally courted by Google Wallet in its early days this serves as validation, that they were correct in choosing to stay away. But that is no excuse for ignoring what Google and others are building as a parallel framework to the value-added services (credit card rewards being one) card issuers use to show that customers will choose them over Google. (But if Google could tout interchange relief to merchants as an incentive to court them, don’t you think a Google Rewards program will be close behind, supported by credits redeemable the Google Play store? Once again, it’s not an if, but when.) Finally, where does this leave Citi? Citi is a global institution with enough smart people at their end to make up for lost time. Google Wallet did not become the boogeyman that issuers feared back in 2011, and Citi can afford to roll out its own mobile initiatives in a measured pace at a global scale. And there had been rumblings of a Citi wallet all through 2012 and we may see it soon manifest outside of the U.S. before Citi attempts to do so here. Google may have opted to cut the cord so that there is no ambiguity when that happens. But they still have both Citi and FirstData to thank for bringing it to the prom. You dance with the one that brung ya…or something like it. Do you think this means GoogleWallet is now adrift, loyal to its own quest? What’s next for Citi? What do you think? Please leave your opinions below. This is a re-post from Cherian's personal blog at DropLabs  

First, it aims to drastically reduce payment acceptance costs through any and all means and Secondly – keep merchant data firmly within their purview. MCX – MerChants reduX: The post that follows is a collection of thoughts around MCX, why it deserves respect, and yet how it is indeed mortal and bleeds like all others. For those who are not familiar with MCX – it’s a consortium of over 30 leading national retailers with a singular purpose – that is, to create a seamlessly integrated mobile commerce platform. The website for MCX is http://www.mcx.com. The consortium is led by merchants like Walmart, Target, CVS, BestBuy, Gap, Sears etc. By 2012, the mobile payments space was fragmented as it is, which itself may have precipitated the launch of MCX. And to a number of solutions looking for traction, things ground to a halt when MCX conceptualized to the merchants a solution that needed no costly upgrades and a promise to route the transaction over low cost routing options. My friends on the issuer side privately confide that MCX has infact succeeded in throwing a monkey wrench in their mobile payment plans – and merchant acceptance looks to be ambiguous around incumbent initiatives such as Isis and GoogleWallet, as well as for alternative payment initiatives. It had been easy to call it mere posturing and ignore it in the early days, but of late there is a lot of hand wringing behind the scenes and too many furrowed brows, as if the realization finally struck that merchants were indeed once again crucial to mobile payment adoption. MCX – It’s raison d’etre Meanwhile, the stakeholders behind MCX have been religious in their affirmation that MCX lives by two core tenets: First, it aims to drastically reduce payment acceptance costs through any and all means and Secondly – keep merchant data firmly within their purview. I can’t seem to think that the latter was any more than an after thought, because merchants individually can choose to decide if they wish to share customer preferences or Level III data with third parties, but they need all the collective clout they can muster to push networks and issuers to agree to reduce card acceptance costs. So if one distils MCX down to its raison d’etre, then it looks that it is aimed squarely at No.1. Which is fair when you consider that the merchants believe card fees are one of their biggest operating expenses. In 2007, 146,000 convenience stores and gas stations nationwide made a total of $3.4B in profits, yet they paid out $7.6B in card acceptance costs(Link). And MCX is smart to talk about the value of merchant data, the need to control it, yada yada yada. But if that were indeed more important, Isis could have been the partner of choice – someone who would treat customer and transaction data as sacrosanct and leave it behind for the merchants to fiddle with(vs. GoogleWallet’s mine..mine..mine.. strategy). But the same way HomeDepot was disappointed when they first saw GoogleWallet – no interchange relief, incremental benefits at the point-of-sale, and swoops all their data in return, Isis also offers little relief to MCX or its merchants, even without requiring any transaction or SKU level data in return. Does it mean that Carriers have no meaningful role to play in commerce? Au contraire. They do. But its around fraud and authentication. Its around Identity. And creating a platform for merchants to deliver coupons, alerts to opted-in customers. But they seem to be stuck imitating Google in figuring out a play at the front end of the purchase funnel, to become a consumer brand. The last thing they want to do is leave it to Apple to figure out the “Identity management” question, which the latter seems best equipped to answer by way of scale, the control it exerts in the ecosystem, its vertical integration strategy that allows it to fold in biometrics meaningfully in to its lineup, and to start with its own services to offer customer value. Did we say Apple? Its a bit early to play fast and loose with Apple predictions, but its Authentec acquisition should rear its head sometime in the near future (2013 – considering Apple’s manufacturing lead times), that a biometric solution packaged neatly with an NFC chip and secure element could address three factors that has held back customer adoption of biometrics: Ubiquity of readers, Issues around secure local storage and retrieval of biometric data, Standardization in accessing and communicating said data. An on-chip secure solution to store biometric data – in the phone’s secure element can address qualms around a central database of biometric data open to all sorts of malicious attacks. Standard methods to store and retrieve credentials stored in the SE will apply here as well. Why NFC? If NFC was originally meant to seamlessly and securely share content, what better way to sign that content, to have it be attributable to its original author, or to enforce one’s rights to said content – than to sign it with one’s digital signature. Identity is key, not just when enforcing digital rights management on shared content, but also to secure commerce and address payment/fraud risk. Back to MCX.  The more I read the more it seems MCX is trying to imitate Isis in competing for the customer mindshare, in attempting to become a consumer brand – than simply trying to be a cheaper platform for payment transactions. As commerce evolved beyond being able to be cleanly classified under “Card Present” and “Card Not Present” – as transactions originate online but get fulfilled in stores, merchants expect rules to evolve alongside reality. For example, when customers are able to order online, but pick up in-store after showing a picture ID, why would merchants have to pay “Card not Present” rates when risk is what we attribute higher CNP rates to, and why is there an expectation of the same amount of risk even in this changed scenario? And beyond, as technology innovation blurs the lines that neatly categorized commerce, where we replace “Card Present” with “Mobile Present”, and mobile carry a significant amount of additional context that could be scored to address or quantify risk, why shouldn’t it be?. It’s a given that networks will have to accommodate for reduced risk in transactions where mobile plays a role, where the merchant or the platform enabling the transaction can meaningfully use that context to validate customer presence at the point-of-sale – and that they will expect appropriate interchange reduction in those scenarios. MCX – A brand like Isis or a platform? But when reading portions of the linked NRF blog, and elsewhere – it reflects a misplaced desire on MCX’s part to become a consumer facing solution – an app that all MCX partners will embrace for payment. This is so much like the Isis solution of today – that I have written about – and why it flies in the face of reason. Isis – the nexus between Carriers and FI’s – is a powerful notion, if one considers the role it could play in enabling an open platform – around provisioning, authentication and marketing. But for that future to materialize, Isis has to stop competing with Google, and must accept that it has little role to play by itself at the front end of the funnel, and must recede to its role of an enabler – one that puts its partner FI brands front and center, allows Chase’s customers to pay using Chase’s mobile app instead of Isis, and drives down the fraud risk at the point of sale by meaningfully authenticating the customer via his location and mobile assets Carriers control, and further – the historical data they have on the customer. It’s those three points of data and the scale Isis can bring, that puts them credibly in the payments value chain – not the evaporating control around the Secure Element. In the same vein, the value MCX brings to merchants – is the collective negotiating power of over 30 national merchants. But is it a new consumer brand, or is it a platform focused on routing the transaction over the least cost routing option. If its the latter, then it has a strong parallel in Paypal. And as we may see Paypal pop-up as legal tender in many a retailer’s mobile apps and checkout aisles going forward, MCX is likely to succeed by emulating that retailer aligned strategy than follow a brand of its own. Further, If MCX wants customers to pay using less costly means – whether they be private label, prepaid or ACH – then it and its partners must do everything they can to shift the customer focus away from preferred payment methods and focus on the customer experience and resulting value around loyalty. MCX must build its value proposition elsewhere, and make their preferred payment methods the bridge to get the customer there. Another example where the retailer focused too much on the payment, and less so on the customer experience is the Safeway Fast Forward program. The value proposition is clear for the customer – Pay using your Safeway Fast Forward card number and a self assigned PIN for simpler checkout. However to set up your account, the customer must provide a State issued ID (Drivers License) and on top of it – his Social Security Number(Safeway Fast Forward Requirements Here). What customer would, for the incremental convenience of paying via his Fast Forward Card and PIN, be willing to entrust Safeway with his Social Security Number? Clearly Safeway’s Risk team had a say in this and instead of coming up with better ways to answer questions around Risk and Fraud, they introduced a non-starter, which killed any opportunity for meaningful adoption. MCX & adoption So where does that leave MCX? Why will I use it? How will it address questions around adoption? It’s a given that it will have to answer the same questions around fraud and authentication during customer on-boarding or at a transactional level. Further, its not enough these days to simply answer questions pertaining to the customer. Further, one must address questions relating to the integrity and reputation of the device the customer use – whether that be a mobile device or a Laptop PC. But beyond fraud and auth, there are difficult questions around what would compel a techno-luddite who has historically paid using a credit instrument to opt for an ACH driven(i am guessing) MCX payment scheme. Well, for one: MCX and its retail partners can control the purchasing power parity of MCX credits. If they so wish, and after aggregating customer profiles across retailers, MCX determines that the Addams family spends a collective $400 on average per month between all the MCX retailers. MCX could propose that if instead, the Addams family were to commit to buy $450 in MCX credits each month, they could increase their purchasing power an additional $45 credits that could be used on specific retail categories (or flat out across all merchandise)? Would Morticia be interested? If she did, what does that mean to MCX? It eliminated having to pay interchange on approx $500, and further it enabled its partners to capture an incremental spend of 10% that did not exist before. Only merchants will be able to pull this off – by leveraging past trends, close relationships with CPG manufacturers and giving Morticia new reasons to spend in the manner they want her to. But then again, where does MCX stop in providing a level playing field for its partners, and step back – so that merchants can start to compete for their customers and their spend? And finally, can it survive the natural conflicts that will arise, and limit its scope to areas that all can agree – for long enough for it to take root? Should MCX become the next Isis or the next Paypal? Which makes most sense? What do you think? Please leave your opinions below... (This blog post is an adaptation of its original post found - http://www.droplabs.co/?p=662)  

All skip tracing data is the same, right? Not exactly. While there are many sources of consumer contact data available to debt collectors, the quality, freshness, depth and breadth can vary significantly. Just as importantly, what you ultimately do or don't do with the data depends on several factors such as: Whether or not the debt is worth your while to pursue How deep and fresh the data is What if no skip data is available, and, What happens if there is no new information available when you go to your skip-tracing vendor requesting new leads? So what's the best way for your company to locate debtors? What data sources are right for you? Check out my recent article in Collections and Credit Risk for some helpful advice, and be sure to check out our other debt collection industry blog posts for best practices, tips and tricks on ways to recover more debt, faster. What data sources do you find most beneficial to your business and why? Let us know by commenting below.

It comes as no surprise to anyone that cell phone usage continues to rise, while at the same time the usage of wire lines, or what used to be affectionately known as POTS (Plain Old Telephone Service), continues to decline. Some recent statistics, supplied by the CDC show that: 34% of all households are now wireless only 25 states have rates of primary wireless exceeding 50% Landline only households is now down to only 10.2% When you couple that with churn rates for cell phones that can exceed 40% a year, it becomes paramount to find a good source for cell numbers if you are trying to contact an existing customer or collect on an overdue bill. But where can debt collectors go to find reliable cell phone numbers? The cell phone providers won’t sell you a database, there is no such thing as 411 for cell phones, nor is it likely there will be one in the near future with the aforementioned 40%+ churn rates. Each cell phone service provider will continue to protect their customer base. There are a few large compilers of cell phone numbers; they mostly harvest these numbers from surveys and sources that capture the numbers as a part of an online service—think ringtones here! These numbers can be good, at least initially, if they came with an address which enables you to search for them. The challenge is that these numbers can grow stale relatively quickly. Companies that maintain recurring transactions with consumers have a better shot at having current cell numbers. Utilities and credit bureaus offer an opportunity to capture these self-reported numbers. At our company, over 40% of self-reported phones are cell phones. However, in most cases, you must have a defined purpose as governed by Gramm Leach Bliley (GLB) in order to access them. Of course, the defined purpose also goes hand in hand with the Telephone Consumer Protection Act (TCPA), which restricts use of automatic dialers and prohibits unsolicited calls via a cell phone. Conclusion? If you are trying to find someone’s cell number for debt collection purposes, I recommend using a resource more likely to receive updates on the owner of a cell over that of compilers who are working with one time event data. In today’s world, obtaining an accurate good cell number is a challenge and will continue to be. What cell phone number resources have been most effective for you?

Contributed by: David Daukus As the economy recovers from the recession, consumers are becoming more responsible with their credit card usage; credit card debts have not increased and delinquency rates have declined. Delinquency rates as a percentage of balances continue to decline with the short term 30-59 DPD period, now at 0.9%. With mixed results, where is the profit opportunity? Further studies from Experian-Oliver Wyman state that the average bankcard balance per consumer remained relatively flat at $4,170, but the highest credit tiers (using VantageScore® credit score A and B segments) saw average balances increase to $2,422 and $3,208, respectively. It's time to focus on what you have—your current portfolio—and specifically how to: Increase credit card usage in the prime segments Assign the right lines to your cardholders Understand who has the ‘right’ spend Risk score alone doesn't provide the most accurate insight into consumer accounts. You need to dig deeper into individual accounts to uncover behavioral trends to get the critical information needed to grow your portfolio:  Leading financial institutions are looking at consumer payment history, such as balance and utilization changes. These capture a consumer’s credit situation more accurately than a point in time view. When basic principles are applied to credit data, different consumer behaviors become evident and can be integrated into client strategies. For example, if two consumers have the same VantageScore® credit score, credit card balances, and payment status, does that mean they have the same current credit status? Not necessarily so. By looking at their payment history, you can determine which direction each is heading. Are they increasing their debt or are they paying down their debt? These differences reveal their riskiness and credit needs. Therefore, with payment history added to the mix, you can more accurately allocate credit lines between consumers and simultaneously reduce risk exposure. Spend is another important metric to evaluate to help grow your portfolio. How do you know if a consumer uses primary a credit card when making purchases? Wouldn’t you want to know the right amount of credit to provide based on the consumer’s need? Insight into consumer spending levels provides a unique understanding of a consumer’s credit needs. Knowing spend allows lenders to provide necessary high lines to the limited population of very high spenders, while reducing overall exposure by providing lower lines to low spenders. Spend data also reveals wallet share—knowing the total spend of your cardholder allows you to calculate their external spend. With wallet share data, you can capture more spend by adjusting credit lines or rewards that will entice consumers to spend more using your card. Once you have a more complete picture of a consumer, adjusting lines of credit and making the right offer is much easier. Take some of the risk out of managing your existing customers and finding new ones. What behavioral data have you found most beneficial in making lending decisions?   Source: Experian-Oliver Wyman Market Intelligence Reports

I'm here in Vegas at the Mobile2020 conference and I am fascinated by my room key. This is not the usual “insert in to the slot, wait for it turn green or hear it chime” key cards, these are “tap and hold to a door scanner till the door opens” RFID key card. It is befitting the event I am about to attend – Money2020 – the largest of its kind bringing together over 2000 mobile money aficionados, strategists and technologists from world over for a couple of days to talk about how payment modalities are shifting and the impact of these shifts to existing and emerging players. Away from all the excitement of product launches, I hope some will be talking about one of the major barriers for consumer adoption towards alternate payment modalities such as mobile – security and fraud.  I was in Costa Mesa last week and in the process of buying something for my wife with my credit card, triggered the card fraud alert. My card was declined and I had to use a different card to complete my transaction. As I was walking out, my smartphone registers a text alert from the card issuer – asking me to confirm that it was actually I who attempted the transaction. And If so, Respond by texting 1 – if Yes Or 2 – if No. All good and proper up till this point. If someone had stolen my card or my identity, this would have been enough to stop fraud from re-occurring. In this scenario the payment instrument and the communication device were separate – my plastic credit card and my Verizon smartphone. In the next couple of years, these two will converge, as my payment instrument and my smartphone will become one. At that point, will the card issuer continue to send me text alerts asking for confirmation? If instead of my wallet, my phone was stolen – what good will a text alert to that phone be of any use to prevent the re-occurrence of fraud? Further if one card was shut down, the thief could move to other cards with in the wallet – if, just as today, there are no frameworks for fraud warnings to permeate across other cards with in the wallet. Further, fraud liability is about to shift to the merchant with the 2013 EMV Mandate. In the recent years, there has been significant innovation in payments – to the extent that we have a number of OTT (Over the Top) players, unencumbered by regulation, who has been able to sidestep existing players – issuers and card networks, in positioning mobile as the next stage in the evolution of payments. Google, PayPal, Square, Isis (a Carrier consortium formed by Verizon, T-Mobile and AT&T), and a number of others have competing solutions vying for customer mind share in this emerging space. But when it comes to security, they all revert to a 4 digit PIN – what I call as the proverbial fig leaf in security. Here we have a device that offers a real-time context – whether it be temporal, social or geo-spatial – all inherently valuable in determining customer intent and fraud, and yet we feel its adequate to stay with the PIN, a relic as old as the payment rails these newer solutions are attempting to displace. Imagine what could have been – in the previous scenario where instead of reaching for my card, I reach for my mobile wallet. Upon launching it, the wallet, leveraging the device context, determines that it is thousands of miles away from the customer’s home and should score the fraud risk and appropriately ask the customer to answer one or more “out-of-wallet” questions that must be correctly answered. If the customer fails, or prefers not to, the wallet can suggest alternate ways to authenticate – including IVR. Based on the likelihood of fraud, the challenge/response scenario could include questions about open trade lines or simply the color of her car. Will the customer appreciate this level of pro-activeness on the issuer’s part to verify the legality of the transaction? Absolutely. Merchants, who so far has been on the sidelines of the mobile payment euphoria, but for whom fraud is a real issue affecting their bottom-line, will also see the value. The race to mobile payments has been all about quickly shifting spend from plastic to mobile, and incenting that by enabling smartphones to store and deliver loyalty cards and coupons. The focus need to shift, or to include, how smartphones can be leveraged to address and reduce fraud at the point-of-sale – by bringing together context of the device and a real-time channel for multi-factor authentication. It’s relevant to talk about Google Wallet (in its revised form) and Fraud in this context. Issuers have been up in arms privately and publicly, in how Google displaces the issuer from the transaction by inserting itself in the middle and settles with the merchant prior to firing off an authorization request to the issuer on the merchant’s behalf. Issuers are worried that this could wreak havoc with their inbuilt fraud measures as the authorization request will be masked by Google and could potentially result in issuer failing to catch fraudulent transactions. Google has been assuaging issuer’s fears on this front, but has yet to offer something substantial – as it clearly does not intent to revert to where it was prior – having no visibility in to the payment transaction (read my post here). This is clearly shaping up to be an interesting showdown – would issuers start declining transactions where Google is the merchant of record? And how much more risk is Google willing to take, to become the entity in the middle? This content is a re-post from Cherian's personal blog: http://www.droplabs.co/?p=625

By: Kyle Aiman Let’s face it, debt collectors often get a bad rap.  Sure, some of it is deserved, but the majority of the nation’s estimated 157,000 collectors strive to do their job in a way that will satisfy both their employer and the debtor.  One way to improve collector/debtor interaction is for the collector to be trained in consumer credit and counseling. In a recent article published on Collectionsandcreditrisk.com, Trevor Carone, Vice President of Portfolio and Collection Solutions at Experian, explored the concept of using credit education to help debt collectors function more like advisors instead of accusers.  If collectors gain a better understanding of consumer credit – how to read a credit report, how items may affect a credit score, how a credit score is compiled and what factors influence the score – perhaps they can offer suggestions for improvement. Will providing past-due consumers with a plan to help improve their credit increase payments?  Read the article and let us know what you think!

By: Kyle Aiman For more than 20 years, creditors have been using scores in their lending operations.  They use risk models such as the VantageScore® credit score, FICO or others to predict what kind of risk to expect before making credit-granting decisions. Risk models like these do a great job of separating the “goods” from the “bads.” Debt recovery models are built differently-their job is to predict who is likely to pay once they have already become delinquent. While recovery models have not been around as long as risk models, recent improvements in analytics are producing great results.  In fact, the latest generation of recovery models can even predict who will pay the most. Hopefully, you are not using a risk model in your debt collection operations.  If you are, or if you are not using a model at all, here are five reasons to start using a recovery model: Increase debt recovery rates – Segmenting and prioritizing your portfolios will help increase recovery rates by allowing you to place emphasis on those accounts most likely to pay. Manage and reduce debt recovery costs – Develop treatment strategies of varying costs and apply appropriately. Do not waste time and money on uncollectible accounts. Outsource accounts to third party collection agencies – If you use outside agencies, use recovery scoring to identify accounts best suited for assignment; take the cream off the top to keep in house. Send accounts to legal – Identify accounts that would be better served using a legal strategy versus spending time and money using traditional treatments. Price accounts appropriately for sale – If you are in a position to sell accounts, recovery scoring can help you develop a pricing strategy based on expected collectibility. What recovery scoring tools are you using to optimize your company's debt collection efforts? Feel free to ask questions or share your thoughts below.   VantageScore® is a registered trademark of VantageScore Solutions, LLC.

By: Uzma Aziz They say, “a bird in the hand is better than two in the bush” …and the same can be said about customers in a portfolio. Studies have shown time and again that the cost of acquiring a new financial services customer is many times higher than the cost of keeping an existing one. Retention has always been an integral part of portfolio management, and with the market finally on an upward trajectory, there is all the more need to hold on to profitable customers. Experts at CEB TowerGroup are forecasting a combined annual growth rate of over 12% for new credit cards alone through 2015. Combine that with a growing market with better-informed and savvy customers, and you have a very good reason to be diligent about retaining your best ones. Also, different sized institutions have varying degrees of success. According to a study by J.D. Power & Associates, in 2011 overall, 9.6% of customers indicated they switched their primary bank account during the past year, up from 8.7% a year ago. Smaller banks and credit unions did see drastically lower attrition than they did in prior years: just 0.9% on average, down from 8.8% a year earlier. For large, mid-sized and regional banks unfortunately, it was a different story with attrition rates at 10 to 11.3%. It gets even more complex when you drill down to a specific type of financial product such as a credit card. Experian’s own analysis of credit card customer retention shows that while the majority of customers are loyal, a good percentage attrite actively—that is, close their accounts and open new ones—while a bigger percent are silent attriters, those that do not close accounts but pay down balances and move their spend to others. Obviously, attrition is a continual topic that needs to be addressed, but to minimize it you first need to understand the root cause. Poor service seems to be the leading factor and one study* showed that 31% of consumers who switched banks did so because of poor service, followed by product features and finding a better offer elsewhere. So what are financial institutions doing to retain their profitable customers? There are lots of tools ranging from easy to more complex e.g., fee and interest waiver, line increases, rewards, and call center priority to name a few. But the key to successful customer retention is to look within the portfolio combining both internal and external information. This encompasses both proactive and reactive strategies. Proactive strategies include identifying customer behaviors which lead to balance or account attrition and taking action before a customer does. This includes monitoring changes over time and identifying thresholds for action as well as segmentation and modeling to identify problem. Reactive strategies, as the name suggests, is reacting to when a customer has already taken action which will lead to attrition; these include monitoring portfolios for new inquiries and account openings or response to customer complaints. In some cases, this maybe too little too late, but in others reactive response may be what saves a customer relationship. Whichever strategy or combination of these you choose, the key points to remember to retain customers and keep them happy are: Understand your current customers’ perceptions about credit, as they many have changed—customers are likely to be more educated, and the most profitable ones expect only the best customer service experience Be approachable and personal – meet customer needs—or better yet, anticipate those needs, focusing on loyalty and customer experience You don’t need to “give away the farm” – sometimes a partial fee waiver works * Global Consumer Banking Survey 2011, by Ernst & Young  

By: Stacy Schulman Earlier this week the CFPB announced a final rule addressing its role in supervising certain credit reporting agencies, including Experian and others that are large market participants in the industry. To view this original content, Experian and the CFPB - Both Committed to Helping Consumers. During a field hearing in Detroit, CFPB Director Richard Cordray’s spoke about a new regulatory focus on the accuracy of the information received by the credit reporting companies, the role they play in assembling and maintaining that information, and the process available to consumers for correcting errors. We look forward to working with CFPB on these important priorities. To read more about how Experian prioritizes these information essentials for consumers, clients and shareholders, read more on the Experian News blog. Learn more about Experian's view of the Consumer Financial Protection Bureau. ___________________ Original content provided by: Tony Hadley, Senior Vice President of Government Affairs and Public Policy About Tony: Tony Hadley is Senior Vice President of Government Affairs and Public Policy for Experian. He leads the corporation’s legislative, regulatory and policy programs relating to consumer reporting, consumer finance, direct and digital marketing, e-commerce, financial education and data protection. Hadley leads Experian’s legislative and regulatory efforts with a number of trade groups and alliances, including the American Financial Services Association, the Direct Marketing Association, the Consumer Data Industry Association, the U.S. Chamber of Commerce and the Interactive Advertising Bureau. Hadley is Chairman of the National Business Coalition on E-commerce and Privacy.

Previously, we looked at the various ways a dual score strategy could help you focus in on an appropriate lending population. Find your mail-to population with a prospecting score on top of a risk score; locate the riskiest of all consumers by layering a bankruptcy score with your risk model. But other than multiple scores, what other tools can be used to improve credit scoring effectiveness? Credit attributes add additional layers of insight from a risk perspective. Not everyone who scores an 850 represent the same level of risk once you start interrogating their broader profile. How much total debt are they carrying? What is the nature of it - is it mortgage or mostly revolving? A credit score may not fully articulate a consumer as high risk, but if their debt obligations are high, they may represent a very different type of risk than from another consumer with the same 850 score.  Think of attribute overlays in terms of tuning the final score valuation of an individual consumer by making the credit profile more transparent, allowing a lender to see more than just the risk odds associated with the initial score. Attributes can also help you refine offers. A consumer may be right for you in terms of risk, but are you right for them? If they have 4 credit cards with $20K limits each, they’re likely going to toss your $5K card offer in the trash. Attributes can tell us these things, and more. For example, while a risk score can tell us what the risk of a consumer is within a set window, certain credit attributes can tell us something about the stability of that consumer to remain within that risk band. Recent trends in score migration – the change in a level of creditworthiness of a consumer subsequent to generation of a current credit score – can undermine the most conservative of risk management policies. At the height of the recession, VantageScore® Solutions LLC studied the migration of scores across all risk bands and was able to identify certain financial management behaviors found within their credit files. These behaviors (signaling, credit footprint, and utility) assess the consumer’s likelihood of improving, significantly deteriorating, or maintaining a stable score over the next 12 months.  Knowing which subgroup of your low-risk population is deteriorating, or which high risk groups are improving, can help you make better decision today.

One of the most successful best practices for improving agency performance is the use of scorecards for assessing and rank ordering performance of agencies in competition with each other. Much like people, agencies thrive when they understand how they are evaluated, how to influence those factors that contribute to success, and the recognition and reward for top tier performance. Rather than a simple view of performance based upon a recovery rate as a percentage of total inventory, best practice suggests that performance is more accurately reflected in vintage batch liquidation and peer group comparisons to the liquidation curve. Why? In a nutshell, differences in inventory aging and the liquidation curve. Let’s explain this in greater detail. Historically, collection agencies would provide their clients with better performance reporting than their clients had available to them. Clients would know how much business was placed in aggregate, but not by specific vintage relating to the month or year of placement. Thus, when a monthly remittance was received, the client would be incapable of understanding whether this month’s recoveries were from accounts placed last month, this year, or three years ago. This made forecasting of future cash flows from recoveries difficult, in that you would have no insight into where the funds were coming from. We know that as a charged off debt ages, its future liquidation rate generally downward sloping (the exception is auto finance debt, as there is a delay between the time of charge-off and rehabilitation of the debtor, thus future flows are higher beyond the 12-24 month timeframe). How would you know how to predict future cash flows and liquidation rates without understanding the different vintages in the overall charged off population available for recovery? This lack of visibility into liquidation performance created another issue. How do you compare the performance of two different agencies without understanding the age of the inventory and how it is liquidating? An as example, let’s assume that Agency A has been handling your recovery placements for a few years, and has an inventory of $10,000,000 that spans 3+ years, of which $1,500,000 has been placed this year. We know from experience that placements from 3 years ago experienced their highest liquidation rate earlier in their lifecycle, and the remaining inventory from those early vintages are uncollectible or almost full liquidated. Agency A remits $130,000 this month, for a recovery rate of 1.3%. Agency B is a new agency just signed on this year, and has an inventory of $2,000,000 assigned to them. Agency B remits $150,000 this month, for a recovery rate of 7.5%. So, you might assume that Agency B outperformed Agency A by a whopping 6.2%. Right? Er … no. Here’s why. If we had better visibility of Agency A’s inventory, and from where their remittance of $130,000 was derived, we would have known that only a couple of small insignificant payments came from the older vintages of the $10,000,000 inventory, and that of the $130,000 remitted, over $120,000 came from current year inventory (the $1,500,000 in current year placements). Thus, when analyzed in context with a vintage batch liquidation basis, Agency A collected $120,000 against inventory placed in the current year, for a liquidation rate of 8.0%. The remaining remittance of $10,000 was derived from prior years’ inventory. So, when we compare Agency A with current year placements inventory of $1,500,000 and a recovery rate against those placements of 8.0% ($120,000) versus Agency B, with current year placements inventory of $2,000,000 and a recovery rate of 7.5% ($150,000), it’s clear that Agency A outperformed Agency B. This is why the vintage batch liquidation model is the clear-cut best practice for analysis and MI. By using a vintage batch liquidation model and analyzing performance against monthly batches, you can begin to interpret and define the liquidation curve. A liquidation curve plots monthly liquidation rates against a specific vintage, usually by month, and typically looks like this: Exhibit 1: Liquidation Curve Analysis                           Note that in Exhibit 1, the monthly liquidation rate as a percentage of the total vintage batch inventory appears on the y-axis, and the month of funds received appears on the x-axis. Thus, for each of the three vintage batches, we can track the monthly liquidation rates for each batch from its initial placement throughout the recovery lifecycle. Future monthly cash flow for each discrete vintage can be forecasted based upon past performance, and then aggregated to create a future recovery projection. The most sophisticated and up to date collections technology platforms, including Experian’s Tallyman™ and Tallyman Agency Management™ solutions provide vintage batch or laddered reporting. These reports can then be used to create scorecards for comparing and weighing performance results of competing agencies for market share competition and performance management. Scorecards As we develop an understanding of liquidation rates using the vintage batch liquidation curve example, we see the obvious opportunity to reward performance based upon targeted liquidation performance in time series from initial placement batch. Agencies have different strategies for managing client placements and balancing clients’ liquidation goals with agency profitability. The more aggressive the collections process aimed at creating cash flow, the greater the costs. Agencies understand the concept of unit yield and profitability; they seek to maximize the collection result at the lowest possible cost to create profitability. Thus, agencies will “job slope” clients’ projects to ensure that as the collectability of the placement is lower (driven by balance size, customer credit score, date of last payment, phone number availability, type of receivable, etc.) For utility companies and other credit grantors with smaller balance receivables, this presents a greater problem, as smaller balances create smaller unit yield. Job sloping involves reducing the frequency of collection efforts, employing lower cost collectors to perform some of the collection efforts, and where applicable, engaging offshore resources at lower cost to perform collection efforts. You can often see the impact of various collection strategies by comparing agency performance in monthly intervals from batch placement. Again, using a vintage batch placement analysis, we track performance of monthly batch placements assigned to competing agencies. We compare the liquidation results on these specific batches in monthly intervals, up until the receivables are recalled. Typical patterns emerge from this analysis that inform you of the collection strategy differences. Let’s look at an example of differences across agencies and how these strategy differences can have an impact on liquidation:                     As we examine the results across both the first and second 30-day phases, we are likely to find that Agency Y performed the highest of the three agencies, with the highest collection costs and its impact on profitability. Their collection effort was the most uniform over the two 30-day segments, using the dialer at 3-day intervals in the first 30-day segment, and then using a balance segmentation scheme to differentiate treatment at 2-day or 4-day intervals throughout the second 30-day phase. Their liquidation results would be the strongest in that liquidation rates would be sustained into the second 30-day interval. Agency X would likely come in third place in the first 30-day phase, due to a 14-day delay strategy followed by two outbound dialer calls at 5-day intervals. They would have a better performance in the second 30-day phase due to the tighter 4-day intervals for dialing, likely moving into second place in that phase, albeit at higher collection costs for them. Agency Z would come out of the gates in the first 30-day phase in first place, due to an aggressive daily dialing strategy, and their takeoff and early liquidation rate would seem to suggest top tier performance. However, in the second 30-day phase, their liquidation rate would fall off significantly due to the use of a less expensive IVR strategy, negating the gains from the first phase, and potentially reducing their over position over the two 30-day segments versus their peers. The point is that with a vintage batch liquidation analysis, we can isolate performance of a specific placement across multiple phases / months of collection efforts, without having that performance insight obscured by new business blended into the analysis. Had we used the more traditional current month remittance over inventory value, Agency Z might be put into a more favorable light, as each month, they collect new paper aggressively and generate strong liquidation results competitively, but then virtually stop collecting against non-responders, thus “creaming” the paper in the first phase and leaving a lot on the table. That said, how do we ensure that an Agency Z is not rewarded with market share? Using the vintage batch liquidation analysis, we develop a scorecard that weights the placement across the entire placement batch lifecycle, and summarizes points in each 30-day phase. To read Jeff's related posts on the topic of agency management, check out: Vendor auditing best practices that will help your organization succeed Agency managment, vendor scorecards, auditing and quality monitoring  

Organizations approach agency management from three perspectives: (1) the need to audit vendors to ensure that they are meeting contractual, financial and legal compliance requirements; (2) ensure that the organization’s clients are being treated fairly and ethically in order to limit brand reputation risk and maintain a customer-centric commitment; (3) maximize revenue opportunities through collection of write-offs through successful performance management of the vendor. Larger organizations manage this process often by embedding an agency manager into the vendor’s site, notably on early out / pre charge-off outsourcing projects. As many utilities leverage the services of outsourcers for managing pre-final bill collections, this becomes an important tool in managing quality and driving performance. The objective is to build a brand presence in the outsourcer’s site, and focusing its employees and management team on your customers and daily performance metrics and outcomes. This is particularly useful in vendor locations in which there are a number of high profile client projects with larger resource pools competing for attention and performance, as an embedded manager can ensure that the brand gets the right level of attention and focus. For post write off recovery collections in utility companies, embedding an agency manager becomes cost-prohibitive and less of an opportunity from an ROI perspective, due to the smaller inventories of receivables at any agency. We urge that clients not spread out their placements to many vendors where each project is potentially small, as the vendors will more likely focus on larger client projects and dilute the performance on your receivables. Still, creating a smaller pool of agency partners often does not provide a resource pool of >50-100 collectors at a vendor location to warrant an embedded agency management approach. Even without an embedded agency manager, organizations can use some of the techniques that are often used by onsite managers to ensure that the focus is on their projects, and maintain an ongoing quality review and performance management process. The tools are fairly common in today’s environment --- remote monitoring and quality reviews of customer contacts (i.e., digital logging), monthly publishing of competitive liquidation results to a competitive agency process with market share incentives, weekly updates of month-to-date competitive results to each vendor to promote competition, periodic “special” promotions / contests tied to performance where below target MTD, and monthly performance “kickers” for exceeding monthly liquidation targets at certain pre-determined levels. Agencies have selective memory, and so it’s vital to keep your projects on their radar. Remember, they have many more clients, all of whom want the same thing – performance. Some are less vocal and focused on results than others. Those that are always providing competitive feedback, quality reviews and feedback, contests, and market share opportunities are top of mind, and generally get the better selection of collectors, team /project managers, and overall vendor attention. The key is to maintain constant visibility and a competitive atmosphere. Over the next several weeks, we'll dive into more detail for each of these areas: Auditing and monitoring, onsite and remote Best practices for improving agency performance Scorecards and strategies Market share competition and scorecards

TRMA’s recent Summer 2011 Conference in San Francisco was another great, insightful event. Experian’s own Greg Carmean gave a presentation regarding the issues involved in providing credit to small-business owners. I recently interviewed Greg to get his impressions about last month’s conference. KM: I’m speaking with Experian Program Manager, Greg Carmean, who spoke at TRMA’s Summer Conference. Hi, Greg. GC: Hi, Kathy. KM: Greg, I know I’ve interviewed you before, but can you please remind everyone what your role is here at Experian? GC: Sure, I’m a Program Manager on the Small Business Credit Share side. I work with small- and medium-size companies, including telecom and cable companies, to reduce credit risk and get more value from their data. KM: Thanks, Greg. So last month, you spoke at TRMA’s Summer Conference. What did you discuss? GC: My presentation was entitled, “Beyond Consumer Credit – Providing a More Comprehensive Assessment of Small-Business Owners.” I talked about how traditional risk management tools can provide a point-in-time look at a business owner, but often fail to show the broader picture of the risk associated with all of their current and previous businesses. There is 3-4 times more fraud in small business than in consumer. Business identity theft has become a bigger issue, Tax ID verification is a common problem, and there’s a lot of concern about agents bringing in fraudulent accounts. KM: Why did you choose this particular topic?   GC: Well, Kathy, small business is seen as a large area of opportunity, but there can be a lot of difficulty involved in validation, especially when it comes to remote authentication and new businesses. KM: Would you say there’s more fraud in small business than on the consumer side? GC: Believe it or not, there is 3-4 times more fraud in small business than in consumer. Business identity theft has become a bigger issue, Tax ID verification is a common problem, and there’s a lot of concern about agents bringing in fraudulent accounts. Many telecom and cable companies are beginning to adopt more aggressive, manual processes to lower the risk of fraud. Unfortunately, that usually results in lower activation. KM: What can be done about it?   GC: Many telecom and cable companies are beginning to adopt more aggressive, manual processes to lower the risk of fraud. Unfortunately, that usually results in lower activation. KM: Sounds like it can be frustrating! GC: It can be, especially for the salespeople who bring in an account, and then find it’s not approved for service. Sometimes clients will pass a fraud check, but not a credit check. One of the topics I touched on is better tools that more accurately identify a small business owner's risk across all of their current and previous businesses to alleviate some of these problems. KM: Is there anything else telecom and cable companies should be doing? GC: I think the best risk-mitigation tool when it comes to account acquisition is leveraging information about both the small business and its owner. As they say, knowledge is power. KM: Definitely! Thanks again for your time today, Greg. Share your thoughts! If you attended TRMA’s Summer Conference, and especially if you attended Greg Carmean’s session, we’d love to hear from you. Please share your thoughts by commenting on this blog post. All of us at Experian look forward to seeing you at TRMA’s Fall Conference in Dallas, Texas, on September 20 – 21, 2011.

Like their utility counterparts, communications providers routinely participate in federally subsidized assistance programs that discount installation or monthly service for qualified low-income customers. But, as utilities have found, certain challenges must be considered when mining this segment for new growth opportunities, including: Thwarting scammers who use falsified income data and/or multiple IDs to game the system and double up on discounts Equipping internal teams to efficiently process the potential mountain of program applications and recertification paperwork The right tool for the job Experian’s Financial Assistance CheckerSM product is a powerful scoring tool that indicates whether consumers may qualify for low-income assistance programs (such as LifeLine and LinkUp). Originally designed for (and currently used by) utilities, Financial Assistance Checker offers risk-reduction and resource utilization efficiencies that also benefit communications providers. Automation saves time For example, Financial Assistance Checker may be used to help qualify specific individuals among new and existing low-income program participants, as well as others who may qualify but have not yet enrolled. The solution also helps automate labor-intensive manual reviews, making the process less costly and more efficient. Some companies have reduced manual intervention by up to 50% by using financial assistance scores to automatically re-certify current enrollees. Strengthen your overall game plan Experian’s Financial Assistance Checker may be used to: Produce a score that aids in effective decisions Reduce the number of manually reviewed applications Facilitate more efficient resource allocation Mitigate fraud risk by rejecting unqualified applicants   Cautionary caveat Financial Assistance Checker is derived exclusively from Experian’s credit data without demographic factors. While it’s good at qualifying applicants and customers, it may not be used as a basis for adverse action or removal from a program — only to determine eligibility for low-income assistance. Today, acquisitions is the name of the game. If your growth strategy calls for leveraging subsidized segments, consider adding Experian’s Financial Assistance Checker product to your starting lineup. After all, the best offense could just be a strong defense. Link & Learn This link takes you to a short but informative video about LifeLine and LinkUp. See the FCC’s online Lifeline and Link Up program overview here. Hot off the government press! Click to see the FCC’s 6/21/11 report on Lifeline and LinkUp Reform and Modernization