Tag: optimization

By: Wendy Greenawalt Optimization has become a "buzz word" in the financial services marketplace, but some organizations still fail to realize all the possible business applications for optimization. As credit card lenders scramble to comply with the pending credit card legislation, optimization can be a quick and easily implemented solution that fits into current processes to ensure compliance with the new regulations. Optimizing decisions Specifically, lenders will now be under strict guidelines of when an APR can be changed on an existing account, and the specific circumstances under which the account must return to the original terms. Optimization can easily handle these constraints and identify which accounts should be modified based on historical account information and existing organizational policies. APR account changes can require a great deal of internal resources to implement and monitor for on-going performance. Implementing an optimized strategy tree within an existing account management strategy will allow an organization to easily identify consumer level decisions.  This can be accomplished while monitoring accounts through on-going batch processing. New delivery options are now available for lenders to receive optimized strategies for decisions related to: Account acquisition Customer management Collections Organizations who are not currently utilizing this technology within their  processes should investigate the new delivery options. Recent research suggests optimizing decisions can provide an improvement of 7-to-16 percent over current processes.  

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.  

By: Wendy Greenawalt The combined impact of rising unemployment, increasing consumer debt burdens and decreasing home values have caused lenders to shift resources away from prospecting and acquisitions to collection and recovery activities. As delinquencies and charge-off rates continue to increase, the likelihood of collecting on delinquent accounts decreases -- because outstanding debts mount for consumers and their ability to pay declines. Integrating optimized decisions into a collection strategy enables a lenders to assign appropriate collection treatments by assessing the level of risk associated with a consumer while considering a customer’s responsiveness to particular treatment options. Specifically, collections optimization uses mathematical algorithms to maximize organizational goals while applying constraints such as budget and call center capacity  -- providing explicit treatment strategies at the consumer level -- while producing the highest probability of collecting outstanding dollars. Optimization can be integrated into a real-time call center environment by targeting the right consumers for outbound calls and assigning resources to consumers most likely to pay.  It can also be integrated into traditional lettering campaigns to determine the number and frequency of letters, and the tone of each correspondence. The options for account treatment are virtually limitless and, unlike other techniques, optimization will determine the most profitable strategy while meeting operational and business constraints without simplification of the problem. By incorporating optimization into a collection strategy that includes a predictive model or score and advanced segmentation, an organization can maximize collected dollars, minimize the costs of collection efforts, improve collections efficiency, and determine which accounts to sell off – all while maximizing organizational profits.