Loss mitigation strategies for the payments business are getting a technology makeover that includes the same kind of emerging analysis used to attract consumers in the first place.
"Identifying which customers or debtors are most likely to pay is a predictive analytical process, and it's really almost the same thing as what banks do when they are looking at acquiring a new customer, cross-selling or retention," says David Wallace, global financial services marketing manager for SAS, a business intelligence developer.
Business intelligence and expanded data sourcing show how consumers prioritize different types of payments. This analysis can then be used to develop pitches to collect distressed debts from consumers, or to provide advice on payment plans to avoid default.
"Having a better understanding of where a customer may be in their current situation helps us to predict their ability to pay us-someone who may have a $2,000 charged off on a credit card may not be able to come up with $2,000, but may pay $25 per week or $200 once per month," says Darrell McCormick, manager of corporate analytics for CBE Group, a company that provides collections and advisory services to clients in the financial services, healthcare, government, utility, telecom and government segments.
CBE uses personal visits, email and text messaging and outbound call centers to reach consumers who have fallen behind on credit card and other payments. The company recently deployed a tech suite that includes the SAS Enterprise Guide and SAS Enterprise Miner.
SAS' Enterprise Guide allows information retrieval, data management, data mining, research, forecasting and data warehousing. It also enables online analytical processing (OLAP), or a method of looking a data from different perspectives — comparing it with other data or viewing in isolation. OLAP is designed to aid in marketing, sales and business process management, but can also be used to view how people pay. Enterprise Minor plies predictive analytics and modeling algorithms such as market basket analysis, which is based on the theory that payments are made in bunches for similar products.
"The tech produces a behavior model of a person's propensity to pay, such as how much they are able to repay and the best method to contact them, along with a treatment strategy to get them to repay. One person may be able to transfer money from another account to make a payment, or they may be underwater with other debts, and may be more open to another strategy to manage their overall debt," Wallace says.
SAS' competitors in the business intelligence debt management space include Oracle, which mixes data analytics with online bill payment and presentment to consumers; and SAP, whose platform includes data management, dispute resolution and receivables automation.
As the analysis expands, so does the data sourcing. Analysis of social network activity, for example, can help an issuer determine the impact of an external event-discussion of an auto accident, when combined with more traditional data, can suggest an unexpected debt that can adversely impact card payments.
"There are a whole fresh set of data sets that third parties are integrating with traditional information that can give card issuers better optics into prepayment habits of consumers, that's above and beyond the information that's traditionally gone into credit scores," says Michael Versace, a global research director for IDC Financial Insights.
The CBE deployment is recent, and the company did not report an uptick in performance related to business intelligence. The overall payment delinquency picture in the market is improving, with a number of large issuers reporting improvements. The American Bankers Association's Consumer Credit Delinquency Bulletin found that bank card delinquencies in third quarter 2012 were down 18 basis points to 2.75%, and below the 15-year average of 3.9%.
"The use of advanced analytics has to be part of that improvement. Those [companies] that have used alternative information behind credit data have reported improvements in performance," Versace says.