Model behaviour – from product to customer

Banks need to think about how they sell to, access and satisfy the credit needs of their customers. Blake Williams, president of Revenue Enhancement for Carreker Corporation, explores the links between customer profitability and revenue optimisation.

Product model or customer model? Should we organise our consumer credit business around our customers, or around our products? Are we in the consumer credit business, or in the business of providing credit-based products?

The pull from the customer side is clear, with customers largely indifferent to bank names when borrowing money. They simply want access to credit, and choose their credit products based on ease of access, use of funds, for how long and at what price.

Banks are responding. Traditional product boundaries are breaking down, as previously distinct products are now available as pick-and-mix menu items. Traditional instalment loans are giving way to evergreen lines of credit, which can be drawn down and repaid at any time without penalty. The UK Post Office distributes a card, managed by Bank of Ireland, that combines features of a loan and a credit card.

A rewarding strategy

It is clear that banks need to think about how they sell to, access and satisfy the needs of their customers – or risk losing out to those that do. Banks such as Barclays have made serious strides towards a more customer-centric business model by placing their non-mortgage lending businesses into a single consumer credit business. According to one Barclaycard executive: ‘Rather than pushing lots of separate products at the customer as a product-based business, we’ve created an overall consumer finance business for the UK. Now we have a business [that is] much more focused on the customer and meeting the customer’s borrowing needs.’ (Cards International, February 2004)

With these changes, profitability is increasingly at customer level. System access to the customer’s relationship with the bank is critical in ensuring that the right credit risk and marketing decisions are made at each stage of the customer life cycle. Consequently, organisations that can efficiently assimilate a multitude of data points about individual customers can gain competitive edge in the race for share of customer credit.

Carreker works with clients to develop practical, incremental ways of accessing and interpreting customer data. Here are a few of the guiding principles experience has taught us:

• Simulate alternatives. Carreker’s sophisticated analytical capabilities enable its clients to measure and coordinate alternative pricing structures and parameters. These simulation techniques help to assess the impact of various decisions (e.g. prioritising pay/no-pay, adding a basis point) on individual customer segments and to identify which decisions maximise enterprise profitability.
• Maintain revenue momentum. No matter how laudable the long-term objective, it is critical not to sacrifice revenue in the name of change. The organisation must continue to generate incremental value to maintain its appetite for change and to protect shareholder value. After years of focusing on net interest and non-interest income, Carreker has developed a multitude of revenue-enhancing strategies, carefully targeted to preserve revenue and mitigate customer impact throughout the transition.
• Enhance your customer IQ. Once customer behaviours and outcomes are fully understood, decisions become clear. The bank must know the full extent of the customer’s credit relationship, the products and channels used, and the value received by both bank and customer. The bank can then apply its risk model to assign each customer an overall credit limit. Transferring this knowledge to the front line ensures that the right decisions are made at the right time for individual customers.

Migrating to the customer model is no easy task, and can require some serious investment. But if the alternative is continued cannibalisation of customer profitability by competing product lines and continued loss of competitiveness to organisations leading the way, banks will have no choice but to begin the transition.

Further information
Carreker Corporation
Tel: +44 (0)20 7469 1600
Fax: +44 (0)20 7283 5806
Email: bwilliams@carreker.com
Website: www.carreker-international.com