When does risk management become restrictive to your business?
Author: Luke Taylor CCO & Deputy CEO
Date: 8th September 2015
Early in the year, T-Mobile USA were interviewed by CNNMoney, in these discussions it became evident that 50% of T-Mobile’s customers did not qualify for its top promotions…. So how do you balance good risk management policies, limit financial exposure, whilst ensuring you can retain customers, upsell and grow revenue?
It is assumed that in North America, Australia and much of Europe, Communication Service Providers (CSP) offering services to consumers and corporations undertake a credit check every time they sign up a new contract. The reason for this – they want to make sure that the customer will pay the bill at the end of the month. In the case of T-Mobile one would, and one presumes others, they also undertake this for existing customers requesting new services. The exposure of any one CSP differs depending on a number of factors including the cost of services, if they provide subsidised handsets, competitive promotions, target market, etc.
But only considering customer’s exposure via a third party Credit Bureau is restrictive, as proven by T-Mobile, in that the rejection rate was much higher than they wished – so how do you define the threshold to accept or reject a new or existing customer that aligns to their business risk policy? T-Mobile decided to stop just using the traditional checking credit for existing customers when they renew/update their service. Instead, it will now judge them on their previous payment behaviour with T-Mobile. Sounds a like a common sense approach, and no doubt has been successful since its inception early this year. But this is not a new concept and is already being used by some of our existing Risk Management customers, but it does highlight that simply using default bureau information is not the answer moving forward.
An holistic, comprehensive, deeper and richer analytical approach is required, but is this possible? Well with existing customers risk assessment, I think so… Data on your subscribers is available, from how many times they have called customer care, when and how they pay their bills, what previous service requests have been registered, what previous campaigns the subscriber was interested in, where they were provisioned, the deviation in calling behaviour over a defined time, etc. All this information can be collected from disparate sources and naturally allows for improved and refined customer segmentation which equates to more accurate decision making.
In the case of new customers, collecting data from various sources in the business is also possible, such as point of sale, dealer, identifying individuals registering that may already be an existing customer under a corporate account, previous historic applications, consortium data with your regional peers, etc. all contribute to provide better risk assessment and ultimately more insightful decision making. As big data grows from just a theory and formulates into a usable asset and aspects such as regulation and privacy are resolved, information collected by third party marketing companies, IoT sources, etc. will all add further enrichment capability to this decision.
Introducing initiatives such as NBO (Next Best Offer) to your provisioning strategy, to allow for a hybrid approach to exposure management through reduction in asset cost by suggesting alternative lower risk offers and promotions will decline the right people and offer tailored products – a step to proactive customer management.
It would be interesting to understand how CSP’s and financial institutions are looking at risk assessment today and their future plans and if there are similarities that both industries can learn from. At the end of the day with mobile money growing year on year, both industries will need to open up to a collaborative relationship moving forward.
Luke Taylor – Chief Commercial Officer
Neural Technologies http://www.neuralt.com