Bad debt and fraud create significant revenue risks for enterprises and trigger notable challenges for good revenue assurance and risk mitigation. Ensuring consistent revenue, or delivering revenue growth, can’t be achieved without appropriate mitigation of these key risk areas.
Communication service providers (CSPs) suffered a combined loss of USD149bil to fraud and non-fraud leakages in 2021 according to the Risk and Assurance Group’s (RAG) revenue assurance, fraud management and cybersecurity (RAFMCS) survey. That figure marks a USD7bil increase from the preceding year, and shows the growing risk that CSPs face in tackling these key revenue challenges.
Direct fraud accounted for USD22.18bil of those losses, compounded by the USD2.83bil CSPs paid in fraud compensation. Those substantial industry figures reflect numerous cases of financially and emotionally challenging fraud experienced by customers.
Alongside fraud, bad debt continues to be one of the most pressing revenue challenges for CSPs, accounting for around one-third of revenue assurance losses. Bad debt cost CSPs a staggering USD13.5bil in 2021.
When these figures are combined, bad debt and fraud cost CSPs more than USD38bil in 2021 alone. In a global landscape with significant inflationary pressures, and the persistent financial challenges of the post-pandemic environment, these figures can be expected to grow significantly over the coming year. The complex impacts of the Russia-Ukraine conflict, and its impact on the cost of living, are likely to further exacerbate this issue.
The stark reality is that deficits and global debt accumulated far faster in the two years of the COVID-19 pandemic in historical precedents such as the Great Depression or Global Financial Crisis. The International Monetary Fund highlights that global borrowing jumped 28 percentage points in 2020, with non-financial corporations and households making up around half that rise. With rising energy and fuel costs around the world, households are likely to see greater debt challenges in the near term, leading to rising prevalence of bad debt.
Delivering a solution to bad debt and fraud
Neural Technologies has worked extensively with clients around the world to deliver data-driven solutions that address revenue challenges such as bad debt and fraud. Our Optimus Platform provides a powerful platform approach that helps CSPs leverage their wealth of enterprise data to identify high-risk events, utilizing our sophisticated neural network approach to identify risks and build effective fraud identification across the customer landscape. This delivers automated or semi-automated solutions that enable risk teams to respond in a timely and effective manner.
In one valuable case study, Neural Technologies worked with a major European mobile operator to address serious challenges around bad debt and fraud. The CSP was facing significant challenges in implementing an appropriate solution that could leverage huge volumes of event data to identify and address high-risk behavior with negative revenue impacts. Major challenges included subscription fraud, roamer fraud, dealer fraud, and handset subsidy loss. The CSP operated an entirely manual process, with no automated systems in place, creating a huge burden for the risk management function.
The operator approached Neural Technologies to deliver a scalable solution capable of integrating the appropriate data streams to accurately detect fraud in a timely manner, and implement automated responses which could address the event before revenue losses occurred.
Implementing Neural Technologies’ Optimus Platform solution enabled the operator to significantly enhance fraud detection time and improve the accuracy of fraud detection, increasing the average ratio of good/bad tickets to more than 60%. It also allowed the operator to improve application risk functionality, identifying fraudsters before they reached the billing stage, eliminating bad debt before it occurred. Overall, Neural Technologies’ suite of solutions more than halved the share of bad debt from 2.8% to 1.3% for the operator.
As we look at the evolving global landscape—one framed by financial uncertainty—these solutions are likely to become increasingly important for both communication service providers and their customers. Reducing revenue loss and exposure to fraud helps enterprises retain the greatest share of their revenue at a time when revenue growth may be constrained.
From the customer point of view, responsive, automated fraud management solutions can eliminate fraud risks before they impact both enterprises and end users, reducing potential financial losses to customers, but also providing an environment more likely to deliver fair pricing for all. That not only shows the power of data-driven solutions to deliver positive change for one operator, but how they provide a foundation for a more efficient, cost-effective landscape for everyone.