In this blog, we go back to basics. What are the key account management strategies that you should consider when launching a credit card (or other revolving product)? These are the basics. If you’d like a little more in-depth discussion I refer you to 2 previous blogs here and here.
Before we get going, for the deployment of account management strategies, I’d like to refer you to our account management software and business rules engine, DecisionSmart. To find out how Principa can assist you with designing and implementing account management strategies, get in touch with us at firstname.lastname@example.org.
A few key points to consider:
- Onboarding a customer is expensive; keeping a customer is a lot cheaper
- Account management strategies give you the opportunity to engage your customers
- Account management strategies can be highly profitable
Let’s look at the key decision areas within account management:
Credit limit management
A credit limit management strategy will segment existing customers by risk and behaviour to determine the most appropriate actions to take, whether it is a limit increase or a limit decrease, by how much the limit should change, or if the limit should remain the same. The limit management strategy is often regulated (in South Africa by the National Credit Act) and as such it should cater for credit limit increase offers, as well as for automated (sometimes regulated) annual credit limit increases for consenting customers.
Authorisations (credit card)
The authorisations strategy determines whether to allow a customer to spend in excess of their credit card or overdraft limit, how often and by how much, as well as at what point a delinquent account should be stopped from spending any further. The objectives of the authorisation strategy are to minimise bad debts by declining transactions that are unlikely to be paid, maximise revenue by allowing over-limit transactions on good-risk customers, while mitigating fraud by applying fraud rules and generating exception reports as part of the authorisations call.
Credit card renewal strategy
The card renewal strategy covers both card renewal and card replacement in the event that the card is lost or stolen. The card renewal component will timeously advise customers that their credit card will expire and should be replaced. It will call the customer to action through a series of timed communications. The card replacement strategy (for lost or stolen cards) will consider the risk and behaviour of a customer, the utilisation of the card and the profitability of the account, to determine whether the card should be replaced or not and if so, what terms and conditions should be applied. Particular fraud rules are also incorporated into the strategy.
Existing customer marketing (balance build, cross-sell, up-sell, churn mitigation)
Existing customer marketing (ECM) strategies drive product cross-sell, customer retention, utilisation, balance build and customer service. Ideally, a cradle-to-grave marketing strategy, across all products, that incorporates all marketing activities from activation through to anti-attrition should be in place. The marketing strategy will define which accounts should be excluded from marketing actions, what type of actions to be taken on the targeted audience, as well as the timing and frequency of the marketing actions. This will depend on the type of campaign and of course the lender’s overall marketing budget.
Existing customer marketing can also be extended to include a loyalty programme that incorporates tiering, points and rewards.
Pre-delinquency actions are taken during the account management phase, before an account actually becomes delinquent. These actions can reduce the likelihood of certain accounts entering collections. The advantage of a pre-delinquency strategy is the reduced cost of collections and impairments, but there is also the risk of potentially annoying good customers. As such care should be taken when identifying accounts for pre-delinquent actions. Pre-delinquent accounts are identified based on internal performance information as well as external credit bureau information to define which accounts should be treated and which accounts should be excluded.
Collection strategies (over-limit, early and late-stage)
Credit card collections strategies cover three key areas:
- Over-limit collections,
- Early-stage collections and
- Late-stage collections.
The over-limit collections strategy treats accounts that are in excess of the agreed limit, such as credit cards or overdrafts, either due to authorised spend, un-authorised spend or interest and fees. Over-limit accounts are generally due and payable at the next billing cycle. High-risk, over-limit customers this month will become next month’s high-risk delinquent accounts at maximum exposure. It is important that the over-limit collections strategy is aligned with the authorisations’ strategy mentioned above.
Delinquent collections apply to accounts that have become delinquent through missing a payment or not paying the full outstanding amount. The early-stage collections strategy will treat delinquent accounts where one or two payments have been missed, and where the main aim is to rehabilitate the customer. Within the early stage collections strategy, a behaviour score is used to segment the portfolio based on risk and to accelerate actions accordingly. Higher risk (low scoring) accounts are generally prioritised for action compared to lower risk (high scoring) accounts.
Late-stage collections cover delinquent accounts where three or more payments have been missed, and where the main aim is to recover the outstanding balance. Within late-stage collections, a payment projection score is typically used to segment the portfolio, based on the likelihood of an account payment. The payment projection score is a type of behaviour score that predicts the percentage of the outstanding balance that is likely to be repaid over a defined period of time (usually 6 months). Accounts with a higher probability of payment (high scoring) are generally prioritised for action compared to accounts with a lower probability of payment (low scoring).
The final point to make is that account management and collection strategies require a robust account management or decision engine, such as Principa’s DecisionSmart, in which they should be deployed.
The list above incorporates the chief focus areas for account management strategies. If you’d like to learn more, please be in touch: email@example.com.
Head of Credit and Analytics
Thomas has 18 years’ experience in data science focusing in the EMEA region. His experience traverses multiple industries and disciplines covering analytics, consulting and software solutions for companies ranging from large banks and retailers to telcos and manufacturing operations. A large part of his experience comes from working with credit providers helping them harness the predictive power of data through the use of machine learning and decision tech. Thomas holds an MA in Mathematics from Edinburgh University.