Three very real challenges are growing and becoming more difficult to overcome as the global economic downturn continues to worsen: cost reduction; fraud prevention; arrears handling.

Introduction

It is now becoming clear that the global economic situation is going to take some time to recover and the impact will be felt far and wide. We will be forced to rethink how we all manage both our personal and business finances in order to manage our exposure and access to credit. As we lead up to the festive season and winter sales, the lack of access to finance and the potential for low cost bargains may cause many consumers to turn to their plastic - the credit card could enjoy a period of intense growth as everyone looks to preserve liquidity.

So, this seems good for card issuers at first glance. But is it?

In a recession people tend to tighten their spending and save money. If they expect to be made redundant for example, they don’t want to spend and will use all means to preserve access to their savings and cash balances – usually through increased use of credit cards and in particular where access to overdrafts or re-mortgaging has become restricted.

Additionally, as interest rates continue to fall, the stimulus to spend is increased and there are of course many distressed businesses, from retailers through to car manufacturers, that are doing everything in their power to encourage consumers to maintain spending by making increasingly attractive offers.

This white paper examines three very real challenges for card issuers during this global downturn:

• Cost reduction
  • Particularly in banking and finance, staff reduction will make servicing of the consumer base more difficult than ever. Added to this, tightening of margins from lower lending rates will put pressure on operational efficiency at the same time as there will be predicted increase in volume.
• Fraud prevention
  • Although a lesser problem than arrears, the losses from fraud have been increasing recently and issuers need to take any steps they can to shut down the range of possibilities for fraud, without losing their most valued customers.
• Arrears handling
  • In the current climate, poor credit rating is topical enough and card issuers are already taking steps to limit new card issue and more rigorously control to whom they lend. However, the growth in arrears and delinquent accounts is now going to become uppermost for 2009.

Although written with the UK market in mind, it is clear that this White Paper reflects the challenges on a global scale.

Cost reduction

It is a given that in unusual times like these, most consumers will tighten their belts and reduce their spending, whilst those who are most economically challenged will be relying on more use of cards for credit. This is, of course, the worst possible mix. For card issuers this will result in the need to reduce costs in operations, which will ultimately lead to a reduction in labour costs; the human factor is still the largest cost to any business. Businesses will be challenged to deliver the same level of customer satisfaction and efficiency but with fewer people. This challenge will be further impacted as the decision on where to cut resources needs to be made. Which resources can the business afford to cut? Should it be the staff providing customer service, managing fraud or handling arrears? All are important and critical to the smooth running of the business.

Making more of the telephone channel

Even with the introduction of low cost channels such as the web, for many people the telephone is still the preferred method of communication. The telephone channel can now benefit from sophisticated self-service solutions that previously seemed only possible over the web. Today’s integrated voice response systems are able to deliver truly personalised and highly dynamic customer interactions over the telephone, allowing callers to navigate menus, obtain and provide information using the power of their voice.

The UK Contact Centre Operational Review (6th edition - 2008), a recent major study of over 200 call centres carried out by ContactBabel, has found that although only 6.5% of inbound calls are dealt with entirely through self-service, rather than a live call centre agent, the savings to the UK call centre industry amount to over £1.6 billion per year. That’s an impressive figure based on a small percentage of inbound automation and clearly illustrates the potential savings for the cards business sector.

Further considerations

There are many other factors to be considered, for example, the lost opportunity when a caller chooses to abandon a call because they are either frustrated or are too busy to wait on the line for an available agent. This can have a wider impact on a company’s brand and image, especially when the caller hears the immortal words “your call is important to us” followed by a lengthy call-waiting time.

Speech self-service can now be implemented quickly and cost-effectively, and when the right business applications are chosen for automation, the return on investment can be achieved in months not years. More often than not, existing call centres already have 80% or more of the infrastructure required to deliver speech self-service, so it is not as expensive as might initially have been thought. A quick infrastructure scan can identify the technology gaps that need to be filled.

Personal service – a rare exception

For some transactions, in particular the use of live agents is, paradoxically, not as popular as self-service. This phenomenon is clearly present when cardholders exceed a balance limit or go into arrears and are ‘required’ to indicate how they will regularise their situation. For some reason an automated service seems to just fit the behavioural requirement for this type of call.

A reduction in upfront costs

Should an organisation not have the necessary infrastructure, however, it does not mean that they cannot benefit from the cost savings inherent with voice self-service. For a few years now, and particularly recently with the economic downturn, the trend has been growing for on-demand services. The pay-as-you-go model allows organisations to overcome the barrier of capital expenditure enabling them to take advantage of technological advancements without the need for huge upfront investment. From the infrastructure right through to the applications themselves, there are opportunities for organisations to seek out a flexible pricing model that suits their needs and reduces their costs almost on an immediate basis.

Agreeing a ‘value pricing model’ with vendors is now a much more attractive model for card issuers than making their own investments and figuring out the business case. A value price model is where the customer and the vendor jointly agree how much a transaction costs today and how much automating it will save. The cost saved is then shared with the vendor so that the customer gains immediate benefit and the vendor is required to shoulder the risk of making the transaction successful.

Fraud prevention

Fraud is on the rise despite the introduction of chip and PIN. Figures from APACS, the UK payments association, show that total card fraud losses increased by 14% in the six months to June 2008 compared with the first half of 2007. Total card fraud losses for this period now stand at £301.7 million, of which more than 40% is the result of fraud abroad, which typically involves criminals using stolen UK card details at cash machines and retailers in countries that have yet to upgrade to chip and PIN.

With fraud on the increase, card issuers are under more pressure to perform impromptu transaction checks, which increasingly stretches the resources available to the card issuer. Fraudsters continue to establish more elaborate ways of committing fraud, always looking for softer targets exposing both vulnerable working practices and /or inadequate technologies.

Of course fraud comes in many guises: skimming, shoulder surfing, card trapping, fraud abroad and fraud on the Internet. Speech self-service can help tackle fraud Speech automation can be successfully introduced to tackle fraud at all levels of card use. All card issuersuse intelligent risk and habit-based modelling systems, which profile their cardholders based upon historic transactions and locations. These systems flag warnings when a potentially fraudulent or out-of-character transaction takes place. They work in ‘real-time’, so that when a customer enters their card details, either at a POS (point of sale) machine or on a website, the transaction is scrutinized. If it is then identified as a potentially fraudulent activity, this information can be passed to an outbound interactive voice response (IVR) system, where an automated call is placed to the cardholder to confirm whether the transaction is valid. This has huge benefits for card issuers as they can elect to make far more transaction checks and further reduce fraud particularly for “cardholder-not-present” transactions or transactions that do not benefit from the security of chip and PIN.

Card issuers have a duty to provide a secure solution for their cardholders, just as cardholders have a duty to be more vigilant when using their plastic. Technology is available today to provide more random and selective checks of card transactions for both for cardholder-present and not-present transactions. This technology can fully automate an interaction with the cardholder without increasing staff numbers. It is fast, cost-effective and efficient and can use existing IT infrastructure, meaning that to deliver improved security does become cost effective.

Arrears Handling

Arrears handling This issue is arguably the biggest challenge for card issuers in a global downturn. Whilst it is easy for fraud to snatch the headlines, it is the arrears handling processing that has an even bigger impact on the card issuers’ business and bottom line. The total amount of overdue balances in UK cards is over £9.4 billion according to APACS figures.

Cardholders with two payments overdue account for approximately 30% of all cards in issue, and the value of accounts that are overdue by 6 months is a staggering £4.8 billion. Reducing the outstanding balances on cards before they become delinquent is a huge challenge for card issuers. As card issuers start to navigate their way through this recession, they will be under increased pressure to improve their arrears handling processes, and minimise the rate of write-offs that are inevitable in a recession, and they will be forced to do this with fewer labour resources, as they themselves cut back.

Automating the awkward calls

Being an arrears-handling agent is about as socially acceptable as being a traffic warden. It is a critical function of any business, but it is also one of the most challenging for lots of reasons. It takes a special kind of character to ask a cardholder or any customer, to pay off their outstanding debt. They must withstand a sometimes-alarming level of stress and verbal abuse and, as a result this is quite often the highest churn area of a contact centre.

This is an area that intelligent, cost-effective telephone-based technology can help. For example, sending a SMS payment reminder to cardholders ahead of time can act as a gentle reminder before they become delinquent. Prevention of debt at the cost of a SMS message - clearly this makes sense, and if well timed can be appreciated.

As mentioned above, speech self-service can play a huge role here. The ability to make a completely automated (without the need of a human) outbound call to a cardholder to ask them to make a payment, or ask them to commit to making a payment is a powerful tool. The dynamics are really interesting. For a start, the system will not get upset by the tone of the customer, and secondly, as a cardholder who owes money, making a pledge to pay to a machine can, in some ways, be less stressful than talking to a human.

Technology exists that can enable card issuers to place thousands of outbound telephone calls to cardholders that are in arrears, without the need to increase staff numbers. It can be surprising how easily and cost-effectively solutions such as this can be commissioned.

Solution considerations

More often than not the immediate perception of technology-led solutions is that there is too much technology to consider, it will take months to implement and years to recoup costs. This could not be further from the truth. Most card issuers have 80% or more of the underlying technology and processes in place already, implementation is genuinely quick and payback is surprisingly prompt – and in some cases immediate.

Telephone components

It is important to be aware of the telephony technology that is needed to implement an automated and agentassisted speech self-service solution.

• Automatic Call Distributors (ACD)
• Private Automatic Branch Exchange (PABX)
• Interactive Voice Response (IVR)
• Outbound Diallers (OD)
• Computer Telephone Integration (CTI)

In addition, Advanced Speech Recognition (ASR) is required to work with the Interactive Voice Response (IVR) system.

To provide further security, Speaker Identification and Verification (SIV) can be added to enhance your current security processes. This is a biometric software technology that extracts the unique characteristics of the caller’s voice and stores this as a token within a CRM system for later comparison during a transactional-based verification process.

Backend system integration

As with any automated self-service solution, access is required to confidential customer information as well as transactional information, risk and habit modelling systems. Some organisations describe this as their customer relationship management system or CRM system. More often than not it is more than this. A CRM system, in its simplest form, is a large organised database containing customer and account information. Solutions that are used to deter fraud, for example, need access to real-time transactional systems so fraud can be eradicated at the point of a potential detection. Arrears handling however can use a non real-time batch data method to drive a self-service solution.

Hosted solutions

Managed hosted solutions are rapidly growing in popularity and should be considered, at least for speed and effectiveness. A surprising number of financial institutions are looking at hosted options, as these can be an effective way to deliver cost savings. Managed Service Providers (MSP) can today provide securely hosted solutions where it is still possible for the customer organisation to control the process locally on their premises.

Above all else, however, the most urgent consideration for card issuers to make is which applications to deploy first. The rule of thumb is to understand from where the quickest returns can be derived. Often this is down to the call types that generate the highest call volumes, but require little or no data system integration. Once this has been established, it is advisable to select open standards, portable technology that can be easily integrated into existing backend systems and using wherever appropriate existing business rules. This is critical to the longevity of a solution.

Conclusion

With a global recession card issuers are under greater pressure than ever to reduce their operating costs. They are expected to maintain a high level of customer service, protect cardholders from fraudulent attacks and improve their collections process - all with eroding budgets and slow growth.

It will be the card issuers that act now by streamlining their business processes and introducing more innovative automated solutions that will come out on top. By proactively avoiding fraud before it happens and reaching out to their customer base to collect outstanding balances before they become write-offs, card issuers will become the brand preference for consumers, since they will able to earn their long-term loyalty.

It is vital to remember that practical innovative solutions do not have to cost the earth, or be overly complicated. It all starts with a simple analysis, identifying which gaps need to be filled in order to deliver on business goals and finishes with the right solution delivering an impressive return on investment – or a value based return for every transaction.