Without launching new mobile apps or remodeling branches, institutions can take immediate steps to help grow profitable accounts while reducing losses from fraud and charge-offs.
Here are 5 steps for making business more profitable and less risky.
- Run the numbers, and understand the subgroups in your customer base.
You’ve probably analyzed your customer base, know your accounts’ “break-even” points, and understand how your customer base has divided itself into most profitable and least profitable subgroups in the past. But if you haven’t run this analysis recently, run it again. At many institutions, patterns for cross-selling and charge-offs have changed markedly since the recession. Your institution’s customer base may be in flux. Make sure you have an accurate, up-to-date understanding of who’s profitable, who’s charging off, and who’s likely to stay around and buy more products.
- Raise your true account-open rates.
When we talk to financial services executives at their headquarters, they report that they open accounts for nearly 100% of those who apply. However, if you talk to branch managers, you’ll learn that real open rates are lower—the industry average for retail banking seems to be about 70%—and that branches routinely close many accounts within days of opening because they cannot complete CIP screening using existing verification tools. (This is especially true in communities with large numbers of college students or migratory workers.) Raising your CIP verification rates enables you to keep more of the people who are already walking in your door as customers. Newer, more creative new account-screening services can verify no- and thin-file applicants and deliver matches up to 97%.
- Move beyond simplistic yes/no account decisioning.
Many institutions still rely on identity-verification and account-screening services that return a simple “yes” or “no” when evaluating an applicant. If you offer more than one type of account or service, a “yes/no” decision is likely too stark. What could be “no” for one type of account could be “yes” for another. If you’re using a yes/no screening service, switch to one that offers you a more nuanced assessment and allows you to keep more customers by offering products that serve them but also better help you control risks.
- Segment customers in real time.
Account-screening solutions need to be fast as well as nuanced. The initial account interview is a perfect occasion for cross-selling and building a relationships with customers. But it’s hard to cross-sell effectively if you lack an accurate assessment of the customer’s financial capability and risk. Real-time account screening corrects this omission. Real-time customer analysis enables branch associates to make the best possible decisions and recommendations when meeting with applicants face to face.
- Replace time-consuming paperwork with more efficient CIP processing.
In any customer population, some applicants’ CIP data will require additional scrutiny. By automating and accelerating that scrutiny, your institution can make better decisions about account opening on Day 0/1 and catch fraudsters before they cause losses. If your institution is still relying on overnight batch processes and manual collection of paperwork for sorting through the difficult cases, you’re spending too much on operational overhead and you’re allowing fraudsters to use temporary checks and ATM cards for several days before being caught.