A FAST PATH TO NEW GROWTH: THE CUSTOMER, NOT THE ACCOUNT Equifax and FICO Knock Down Barriers to True Customer Management June 2011

Summary In today’s market and regulatory conditions, customer management has never been more important. With a complete picture of the customer—one that captures an individual’s activity across multiple accounts—organisations can build strategies to consistently meet customers’ unique needs. True customer management today is essential to extending additional products to customers, reducing risk exposure, and reigniting profitable growth. This paper describes a combination of two technologies that can set UK financial services providers on the fastest possible path to the benefits of customer-level management. One is in the form of a new service that gives organisations a large step forward in quickly attaining a single customer view drawn from data across accounts. The other is an established customer management technology that can immediately help organisations analyse, strategise and capitalise on that single customer view.

A FAST PATH TO NEW GROWTH: THE CUSTOMER, NOT THE ACCOUNT

w Introduction:

Bringing the Customer in Focus

As institutions explore ways to reignite profitable growth, one solution can be found in an asset right at hand—the customer base, and its underlying data. Today, many UK financial services providers hope to accelerate growth by increasing product holdings per customer. This is a prudent strategy. An inward-focused, “homegrown” approach to growth is less expensive than acquiring new customers. Simultaneously, organisations can better manage risk on the books, and cut losses, as an integral, strategic part of any product extension programme. However, none of this is possible without a comprehensive view of the customer. Unfortunately, most institutions don’t have that view - yet. The legacy of many organisations with multiple product lines is to manage accounts separately by portfolio. Account management, versus customer management, prohibits (or significantly inhibits) the ability to grow product holdings per customer. How can institutions profitably offer new products without a complete, 360 degree picture of the individual’s holdings, repayment risk, channel preferences, and many other measures? And, growth plans aside, the isolated view of an account severely limits an institution’s risk mitigation and loss prevention, an essential priority in today’s dynamic economic and lending environment. So, the task at hand is for organisations to link account data into customer views. But history has shown that to be anything but easy. Most organisations taking on this task have run into many project-ending obstacles. Among other challenges—such as cost, organisational alignment and agreement, and inexperience—speed presents a big problem. However, now organisations have another option, one that knocks down the challenges to developing customer views and capitalising on true customer management. A new partnership between Equifax and FICO is giving financial services providers a cost-effective approach to quickly gaining a single customer view (SCV), and developing winning customer strategies with FICO® TRIAD® Customer Manager.

w Customer

Management: Making the Right DecisionsConsistently

How important is it for organisations to move to customer-level management? The answer depends on the organisation. For organisations with single product lines and a small number of customers, managing at the account-level is sufficient. But for organisations with multiple product lines, a large number of accounts, and many customers with multiple relationships, it’s fair to say that customer- level management isn’t only beneficial, but essential. Here’s why. Account-level management is tactical, and customer-level management is strategic. Large, multi- product organisations can no longer depend on tactical, one-off measures to compete and thrive. Market and industry conditions demand more now. They require strategic customer-level decisions, ones that are consistent with one another across the institution— the right decision for the customer and the organisation. Account-level management tactics are executed with a limited, short-term objective in mind: authorise a transaction, adjust a credit line, respond to a late payment. These tactics can be effective, but only for the welfare of a single product offering. And in fact, a particular tactic that benefits a product may cause damage to the institution at large. It may be completely inconsistent with the right decision for the organisation, or inconsistent with the treatment the customer receives on other products.

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A FAST PATH TO NEW GROWTH: THE CUSTOMER, NOT THE ACCOUNT

Effective customer-level management solves the consistency challenge. First, it provides a complete, accurate profile of the customer, or a single customer view (SCV). It flows all account- level data into an aggregated customer view—an individual’s complete product holdings, longevity of relationship, historical and current performance. That view is further enhanced by a customer’s current account information, which gives the organisation a comprehensive picture of the customer’s income, expenditures, and general economic welfare. Second, successful customer-level management quickly turns single customer view information into actionable, effective strategies. With advanced analytics and segmentation technology, it enables organisations to determine the right actions to take on a customer across all accounts.

AN EQUIFAX AND FICO EXAMPLE The Equifax and FICO partnership gives organisations the ability to quickly implement customer- level management, and make profitable decisions on customers in a timely fashion. Organisations that work with the Equifax/FICO partnership receive matched customer profiles from Equifax Single Customer Insight ™ (SCI) (developed from the organisation’s accountlevel data) that can be seamlessly accessed by FICO® TRIAD® Customer Manager. The single customer view data is processed through TRIAD Customer Manager’s predictive modelling and decision trees to generate decisions, or actions, on a customer across the customer’s multiple accounts at the organisation. (Both Equifax SCI and TRIAD technology are discussed in more detail later in this paper). A collections strategy provides a good example of how the integration of Equifax SCI and TRIAD® Customer Manager can help organisations enjoy the benefits of customer-level decisions, and avoid possible pitfalls of account-level decisions. Let’s say a mortgage account holder is late on a payment. It’s her first time. At the mortgage account-level perspective, it’s determined that her risk of going further into delinquency is low, so the mortgage lender sends her a polite letter reminding her that she’s past due. However, via the Equifax SCI and TRIAD Customer Manager full customer profile perspective and analysis, the lender sees an accurate picture of risk, and then can determine the best action to take across all her accounts. Using the Equifax and TRIAD solution, the organisation can immediately see all customer activity through a Unique Customer Number (UCN) assigned by Equifax SCI to the individual across accounts. In our example, the organisation sees that, in addition to the late mortgage payment, she is also two payments delinquent on a credit card account. Furthermore, with the UCN linked to her current account, the lender sees that she has not made an automatic paycheck deposit in two months. Whereas the mortgage account manager saw no risk, the full customer view gives the organisation an indication of high risk. In addition, TRIAD Customer Manager can instantaneously generate actions, across accounts, that will help the customer recover and become current—for example, lowering credit line limits, or making loan modifications. This is just one example of how making decisions at the customer level is about consistently making the right next decision on an individual. Strategy development is also made more effective with analysis of every aspect of the decision—the right product, pricing, timing, messaging and channel delivery. In any economic conditions, customer management will augment growth for an organisation. Today, it’s certainly the appropriate approach, given the growth and risk challenges institutions face.

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A FAST PATH TO NEW GROWTH: THE CUSTOMER, NOT THE ACCOUNT

Consider what organisations that have transitioned from account-level to customer-level management, using FICO® TRIAD® Customer Manager, have realised: • 25% to 30% increase in portfolio sales • 15% to 25% reduction in account level bad debt • 17% increase on amounts borrowed and response rates on key products while reducing losses • 40%+ reduction in customer 90-day delinquencies

w The Difficulties

of In-House Attempts

So why aren’t more companies practising customer-level management? The problem, in part, is that institutions cast an account management mold that isn’t easily or quickly recast. And second, most organisations that have attempted to build customer data warehouses have encountered many more obstacles and challenges than expected. Many lending institutions have implemented account-level management structures following the introduction and growth of new product lines. These siloed operations each developed their own applications, processes and data collection/storage. Any data on an individual in various accounts became, and still becomes, fragmented, in terms of content and recency. The industry’s mergers and acquisitions, occurring frequently prior to and during the credit crunch, exacerbated the problem of fragmented data. It’s not that institutions don’t see the shortcomings of account-level management: inefficiency and a poorer, inconsistent customer experience; the complexity of disparate technology running across the organisation, and the related high maintenance costs; and the inability to leverage common skills and pool resources. The problem is that it’s hard for organisations to get through a long list of major obstacles to develop accurate customer profiles: • Speed: FICO has seen client cases where it has taken up to 2 to 3 years to complete development of a customer database that would enable matching. That results in missing opportunities to drive revenue or prevent losses, which in a highly competitive, dynamic environment is not acceptable over such a long timeframe. • Massive costs: Due to not only the technology investment, but also staff hours involved in development—including a great deal of time in planning and coordinating product line interests—the in-house development of a customer database can be highly expensive. • Lack of adequate data to make accurate matches: Organisations often do not have updated data on individuals (name changes due to marriage, new addresses) to be able to produce confident matches across portfolios. Older books also face a lot of missing account level data since the historic origination strategies were less strict. • Lack of benchmarking (experience): Without experience in producing matches, it’s difficult to know when accuracy in matching has been reliably achieved. • Ongoing maintenance of system: Over time, the quality of the matching can deteriorate without appended new data. What typically delays, stalls, and often blocks a project’s success is organisational and data issues to resolve. For example, it can require a great deal of time, and costs, in overcoming: • Organisational Issues: Agreeing to a “bad” definition for the customer; Aggregating development data; Defining strategy ownership; Coordinating product and customer issues; and, over time, Maintaining the political will to continue managing at the customer level.

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A FAST PATH TO NEW GROWTH: THE CUSTOMER, NOT THE ACCOUNT

• Data Issues: Determining an accurate definition of “customer” for the business; the difficulty of accurately identifying a customer across products; determining how customer data will be used across products; determining what data is required to make what decisions, and what data is available for those decisions.

w The Equifax

Single Customer Insight Service

Realising the advantages inherent in customer-level management for financial services providers, Equifax applied its leading data resources and professional expertise to develop the Equifax Single Customer Insight (SCI). With SCI, in only three to six months, organisations can take delivery of matched customer profiles, providing a view of every aspect of their relationship with a customer. Based on Equifax bureau data and associated analytics, organisations also are assured that they’re receiving the widest and most informed view of the customer. Equifax SCI enriches organisations’ account-level data with a Unique Customer Number that links accounts across portfolios to gain a customer view. The service references Equifax’s vast bureau data repositories to establish and confirm links between customer records. It can provide both customer and household-level matching.The service is based on Equifax’s proprietary data management algorithms—just under 100 algorithms for matching surnames, forenames, middle names, and date of birth. SCI also performs gender and title matching, and further supports matching with various look-up tables. In addition to matching services, to boost the quality of matching, SCI also offers a service for cleaning name and address data, and completing missing information (such as forename, date of birth, and postcode). Figure 1 illustrates how Equifax SCI identifies customer matches across portfolios. In this case, a home shopping organisation, one that has multiple catalogues and that issues credit to its catalogue customers, can use SCI customer matching for various purposes—such as improving strategies in collecting on late paying accounts, or in issuing credit for a catalogue.

FIGURE 1: MATCHING CUSTOMERS WITH CONFIDENCE TYPICAL SCI—HOME SHOPPING ORGANISATION Baby Catalogue

R. Green, 1 High Street, 01/01/1980

In Figure 1, Equifax SCI can determine if one Unique Customer Number (UCN) should be established to Rachel Green with a Fashion Catalogue account, R. Green with a Baby Catalogue account, and R.S. Green with a Homewares Catalogue account. Are all three the same person?

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A FAST PATH TO NEW GROWTH: THE CUSTOMER, NOT THE ACCOUNT

The SCI service’s Evidence Based Matching system (see Figure 2) would look for additional data to confirm these three matches. Let’s say no evidence was found. SCI may assign a UCN between Rachel Green and R. Green, since both have the same address and date-ofbirth. But, without finding evidence that the date-of-birth for R.S. Green is 01/01/80, SCI would not assign a UCN to R.S. Green. (With each UCN assignment SCI makes, it provides information on the likelihood of the match.) Interestingly, many marketing departments may have felt confident to link R.S. with Rachel and R. Green. But what if R.S. is Rachel’s husband, Robert Steven Green? Figure 1 also shows how SCI can find evidence of recent marriages, divorces or change of address. Evidence Based Matching tracks the 270,000 marriages, 140,000 divorces, and 1.5 million house purchases that take place in the UK every year. On the bottom right, although the birthdate of R. Smith matches Rachel Green’s, her different surname and address (6 Lea Lane) would make it appear likely that it is not a match. However, SCI’s ability to uncover evidence of her marriage and change of address results in assigning the same UCN as to Rachel Green.

FIGURE 2: HOW SCI FINDS SOLID EVIDENCE OF CUSTOMER MATCHES

Customer Record 1

Customer Record 2

Customer Record 3

L. Smith 22 River Close

Lisa Smith 37 High Road

Lisa Brown 37 High Road

Equifax Data Repository

Current Evidence + Address Links + Name Changes

Equifax Data Repository

Current Evidence + Address Links + Name Changes

Equifax Data Repository

440m Trade Lines 100m Enquiries 10m Associates 44m Electoral Role 100m Address Links 6m Name Changes

URN002

SCI Process

Customer Record 1 Customer Record 2 Customer Record 3

Current Evidence + Address Links + Name Changes

Equifax SCI has delivered strong results to organisations. For example, in one project a major high street bank realised an additional £0.5 million pcm in debt recovery.

w Up and

Running with FICO TRIAD Customer Manager

The new Equifax and FICO partnership enables organisations to gain complete, fast support for customer-level management. With the partnership, financial services providers can work simultaneously with Equifax and FICO to develop a comprehensive, integrated plan for building customer-level profiles, and actionable strategies. Whereas Equifax SCI generates the data matching and profiles needed to identify customers, FICO® TRIAD® Customer Manager—with its industry-leading predictive analytics, advanced

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A FAST PATH TO NEW GROWTH: THE CUSTOMER, NOT THE ACCOUNT

segmentation via decision trees, and champion/challenger strategy testing—gives organisations the ability to gain immediate insight on customers and develop effective strategies to achieve multiple objectives. FICO TRIAD Customer Manager is designed with the philosophy that the individual customer must receive a consistent treatment from the organisation, across every portfolio and touchpoint. TRIAD Customer Manager makes that happen by giving institutions the power to build, visualise, test and execute strategies at the organisational level. The TRIAD solution generates product-level risk scores, which can then be rolled into a customer level scorecard. A customer score, the individual’s bureau score, as well as customer-level data from Equifax SCI-matched profiles—for example, aggregated revenue measures or performance measures such as number of accounts, recent delinquencies, or total delinquent balance—can be passed through TRIAD Customer Manager’s sophisticated segmentation/decision tree. In all, up to 35 pieces of data can be applied to segmentation to develop consistent customer strategies across multiple decision areas, including Credit Facilities, Collections, and Configurable Decision Areas (used for creative pricing or marketing strategy development). For example, in Credit Facilities, TRIAD Customer Manager can apply scores and data, including SCI matching customer profile data, to calculate limits across a customer’s multiple holdings, giving the customer consistent treatment (in terms of offers/actions, as well as channel delivery). Equifax SCI, delivered to a TRIAD-installed platform, can produce near immediate returns on today’s most pressing customer management challenges. Collections efforts, for example, can be significantly improved when an SCI 360 degree view of the customer is used in TRIAD analysis and segmentation—thereby improving treatment (and making it consistent with all other treatments applied to the customer), boosting money collected, and maintaining customer goodwill. Equifax SCI data matching can also provide support to organisations using FICO® Debt Manager solution for collections and recovery as it provides a much wider view on the assets and loans of the person or household in play. In addition, organisations can quickly identify strategies to increase the number of product holdings per customer. TRIAD Customer Manager, with Equifax SCI customer-level data matching, can identify the best cross-sell and up-sell opportunities, and drive effective strategies to broaden holdings.

w Conclusion

Since the concept of Customer Relationship Management came into existence in the 1990s, the benefits gained by managing at the customer level in place of the account level were widely viewed as a luxury. Organisations remained satisfied with account-level management for two reasons: One, it supported desirable profitability and growth; and two, developing a customer-level management infrastructure was extremely difficult. Neither of those reasons is true today. With industry changes, customer-level management and the consistency it brings to customer treatment—how the institution acts on the individual holding multiple accounts—is now a necessity. A new partnership between Equifax and FICO, with each bringing a key piece of the puzzle to customer-level management, gives organisations a fast, cost-effective approach to launching customer management.

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A FAST PATH TO NEW GROWTH: THE CUSTOMER, NOT THE ACCOUNT

ABOUT FICO

FICO (NYSE:FICO) delivers superior predictive analytics solutions that drive smarter decisions. The company’s groundbreaking use of mathematics to predict consumer behavior has transformed entire industries and revolutionized the way risk is managed and products are marketed. FICO’s innovative solutions include the industry-leading solutions for measuring credit risk, managing credit accounts, identifying and minimizing the impact of fraud, and customizing consumer offers with pinpoint accuracy. Most of the world’s top banks, as well as leading insurers, retailers, pharmaceutical companies and government agencies, rely on FICO solutions to accelerate growth, control risk, boost profits and meet regulatory and competitive demands. Learn more at www.fico.com FICO: Make every decision countTM.

ABOUT EQUIFAX

Equifax empowers businesses and consumers with information they can trust. A global leader in information solutions, we leverage one of the largest sources of consumer and commercial data, along with advanced analytics and proprietary technology, to create customized insights that enrich both the performance of businesses and the lives of consumers. With a strong heritage of innovation and leadership, Equifax continuously delivers innovative solutions with the highest integrity and reliability. Businesses large and small rely on us for consumer and business credit intelligence, portfolio management, fraud detection, decisioning technology, marketing tools, and much more. We empower individual consumers to manage their personal credit information, protect their identity, and maximize their financial well-being. Headquartered in Atlanta, Georgia, Equifax Inc. operates in the U.S. And 15 other countries throughout North America, Latin America and Europe. Equifax is a member of Standard & Poor¹s (S&P) 500® Index. Our common stock is traded on the New York Stock Exchange under the symbol EFX.

For more information: • International:

+44 (0) 207 298 3033

• Email: [email protected]

• Web: www.efxfico.com

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