1. Optimizing Collections & the Customer Experience TRMA Fall 2016

2. Agenda MARKET OVERVIEW, CHALLENGES & OBJECTIVES
WHAT IS BEHAVIORAL SCORING?
WHAT IS OPTIMIZATION?
CASE STUDY RESULTS
QUESTIONS

3. Market Overview POLITICAL ECONOMIC SOCIAL TECHNOLOGY
Regulations are reaching deeper into operations and, if not addressed strategically, will reduce companies’ profitability.
Thriving in current economic environment requires managing collection costs and nurturing customer relationships.
ECONOMIC
Consumers are looking for convenient and personalized services across multiple channels, and expect to have positive interactions with companies at all stages of their lifecycles.
SOCIAL
IT backlogs have made it difficult to manage and quickly make changes to decision strategies, hosted options have become a viable options for managing collection decisions.
TECHNOLOGY

4. Managing the Collections Process
Every customer interaction matters, even the more challenging ones like collections
Objective 1: Optimize bad debt expense
Shorten the service timeline for those customers who won’t pay
Optimize expenses by spending strategically on s, texts, letters, & phone calls
Reduce spending on customers who will pay
Objective 2: Improve the customer experience in delinquency
Don’t bother a good customer who will pay
Provide reminders only when necessary
Tailor scripts and tactics based on risk
Utilize customer contact as an opportunity to educate
Segmentation
Contact Strategies
Risk Management
Payment Programs
Customer Interaction Points
Billing
Marketing Efforts
Interaction Channels
Buy-Flow & Purchasing
Usage & Fulfillment
Customer Service
Collections

5. What is Behavioral Scoring?

6. Collections Benefits of Behavioral Scoring
increments around the year to
Observations taken in
account for seasonality
that are in Early stage delinquency
Developed on consumers
In order to create a custom solution
No outside data is utilized
Collections benefits:
Better collection results
Better utilization of collection staff
Lower cost of operation
Improved customer service
Score is exclusively built on how
customer has paid with client
Behavioral Score

7. Behavioral Score Characteristics of Behavioral Score: BEHAVIORAL SCORE
Base score is given for account with points added/subtracted based on consumer behaviors
Times payment late
Recent delinquencies
Number of non-sufficient funds payments
Payment Extensions
Months of Service
Number of Disconnects

8. Continuous Improvement & Learning
TRACK, MONITOR AND CHALLENGE IMPACT OF DECISIONS
Monthly reports provide scorecard assessment and impact of decisions:
Segment performance
Score distributions
Cure rates
Delinquency movement
Delinquency ratios
Roll rates
Static pool analysis
Custom cross tabulations
Champion/Challenger capabilities enable testing of new strategies for otherwise similar accounts:
Test new strategies, tactics, and timing
Identify opportunities for cost savings
Robust reporting is crucial to track, monitor and learn

9. Data for Decisioning Capabilities added to scoring to create action
Balance Grade
Low-$100
$101-$250
$251-$350
$351-High A
Low Risk B
Medium Risk C
High Risk D E
Risk Grade

10. Additional Operational Benefits
Objective risk evaluation: Behavioral scoring provides you with a risk evaluation of each account in your portfolio. This allows you to design strategies that capitalize on these risk evaluations.
Controlled experimentation: With predicative behavior can develop strategies with reliable outcome.
Powerful management control: The combination of behavioral scoring and in-depth reporting allows you to evaluate and adjust the results of chosen programs and enables you to react to changes in the business environment more easily and quickly.
Efficient systematic processing: Behavioral scoring allows for the automation of the decision process and more profitable prioritization of work.

11. What is Optimization?

12. Introduction to Optimization What is Optimization?
op—ti—mi—za—tion (1857): an act, process, or methodology of making something (as a design, system, or decision) as fully perfect, functional, or effective as possible; specif: the mathematical procedures (as finding the maximum of a function) involved in this.
Market’s view of optimization
Organizations have a strong need for industry leading robust, analytically-driven decisioning solutions to identify the ideal consumer level decision and treatment for a wide range of customer interactions
Key drivers:
Competing business goals (profit vs. market share, revenue vs. response)
Operational constraints (budget, resources)
Policy and legislative requirements
Individual customer behavioral needs and preferences that drive an organization
Maximize the value of customer relationships over time.

13. The Future of Optimization
‘By 2018, optimization will no longer be a niche discipline; it will become a best practice for leading organizations to address a wide range of complex business decisions.’
Gartner Market Guide for Optimization 2015

14. Collections Activities and results Simplified optimization example
Consider six accounts each of whom can be allocated one of three actions
Objective: Maximize probable return
Constraints: Each action can be used twice
Customer
Action A 1
100 2 70 3 50 4 40 5 6
Action B 60 90
100 70 50
Action B 60 90
100 70 50
Action C 20 10 40
100 30
Action C 20 10 40
100 30
Action A =
Action B =
Action C =
Total =
170
170
130
470

15. Collections Activities and results Simplified optimization example
Consider six accounts each of whom can be allocated one of three actions
15% lift or $70
Objective: Maximize probable return
Constraints: Each action can be used twice
Customer
Action A 1
100 2 70 3 50 4 40 5 6
Action B 60 90
100 70 50
Action C 20 10 40
100 30
Action A =
Action B =
Action C =
Total =
170
 150
170
 190
130
 200
470
 540

16. Field scheduling and collections Simplified optimization example

17. Collections Optimization Value Proposition
Allows collections to target customers with the highest risk and impact in order to:
Decrease annual write-off amounts by increasing collection rates and prioritizing accounts to be contacted before balances grow
Reduce overall delinquent aging and customer roll rates, enabling easier collections of newer dollars and alignment with financial targets
Lower collections costs by increasing the productivity of personnel and tactics, allowing focus on the most likely to cure accounts and maximizing labor and resource investments

18. Case Study

19. Collections Optimization Project Client’s Objectives & Constraints
Primary business objectives
Address rising aged receivables (180 day+)
Reduce related charge-off
Maximize $$ treated
Reduce related costs
Business and operational constraints
Limited resources
Date sensitive accounts
Desire to extract highest risk & highest impact accounts

20. Client’s Benefits
Vastly improved health of aged receivables
Specifically those greater than 180 days
Objective results for champion/challengers between vendor and in-house collection team
Determined optimum levels of permanent vs. seasonal collectors
Decreased total disconnections, writeoffs, and associated expenses
Decreased complaints

21. Cents Written-Off per $100 of Billed Revenue Bad Debt Reduction
$.09 (or 12.50%) decrease from Year End 2000.
$.03 (or %) decrease from Year End 1999.
Annual writeoffs compared to revenue continue to decline year after year

22. Account Receivable > 180 Days Continuous Improvement
Accounts receivable aged over 180 days continues to decrease year after year

23. Field Collection AR > 180 Measuring Specific Impacts by Area
YE 2011
YE 2012
YE 2013
YE 2014
YE 2015
Reduction
Reduction 11
$ 24,530,807
$21,034,069
$17,792,692
$16,594,436
$14,333,085
-13.6%
-41.6% 12
$ 8,396,727
$ 6,190,517
$ 5,437,623
$ 4,948,007
$ 4,075,476
-17.6%
-51.5% 21
$ 6,873,430
$ 4,745,568
$ 3,485,642
$ 3,394,383
$ 2,602,984
-23.3%
-62.1% 31
$ 6,217,039
$ 4,887,510
$ 4,561,186
$ 4,858,949
$ 3,477,155
-28.4%
-44.1% 41
$ 1,814,993
$ 1,387,274
$ 1,206,568
$ 1,289,804
$ ,001
-24.1%
-46.1% 51
$ 5,745,097
$ 4,509,281
$ 3,550,352
$ 3,696,678
$ 3,280,676
-11.3%
-42.9% 52
$ 4,844,849
$ 3,324,217
$ 2,694,555
$ 2,017,431
$ 1,233,585
-38.9%
-74.5% 61
$ 8,224,840
$ 6,242,619
$ 4,881,311
$ 4,378,153
$ 3,905,983
-10.8%
-52.5% 62
$ 5,991,229
$ 4,727,139
$ 3,553,100
$ 3,600,513
$ 3,056,437
-15.1%
-49.0% 64
$ 2,209,710
$ 1,439,766
$ 1,406,686
$ 1,268,961
$ 1,150,608
-9.3%
-47.9%
$ 74,848,721
$58,487,960
$48,569,714
$46,047,316
$38,094,989
-17.3%
-49.1%
14,905,462
11,020,352
9,253,397
9,543,137
7,059,140
-26.0%
-52.6%
32,927,534
27,224,587
23,230,315
21,542,443
18,408,561
-14.5%
16,581,175
12,560,637
9,798,007
9,314,622
7,570,697
-18.7%
-54.3%
10,434,550
7,682,385
6,287,996
5,647,114
5,056,591
-10.5%
To relate the larger AR picture to the individual field collection supervisors, we filter on just active accounts that are directly impacted by field collections (residential, commercial, industrial and unknown customers) and set targets at the district level
By working smarter and focusing on shutting off the right accounts we have lowered the active AR by 49% or $37M from 2011 to 2015.

24. Optimizing the Customer Lifecycle
Penetrate new target markets
Improve response rates
Increase application volume
Increase approval rates
Increase activation and “take” rates
Improve operational efficiency
Maximize customer share-of-wallet
Reduce credit risk
Reduce fraud risk
Minimize attrition
Reduce charge-offs
Improve operational efficiencies
Increase recoveries
Maximize customer value
Improve retention
Increase revenue
Collections
Customer Management
Prospecting
Acquisitions
Fraud Detection and Management
Limit fraud losses
Reduce operational costs
Maintain a positive customer experience

25. Questions?