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Bruce Curry – senior principal consultant for FICO 

Bruce Curry is a senior principal consultant for FICO, working with clients across EMEA on debt management. He blogs at

As the scrutiny on the UK credit card Industry intensifies, with the FCA’s consultation out on how to manage the 3.3 million ‘persistent credit card debtors,’ a big question remains hanging: When will all parties start to manage borrowers at a customer level, not a product level?

There is a vast difference between customer-level and product-level management, and many organisations have chosen the customer level. However, in the UK a major bank is moving away from customer-level collection strategies because its experience is that they get too complicated for the amount of value they deliver. They do, however,continue to work the analytics at a customer level, which is what many top banks desire to do.

Several leading institutions are very clear about what the customers want, and are using the words “identity”, “control”, “language” and “convenience” to shape the strategy for customer treatment. But to shape the strategy at a customer level, you have to look at the customer in the round. You would not apply the same treatment and tolerance to a customer with a full suite of secured and unsecured products nearing retirement and carrying an EAD of >£350K as you would a customer with only unsecured products starting out on their career with an EAD of, say, £14K.

New Challenges in Customer-Level Management

What is making customer-level treatment difficult? Well, there remain the age-old challenges for many organisations of organising their data and creating a robust ‘Golden Record,’ and then deploying analytics based on that record. Many organisations are not there yet and whilst attempting to close this gap they are being challenged by what appear to be opposing requirements:

  • Customers want to be known and understood – so they expect organisations to have a holistic view of all their liabilities and investments. That’s on any interaction, 24/7 across all digital and non-digital channels.
  • The regulator wants organisations to treat the customers in line with their circumstances – TCF and CONC have been around for some time now and to do this requires accumulation and validation of a wide set of data.
  • General Data Protection Regulations (GDPR) requires that you use minimum data to achieve the decision objective and only where explicit permission has been given to use such data for such a purpose (except where the use of that data is to enforce a contractual obligation).

Add to the above the accommodation of PSD2 and the balance sheet implications on treatment from IFRS9 and it becomes clear that several of the requirements imposed on institutions are in conflict. Some might say healthy conflict, but this stress has not come by design. It is here because differing bodies are progressing their differing objectives in isolation.

  • The FCA is looking to ensure that lenders lend responsibly, borrowers borrow what they can afford and any changes in customer vulnerability are understood and accommodated in the treatment of those customers.
  • GDPR is meant to increase the protection of customer data retention, use and portability.
  • IFRS9 is aimed at ensuring a greater degree of risk assessment and financial prudence to cover changing risk.

There is evidence of Institutions needing more information to determine the right treatment for customers — but only information they have explicit consent to use, or (under GDPR) information that meets stringent use tests. Institutions must demonstrate appropriate levels of forbearance (under FCA CONC) — while holding more provision (under IFRS9) to cover the potential lifetime losses of a status 2 customer, whose deteriorated risk is evidenced by the level of forbearance they require.

How Will This Play Out?

Let’s take an example to see how these conflicts might play out. Let’s say — as has been suggested in the FCA’s consultation for credit card persistent debtors — there is an action such as the suspension of credit card use.

  • Will that in itself be an indicator of deteriorating risk?
  • Will that mean that both the issuer and other creditors of the card holder will need to action and provide for any other of the customer’s borrowings under IFRS9?
  • Will a suspension of use of that card or an aggressive credit limit decrease exacerbate the problems for those customers who are dependent on the card as a seasonal financial ‘pressure valve’? Evidence of the past has been that pre-delinquency treatment on cards has often accelerated entry into arrears for a high proportion of customers are ‘living on the card.’

Credit card issuers could be driving a significant number of customers into status 2 under IFRS 9 — not only for themselves but for other lenders. If those other lenders can’t afford to keep these customers with a lifetime provision,where do the customers go? Will any future borrowing be at a higher cost? Does that not defeat the objective of the credit card initiative to help these borrowers?

You can see the conflicts. Not getting this right is going to be expensive to the customer, the card issuer and other lenders who have the same customer. Managing down over-indebtedness is never wrong, but what matters is how it is done. When so many requirements focus at a customer level (TCF, GDPR, IFRS9) then a product-level initiative may bring as many challenges as it solves.

Different Priorities for Different Market Segments

Many organisations seem focused on adapting what they have to make it fit the new requirements. Very few seem to have stood back and asked, “Is now the time to reshape how we do what we do?”

A small number of organisations do seem to be looking at how they turn these seismic demands on them into seismic changes, to closer meet the needs of their customers,as well as the requirements of the regulatory bodies. And of this group, not many seem focused at a product level.

The fintechs, which have the distinct advantage of no legacy systems, are setting themselves up from the outset to automate data usage and provide credit through low-cost, highly efficient technologies. However, many of them enter the market as mono-lines. They are proving good at what they do; evidence of their success is in the growth of the fintech sector, and the fact that they took the vast majority of this year’s credit awards for the quality of service provision.

But mono-line creditors increase the challenge for all to manage a customer at a customer level.

A number (but not a large number) of traditional lenders are looking at how they can consolidate the multi-dimensional view of the customer through their deep data pools and analytics, and leverage that insight to the benefit of the customer experience and profitability. They are pledging to stay focused on the customer no matter what the new regulatory and accounting landscape looks like.

Then there are the disrupters, those well-established organisations (e.g. retailer banks) that are looking to expand their products and services into the credit arena. Much of this ‘disrupter lending’ is happening outside of the UK (nano-lending in East Africa, mobile credit in the Philippines and WeBank on WeChat in China), but are expected to be quickly adopted here once they prove their worth.

Trying to Do the Right Thing

So, are we all pulling in the same direction on the same fronts?If the aim of the disparate regulation is prudent and appropriate lending, risk assessment and fair treatment of the customer, I’d have to say that many institutions are pulling in the same direction —  and often despite (rather than because of) the regulations intended to enforce that treatment.

It remains to be seen whether the additional costs under IFRS9 for customers whose risk increases or the TCO of data and technology to meet the demands of GDPR will allow the diverse range of credit-issuing organisations to invest competitively in managing customers effectively, when within their organisations or in others, action is being taken at a product level that affects both the risk and the treatment at a customer level.

All of this change is consuming energy, budget and competitive focus at a time of huge competitive disruption (fintechs, digital, cybersecurity, Brexit).And the question remains: Despite their best efforts, will all of lenders’ investment in true customer-level credit management be thwarted by the implications of product-level initiatives?

One thing’s for sure: There will continue to be many an interesting day ahead for those working in credit risk management.

Bruce Curry is a senior principal consultant for FICO, working with clients across EMEA on debt management. He blogs at

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