FICO® Collections Optimization www.fico.com Make every decision count TM » Innovative debt management for a changed collections landscape Whether you’re trying to collect on a delinquent loan or recover a charged-off loan, medical, property or other debt, the opportunity for connecting and collecting keeps shrinking. Automation helps, but strategies such as undifferentiated SMS blasts may be no more effective than their predecessors. Changed consumer attitudes, the rise of social media, rich data locked in silos, and the threat of regulatory penalties co-exist to hamper collections. As a result, organizations need new strategies to identify and target new areas for improving debt management— particularly where competing objectives and operational negation impede progress. FICO® Collections Optimization helps organizations of all sizes strike a balance between loss reduction, resource challenges and operational constraints to address increasing concerns over maximizing profitability and managing customer satisfaction. It can be leveraged across the collections spectrum—from pre-delinquency and early stage collections through later stage and recovery activities. FICO Collections Optimization delivers more than a strategy—it also provides insights based on multiple “what if scenarios” that seek to balance tradeoffs between goals and constraints, such as charge- off losses and resources. In this example, by charting the impact of these various scenarios, organizations can assess the average charge-off amount per first cycle delinquent account as collection capacity increases or decreases. Another example of Collections Optimization in action relates to determining what channels to use when contacting customers for repayment, settlements or even updating current data. By intelligently deploying automation to contact customers via their preferred channels—and then putting the right agent on the call when a human interaction is desired—optimization can drive substantial gains across the entire debt collection engagement lifecycle, collections & recovery Transform debt management strategies with advanced analytics FICO® Collections Optimization transforms collections and recovery (C&R) effectiveness and customer connectivity by applying powerful, easy-to-use analytic tools to address business objectives, such as optimal resource allocation and roll rate reduction. It leverages sophisticated, patented mathematical techniques that help calculate the optimal actions to take among many choices, given business goals and constraints. Benefits are also greatly increased when Collections Optimization is integrated with FICO® Debt Managerc solution, FICO® PlacementsPlus® service and FICO® Adeptra® Risk Intervention Manager to provide a comprehensive debt management platform. FICO® Collections Optimization transforms debt management by enabling organizations to model, optimize, assess and deploy strategies to address challenging business objectives, such as increasing collector productivity or reducing roll rates. • Evaluate and monitor C&R KPIs • Build a graphical model for one or more decisions • Establish mathematical relationships within key variables • Solve for profit-improvement strategies within specified constraints • Explore tradeoffs between conflicting goals • Stress-test results • Incorporate optimized strategies into core processing solutions • Manage and track strategies to respond to market demands and changes • Execute consistent decisions every day, week, month, etc. • Analyze large quantities of key constraints to evaluate alternatives • Explore range of what’s possible • Analyze operational impacts Decision Modeling Decision Optimization Decision Deployment Scenario Analysis With FICO® Collections Optimization, organizations can: • Enhance collector performance by targeting resources to the right accounts. • Improve roll rates while balancing capacity and collection expenses. • Simulate strategy impacts by predicting consumer reaction to various treatments. • Easily update strategies based on portfolio, economic and regulatory shifts. • Adjust policies according to seasonality. • Propel recovery rates via optimized agency management and settlement capabilities. • Drive stronger customer connectivity through contact channel optimization. FICO® Collections Optimization in Action
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FICO® Collections Optimization
www.fico.com Make every decision countTM
» Innovative debt management for a changed collections landscape
Whether you’re trying to collect on a delinquent loan or recover a charged-off loan, medical, property or other debt, the opportunity for connecting and collecting keeps shrinking. Automation helps, but strategies such as undifferentiated SMS blasts may be no more effective than their predecessors. Changed consumer attitudes, the rise of social media, rich data locked in silos, and the threat of regulatory penalties co-exist to hamper collections. As a result, organizations need new strategies to identify and target new areas for improving debt management—particularly where competing objectives and operational negation impede progress.
FICO® Collections Optimization helps organizations of all sizes strike a balance between loss reduction, resource challenges and operational constraints to address increasing concerns over maximizing
profitability and managing customer satisfaction. It can be leveraged across the collections spectrum—from pre-delinquency and early stage collections through later stage and recovery activities. FICO Collections Optimization delivers more than a strategy—it also provides insights based on multiple “what if scenarios” that seek to balance tradeoffs between goals and constraints, such as charge-off losses and resources. In this example, by charting the impact of these various scenarios, organizations can assess the average charge-off amount per first cycle delinquent account as collection capacity increases or decreases.
Another example of Collections Optimization in action relates to determining what channels to use when contacting customers for repayment, settlements or even updating current data. By intelligently deploying automation to contact customers via their preferred channels—and then putting the right agent on the call when a human interaction is desired—optimization can drive substantial gains across the entire debt collection engagement lifecycle,
collections & recovery
Transform debt management strategies with advanced analytics
FICO® Collections Optimization transforms collections and recovery (C&R) effectiveness and customer connectivity by applying powerful, easy-to-use analytic tools to address business objectives, such as optimal resource allocation and roll rate reduction. It leverages sophisticated, patented mathematical techniques that help calculate the optimal actions to take among many choices, given business goals and constraints. Benefits are also greatly increased when Collections Optimization is integrated with FICO® Debt Managerc solution, FICO® PlacementsPlus® service and FICO® Adeptra® Risk Intervention Manager to provide a comprehensive debt management platform.
FICO® Collections Optimization transforms debt management by enabling organizations to model, optimize, assess and deploy strategies to address challenging business objectives, such as increasing collector productivity or reducing roll rates.
• Evaluate and monitor C&R KPIs
• Build a graphical model for one or more decisions
• Establish mathematical relationships within key variables
• Solve for profit-improvement strategies within specified constraints
• Explore tradeoffs between conflicting goals
• Stress-test results
• Incorporate optimized strategies into core processing solutions
• Manage and track strategies to respond to market demands and changes
• Execute consistent decisions every day, week, month, etc.
• Analyze large quantities of key constraints to evaluate alternatives
• Explore range of what’s possible
• Analyze operational impacts
Decision Modeling Decision Optimization
Decision Deployment Scenario Analysis
With FICO® Collections
Optimization, organizations can:
• Enhance collector performance by targeting resources to the right accounts.
• Improve roll rates while balancing capacity and collection expenses.
• Simulate strategy impacts by predicting consumer reaction to various treatments.
• Easily update strategies based on portfolio, economic and regulatory shifts.
• Adjust policies according to seasonality.
• Propel recovery rates via optimized agency management and settlement capabilities.
• Drive stronger customer connectivity through contact channel optimization.
while helping improve service and enhance collector performance. Integration with FICO® Adeptra® Risk Intervention Manager links powerful channel optimization capabilities with intelligent, empirically derived customer contact actions.
» How FICO® Collections Optimization works
Behind FICO Collections Optimization is a sophisticated decision modeling capability that quantifies the impact of an organization’s business decisions and actions on customer outcomes such as revenue, loss and profit.
These action/reaction relationships can be informed by empirical testing, multiple sources of data and expert feedback—from your internal C&R collectors and managers, as well as FICO analytic and business consulting experts.
Once customer reactions to different actions are modeled, the decision optimization commences. At this stage, as shown in the example below, the algorithms simultaneously apply all possible actions against constraints to determine outcomes. This step allows users to stress-test results and determine which strategies should be candidates for scenario analysis (the following step).
The next phase in the process involves scenario analysis, where a business chooses the optimal operating point from multiple scenarios. For example, the analytics may determine that one scenario retains profitability per account and decreases expense by 6%, while the second scenario increases profitability by $10 per account, without incurring additional expense. By running multiple scenarios with different constraints specified, an efficient frontier is created. This efficient frontier sheds light on the range of possible outcomes, allowing portfolio managers to make an informed decision on the preferred operating point for the business given the current environment.
Finally, decision deployment incorporates optimized strategies into core processing solutions, and manages and maintains the decisioning strategies to efficiently respond to market demands and changes. Optimized treatments can be converted into decision trees and loaded into a collection system (such as FICO® Debt Manager™ solution) in order to execute consistent decisions every month, week, day, etc. Datasets with optimized treatments can also be loaded directly into the collection system if optimization is run on a regular basis.
Case Study—European Financial Institution
Business Challenge:
• Improve performance of early stage collections strategies on unsecured portfolios.
• Reduce roll rates.
• Achieve this without increasing expenses or headcounts.
Solution
• FICO® Collections Optimization.
Results
• 3-month KPI: Bucket 1-Bucket 2 roll-rate reduced by 3%.
• 6-month KPI: Bucket 1-Write-off roll-rate reduced by 10%.
• 3-year ROI expected to be 24:1.
Delayed Call E(Pay)=$175, P(Attr)=2%
Gentle Call E(Pay)=$180, P(Attr)=2.4%
UrgentCall E(Pay)=$187, P(Attr)=3.4%
Customer Action Reaction
Min Roll Rates; Same Attrition $5 MM Collections Impact
Min Attrition; Same Roll Rates $5.2 MM Collections Impact
Balanced Approach $5.32 MM Collections Impact
Portfolio Action Reaction
Dec
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Solv
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Decision optimization considers the impact of multiple actions on customer reactions, taking into account business constraints that are constantly shifting over time.
» Quick start, faster resultsFICO® Collections Optimization accelerates addressing key C&R objectives through an optimized strategy. FICO offers a range of solutions and services to align with the specific needs of every organization, including:
• Quick-start projects for early stage collections.
• Customized optimization solutions that consider myriad business goals, constraints, portfolios and other considerations, such as localized contact regulations and channel preferences.
The solution’s scalability to multiple environments and industries makes it ideal for piloting in one area (e.g., collector productivity) and then deploying more broadly to address multiple objectives.
Our related offerings include:
FICO® C&R Current State Assessment—FICO examines an organization’s current collection processes and determines opportunities for improvement, from an operational and business perspective as well as within the context of industry, region, portfolio, technology and leveraging analytics (including optimization) to drive quick wins.
FICO® Quick Start Optimization Project—Accelerate time to market with an optimized debt management strategy based on a chosen scenario for treatments. Detailed reports include efficient frontiers, optimization scenario, action distribution and swap set.
FICO® Optimization Application— A pre-configured application that provides optimization software with one or more customer decision models embedded.
Pre-delinquency
Early stage collections
Mortgage workouts
Credit card settlements
Settlement after charge-off
Agency placement
Potential for customer to become delinquent
Priority and treatment of accounts
Restructure terms
Which accounts to settle pre-charge-off and for what $ amount
Who is the most likely candidate for a settlement and for what $ amount
Which accounts to place with which agency
Minimize collection expense while hitting retention and fee goals
Maximize profit while controlling operational expenses
Maximize NPV while balancing with loss and staying within policy
Maximize total payments received while balancing short- and long-term perspective
Maximize total payments received while controlling total ‘give back’
Maximize liquidation rates while controlling agency expense
