Defusing the Consumer Debt Timebomb Before It Explodes

Henley-on-Thames - 8 July 2009

Portrait Software has demonstrated a cost-effective solution - Pre-Delinquency Management (PDM) - that allows lenders to predict potential delinquency, help customers manage debt and reduce levels of impaired debt as a result.

In a three-month analysis for an A-list credit card business, Portrait demonstrated a 2% reduction in the number of defaults, a 2.5% reduction in default rates and a 15% reduction in the default value. These results equate to millions of pounds of added value in terms of reduced collection costs and enhanced debt recoveries.

PDM is a methodology which identifies ‘at risk’ customers at an early stage, helps identify and monitor appropriate treatment strategies, and helps customers who are getting into trouble get a grip on their debt before it escalates or turns bad. As the recession bites, financial institutions have seen more and more of their customers get into financial difficulty and, at the same time, have come under increasing pressure to demonstrate that they are providing as much assistance as possible by treating customers fairly in these difficult times.

“Most organisations have recognised that many of their customers facing difficulties are not the 'usual suspects' but rather prime customers who have every intention of meeting their obligations but need to reshape their finances in order to survive the credit crunch,” comments Neil Skilling, Client Services Director, Portrait Software. “By implementing a Pre-Delinquency Management strategy, organisations can now address the growing numbers of customers facing financial difficulty,” he added.

The objective of Portrait's recent study was to use PDM to reduce the number of defaults and also the total value at risk. Using its analytics software the study identified a group of 100,000 customers likely to have difficulty meeting their credit card payments in the next three to six months. Identification criteria included increased credit limits, balances reaching the credit limit and changes in spending patterns. 80,000 customers were sent a communication offering assistance to help ensure their situation remained stable, 20,000 were not offered any help and served as a control group. Respondents talked to advisors who discussed their situations and captured additional information on current circumstances. Portrait's PDM solution collated all of this information and determined the most appropriate treatment options such as changing direct debit dates, setting up minimum payments or reducing credit limits.

After three months analysis showed:
•Reduced defaults by 2 percentage points (representing a 20% reduction compared to the standard 10% default rate)
•Defaults were at the full outstanding amount
•Customer feedback was very positive
•Reduced default rates by 2.5 percentage points (representing a 25% reduction against the base default rate)
•Average default value reduced by 15%

“Few organisations have been able to implement PDM as a ‘business as usual’ process,” adds Neil Skilling. “This is not the result of a lack of will on the organisations’ part, indeed many are running costly paper based programmes. However, other solutions lack the flexibility to bring together analytics, decisioning and automated workflow in support of the customer process. Instead they simply manage the account or the outstanding debt. Portrait’s PDM solution can be implemented to work seamlessly with existing customer systems and data, without the need to embark on a major systems project or to create new databases of information – we work with what is already there and in use – and will deliver dramatically improved results.”

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