Breaking the back of the PPI mis-selling challenge

5 March 2012

By Mark Dunleavy, Managing Director, UK, Informatica

A recent report from the Financial Ombudsman Service (FOS) showed that UK retail banks are still struggling to manage payment protection insurance (PPI) mis-selling cases, with 3,000 fresh compensation cases every week. The latest complaints figures against UK banks also show that PPI still makes up the vast majority of FOS complaints, with all the reputational damage that that means for banks. It’s time to put an end to this long-running case and for banks to get a grip of their data in order to pay out promptly.

The High Court ruling in London during April last year that all banks should compensate every customer that had been mis-sold PPI policies brought a long-running saga to an end. The UK’s major retail banks, with the support of the Financial Services Authority (FSA), had resisted any such compensation claims for years by introducing a so-called waiver programme while a test case winded it way slowly through all levels of the judicial system. Constant losses in lower level magistrate courts in the UK showed the need for a test case but the whole affair was allowed to drag on for far far too long, doing considerable damage to the already battered reputation of the banking sector.

The recent FOS report stated that the “delays and inconvenience” are still continuing. This time the problem is caused by the way banks are now attempting to clear the backlog of complaints and deferred payments, since the High Court ruling of last year, with hundreds of thousands of disgruntled customers still waiting for a resolution and compensation amounting to billions and billions of pounds. The lack of effective insight into customer data, across multiple products, at most UK retail banks has not helped the resolution process, but I believe this can be addressed by better business intelligence and customer relationship management (CRM) systems – effectively, by banks getting a better handle on their data.

There are a number of figures being made public that highlight the scale of the challenge that banks are currently facing when it comes to PPI mis-selling cases. For example, £1.9 billion was paid out to claimants during 2011. Famously, Lloyds Banking Group losses for the year were almost entirely due to the £3.5 billion hit they have agreed to pay out in compensation, becoming the first UK retail bank to break ranks on the issue. Other predictions claim that all UK banks are set to pay out at least £4bn in compensation during 2012, making this year another costly year. Thousands and thousands of people have had their cases settled but are now waiting – in some cases for months – for their cheques to arrive and the longer this drags on the worse the reputational damage becomes.

So what can banks do to combat this problem? It’s certainly not something that can be fixed overnight, but there are ways of easing the pressure. It starts with the need for banks and financial organisations to wake up to the fact that all of this highlights the importance of data, as their most important asset. When you boil it down, there is an increasingly urgent need for banks to have access to a complete and accurate single view of the customer in order to address current and potential future data blind spots. Banks hold reams of data and on a broad scale, so one of the key problems they have faced in the midst of the last financial crisis is that they lacked transparency into information because it was poorly integrated, duplicated across various departments and was not always accurate. Improvements have certainly been made over the last two years, not least thanks to the Financial Services Compensation Scheme (FSCS) Single Customer View (SCV) requirement introduced by the FSA in the wake of the run on Northern Rock to ease the process of returning covered customer deposits, but there are but there are still many hurdles to overcome.

When it comes to having a holistic view of data, many banks only have some pieces of the jigsaw puzzle or they have all the pieces but they just don’t quite fit. Essentially, what they lack is a single view of their customers. The FSCS SCV regulatory requirement should have helped in this regard of course, but some banks used it as a tick box exercise without breaking through internal technology and procedural silos, thereby missing out on many of the possible benefits including in regard to compensating PPI victims. Information relating to the individual, their claim, and the insurance policy sold to them often still sits in siloed IT systems. Without accurate data profiling, enabling them to make effective connections between different types of customer data and claims, some banks are unable to verify the complete accuracy of claimant information. This has left them with a huge data blind spot, putting them on the back foot.

A customer-centric approach
The clock is ticking and in order to avoid encountering further fury from the UK public, banks need to take proactive action and get to grips with their data quick. The first step is to profile customer data in order to generate the necessary insight into where their business may be exposed, allowing them to improve customer service, accelerate claim processing, anticipate future claims and also mitigate the risk of fraud.

Banks need to ensure they are taking steps now to ensure that they fully understand the complexities involved here if they are to not only resolve the burden of mis-selling cases, but also derive real value from their data. There’s more involved here than one financial organisations’ interaction with a customer. For example, an individual mortgage with one financial institute – that probably demanded PPI as a condition of the mortgage – may be underwritten by another financial services firm. Add into the mix, multiple departments, alongside the involvement of third parties, and the data challenge becomes clear. And that’s without taking into account the various formats, qualities and different standards of data being dealt with here.

If banks want to commit to addressing the problem of PPI mis-selling they need to take a step back and consider how they are managing the inbound stream of data and ensuring they have one version of the truth. For example, if a customer calls their bank to buy insurance or stake a PPI claim, the bank needs to be able to react quickly, and be equipped to pull information on other services that customer is using, including relationships to connected accounts, like that of a spouse, in order to offer them the best level of customer service and offer an accurate compensation quote there and then. Equally, a new profitable customer acquisition quote can be given if effective systems are in place. Connections need to be made if banks don’t want to see a negative impact on their customer retention and loyalty. When a customer call or internet session is in action, getting a single view of this information needs to be instant. After all, when data is missing or wrong and a quote is provided that is when future PPI-type products might be mis-sold, whether it is intentionally or otherwise. Of course, not many UK retail banks will be selling PPI now they have been so severely hit for billions of pounds of compensation but the principle still applies for any future products.

Banks’ present woes dealing with the backlog of PPI mis-selling cases are only made more challenging by the volumes of inbound complaints and sheer number of claims that need to be dealt with in a timely fashion. The massive growth of data, both in terms of volume and types may seem daunting, but for the wise bank it also offers an opportunity to simultaneously harness improved data procedures and tools to improve their relationship with customers. One way of doing this is to tap into the likes of social data in order to understand customers more. If banks can keep tabs on information their customers provide related to insurance or to their banking experience then they can choose the best time to make meaningful contact with them. For instance, if someone has got married, then invite them to look at a mortgage product. Had a child? Look at our insurance or school savings funds.

Conclusions
It is clear that banks still have a way to go in order to fully restore customer confidence. Going back to basics by ensuring that account information is correct really does need to be tackled as a priority by any financial organisation thinking about next steps. In an ideal world banks would have a complete, single view of every customer on their books. They should have this under the FSA-inspired FSCS SCV regulatory requirement but have banks made this information available across the business as they should have done, or just added a Bolton dashboard type tool to aid quick payments in the event of a bank failure?

Banks should know how much customers have saved and what mortgage, insurance, loans and credit cards debts amount to, all in one place. The truth is, however, that most banks are the products of mergers and acquisitions and consist of many separate divisions. Information is still often fragmented. It is this siloed approach to data that represents the biggest sticking point when it comes to PPI mis-selling. Banks need the technologies and methodologies in place to be able to manage data from all parts of the enterprise and guarantee its integrity. This is invaluable, and it ensures that banks looking to eliminate this long standing issue and remain competitive can be clear and confident about the action that needs to be taken. Without effective enterprise-wide data integration blind spots will still exist, to the detriment of everyone.

• The latest FSA PPI advice, published on 6 March, covering how firms should deal with PPI complaints and what they must do to contact victims who have not yet put in a bid for compensation can be accessed here.

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