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Improve client results
Česká spořitelna, the oldest and largest bank in the Czech Republic, has modernized its operations by optimizing its decisions about customers in the first collections. Using FICO prescriptive analytics, in this case debt collection optimization, improved customer satisfaction and reduced agent call minutes by 25%.
“As many Czech households continued to struggle with their finances due to the impact of the COVID-19 pandemic, the bank realized that it needed to change its approach to collections,” said Petr Olšák, head of credit risk analysis at Česká spořitelna. “Operational capability needed to be targeted to relevant accounts, portfolio performance maintained, customer experience improved, and resources freed up to deal with challenging situations.”
You can read more about this story in the full press release.
Make the most of available resources
Prior to implementation, Česká spořitelna segmented collection customers according to risk. Further refinement was then assigned using the strategy team’s best judgment and progressively improved using champion-challenger testing. The traditional strategy management approach did not provide insight into the optimal intensity of collection activities or the ideal use of operational resources for different customer segments.
Applying AI-based prescriptive analytics to collections was a first for Česká spořitelna. While the bank had used FICO’s decision optimization technology for several years to improve loan consolidation and pricing strategies, this was the first time it had used this approach to solve an operational decision problem.
“The main challenge of the collections project was how best to balance operational efforts with portfolio performance and customer experience,” Olšák said. “Modeling how certain customer segments responded to different treatments, i.e. if and when they made a payment, allowed us to simulate the impact of a given strategy on key performance metrics such as month-end balances, balance turnover rates, cash collected, operational effort and variable costs.”
Find the right balance
FICO® Decision Optimizer was used to design strategies for handling early collections on the bank’s unsecured personal loan portfolio. Česká spořitelna improved customer experience by avoiding excessive collections on low-risk customers, while proactively addressing credit risk.
Obtaining information on the trade-offs between alternative treatments was a key objective of the optimization project. For example, the bank tested the impact of management strategies either at the end of the month or at the end of the cycle. Choosing a specific goal, such as minimizing balance rates while limiting others, allowed the recovery team to understand the trade-offs and choose an optimal operating point that provided the right balance.
This project allowed Česká spořitelna to determine the optimal collection treatment for each account going into collection: when the customer would be contacted (number of days late) and through which channel.
Impressively, the entire project, including all modeling, was implemented by Česká spořitelna’s in-house retail credit risk analysis team, without any IT resources and with minimal coaching provided by FICO.
Helping people affected by the pandemic
The collection optimization project was very successful for Česká spořitelna in the Czech Republic and particularly timely. The optimized strategy allowed the bank to reduce operational efforts by 25% (measured in collector call minutes), while balance turnover rates remained stable and cash collected was cleared. This freed up significant resources for other products and for more detailed discussions with complex customer cases, especially those impacted by the pandemic. The bank and its parent organization Erste Group plan to extend the methodology and framework to other products and geographies.
“Erste Group has found great value in using FICO Decision Optimizer,” said Petr Kapoun, Erste Bank Group Risk Advisor. “Not only at Česká spořitelna, but in its sister organizations in Slovakia, Hungary and Romania. The future use of decision optimization for the group involves local development of component models under group coordination, sharing group-wide knowledge and the ultimate optimization of decisions.
The pandemic has highlighted the importance of targeting resources to the area that needs them most. Česká spořitelna’s work to revise his approach to early recoveries is an ideal scenario for using analysis and optimization software. Operationalizing them has automated callbacks for low-risk customers and freed up its highly skilled workforce to undertake work where it will have the greatest impact.
For his achievements, Česká won a 2022 FICO® Decisions Award for Debt Management.
“Having been involved in optimization projects myself, I know the challenge that exists in examining granular data in action/response models,” said Paul Deall, head of risk, mortgages at Westpac and one of the judges for the FICO Decisions Awards. “Česká achieved great results by reducing operational effort and improving client outcomes when the pandemic hit and loan deferrals were offered.”
How FICO can help you improve your collections through optimization
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