Let’s face it – not all knowledge based authentication (KBA) is created equal. I, too, have read horror stories of consumers forced to answer questions about a deceased relative or ex-spouse, or KBA sessions that went on far too long for anyone’s benefit. I have to attribute this to vendor inexperience and a lack of consulting with clients. An experienced vendor will use a fraud best practice such as a fraud analytics model to determine that some consumers do not even need questions and then a “Progressive Question” feature, which uses consumer performance on an initial question set to determine if it is necessary for the consumer to answer additional questions. This way, the true consumer completes the process quickly, improving the customer experience. The product of choice should also use a question mix that balances three factors: ·         how easily the true consumer can answer the question; ·         the fraud separation of the question (effectively the measured delta over time between how well true consumers answer the question vs. how well fraudsters do); ·         how many consumers overall the question can be generated.  A list of hundreds of possible questions doesn’t mean much if the questions can only be generated for one quarter of one percent of the population, as is the case for something like airplane ownership or pilot’s license. Ultimately, out of wallet questions should be generated for a large part of the population, easily answered by the true consumer but difficult for a fraudster; and not offensive or what a consumer would consider “creepy” (such as their child’s birthday or name). Well designed questions will be personal but not intrusive and mindful of personal relationships that may have changed.  The purpose of a knowledge based authentication session is risk management and/or consumer authentication for fraud prevention and compliance purposes – not to cause the loss of business because the fraud tool crossed the line in the mind of your customer.

Like all companies seeking to generate new revenue, wireless providers continually strive to expand their creditworthy universe of applicants and prospects, while shrinking or eliminating risk. Compared with other industries, however, telecom tends to have a disproportionate number of no-hit and unscorable thin files—primarily young adults and immigrants, emerging consumers, and alternative-finance transactors. The main reason is that these individuals typically acquire cell phones well before credit cards, mortgages or other loan products, and thus, fly under the radar of traditional credit scoring. Micro-segmentation—a paradox with a payoff Experian has found that, despite the lack of documented credit history, these often-ignored segments contain many potentially profitable accounts. Narrowing your focus (through targeted attributes and micro-segmentation) can actually expand your universe of prospects, creating a whole new world of opportunity that enables you to: Grow your portfolio without increasing your risk Match new customers with the appropriate deposit and payment structure Build trust, loyalty and long-term value Many companies also integrate market data, dealer data or other internal records to refine micro-segmentation efforts. Others enlist credit-reporting agencies to help combine traditional and alternative data sets to predict future performance. One or both methods can yield highly favorable results. Using high-quality information from proven, reliable sources enables wireless companies to segment information in innovative and profitable ways. In fact, when providers successfully expand their creditworthy customer universe, high-quality data is usually the bright and shining star. To learn more, read a related post about the role of data quality in effective customer acquisitions.

The passage of the Telecommunications Act of 1996 increased competition in the telecom industry. These days, nearly every telecommunications company is offering, or considering offering, bundled services to attract new customers, increase retention of current customers, or both. Every time I turn around, there seems to be a new variety of bundled services. Quality, ease of use, and the right price points in a market, make these bundles very attractive to consumers. Most offers are directed at consumers, but the industry is looking for emerging market spaces. AT&T just announced it would be offering its U-verse IPTV product and its via-resale DirecTV service, bundled together with landline voice, wireless voice and broadband Internet services, to the small business market. The company explained this package might be attractive for small businesses with client waiting rooms. Bundle of joy While there are a few risks involved in offering bundled services (a topic we will explore in a future post), by and large, the benefits of bundled services are many: 1. Enhanced customer loyalty - Customers are less likely to go to the trouble of unbundling services in order to switch providers. - Customers feel more connected to your organization on multiple fronts. (Both of these help to shield you from competitive displacement attempts.)   2. Simplified customer experience - Consumers enjoy the convenience of bundled services, which allows them to manage multiple services with a single billing statement and a single payment. - When money is tight, bundle customers will generally pay the entire bill, as opposed to paying only part of the bill.     3. Save provider time and money - Bundled billing reduces the number of bills sent each billing cycle, which means less paperwork for you and your customers. - Fewer bills sent also means fewer payments to process.     4. Penetrate new markets - Partnering with a company, who has a bigger footprint in a particular market, allows you to leverage that partner’s existing customer base. - Bundling also can help you penetrate a new market with more competitive price points.     5. Easier and less risky up-selling path for larger share of consumer products and services - The partner, already having an established relationship with the consumer, will have an easier time up selling your product offerings to their customer base.     If you’re thinking about getting into the bundling game — or expanding on your current bundling strategy — you need to know that getting bundling right is no easy task. Check back for future blog posts in which I’ll discuss what makes a “smart” bundled offering, as well as how to ensure you’re offering the right bundle to the right customers. In the meantime, if there are specific topics in the realm of bundling you would like to see addressed, please be sure to comment on this post.

As our newly elected officials begin to evaluate opportunities to drive economic growth in 2011, it seems to me that the role of lenders in motivating consumer activity will continue to be high on the list of both priorities and actions that will effectively move the needle of economic expansion. From where I sit, there are a number of consumer segments that each hold the potential to make a significant impact in this economy. For instance, renters with spotless credit, but have not been able or confident enough to purchase a home, could move into the real estate market, spurring growth and housing activity. Another group, and one I am specifically interested in discussing, are the so called ‘fallen angels’ - borrowers who previously had pristine track records, but have recently performed poorly enough to fall from the top tiers of consumer risk segments. I think the interesting quality of ‘fallen angels’ is not that they don’t possess the motivation needed to push economic growth, but rather the supply and opportunity for them to act does not exist. Lenders, through the use of risk scores and scoring models, have not yet determined how to easily identify the ‘fallen angel’ amongst the pool of higher-risk borrowers whose score tiers they now inhabit. This is a problem that can be solved though – through the use of credit attributes and analytic solutions, lenders can uncover these up-side segments within pools of potential borrowers – and many lenders are employing these assets today in their efforts to drive growth. I believe that as tools to identify and lend to untapped segments such as the ‘fallen angels’ develop, these consumers will inevitably turn out to be key contributors to any form of economic recovery.  

Remember the new customers or subscribers you brought on last year, and how great they looked on paper?  High credit score, low revolving debt—clean as a whistle, solid as a rock. How do those stellar profiles look right now, in 2011? Still solid? Or has their luster recently faded? In today’s uncertain environment, it’s both a legitimate and prudent question credit departments should often ask. Regular portfolio reviews: illuminate, eliminate Because of the financial relationship between your company and its customers, you have a right to make “soft” inquiries to uncover new credit-quality risk. Red Flag indicators include a recent bankruptcy, an increase in late payments, and other credit obligations staying past due longer. Whatever the changes are, you’re entitled to know them, and regular portfolio reviews are an effective way to illuminate (and eliminate) risk. The other side of the coin Thankfully, telecom/cable credit trends are not all gloom and doom. Many people have actually improved their scores and are good candidates for better terms, better rates and cross-sell opportunities that can increase your wallet share. Of course, once you land good customers, keeping them happy becomes paramount. Increasing the number of products or services they use can make customers “stickier” and more loyal. So if, as mentioned in my previous post, acquisition is about prospect quality (not quantity), then retention and risk reduction are about regular portfolio reviews and keeping people happy. Supplementing reviews by letting customers know you value and appreciate their business, will help them stay put when pesky competitors come knocking.

More prospects equal more profits, right? Not necessarily. But surprisingly, companies in every industry (including cable and telecom) routinely burn acquisition dollars as if it is. The reality is that only more qualified prospects can lead to more profitable campaigns, making acquisitions a clear case of quality besting quantity. But why? No substitute for quality Engaging unqualified prospects is an unprofitable exercise requiring time and resources that are better spent on those who are ready, willing and able to buy from you. Benefits of an effective acquisition strategy include greater: Resource efficiency—less time, money and energy wasted on no-payback prospects Brand loyalty and higher lifetime value—by accurately matching consumers to products they relate to and desire Profitability and less bad debt—this one is probably obvious Fishing where the (best) fish are So how should a profit-minded telecom or cable company identify highly qualified prospects and invite them into the fold? Using a credit-score threshold, where anyone possessing the target score receives an offer, is one method. The benefit is simplicity. One disadvantage is unnecessary risk, as credit score is just one factor reflecting an individual’s creditworthiness. Another possibility is analyzing your best customers’ profiles or most profitable underwriting policies and integrating profit-building criteria into your campaign. This takes a little more effort but the payback potential is higher. Tapping into available sources Many companies find public records a rich source of decisioning data. Others have discovered that adding consumer-credit information to their acquisition formula not only improves prospect quality, it also reduces on-boarding costs. Derogatory payment information, revolving debt levels or unacceptable debt-to-income ratios will all surface in the process, informing and improving your credit management decisions. (Note: using credit data to assess risk requires you to make a firm offer of credit, according to FCRA guidelines.) You’ll do a lot of prospecting in 2011, so remember: when it comes to acquiring new customers, more isn’t better. Better is better. And using reliable, high-quality data is one way to ensure the impact and return of every marketing dollar.

Experian Decision Analytics has recorded increased demand from the marketplace for service integrations with interactive voice response (IVR), a phone technology that allows for automated detection of both voice and touch–tones. In the past quarter, there has been a more than 70 percent increase in IVR interest and it continues to grow. Why is there a demand for knowledge based authentication through IVR? Besides consumer acceptance of out of wallet questions, there is a dramatic increase in the need for remote authentication and fraud analytics that are accurate, not a burden to the consumer, cost–effective for organizations and part of an overall risk based authentication approach. Consumers stay connected in a number of ways — phone, online, mobile and short message service (SMS) — and are demanding the means to remain safe without compromising convenience. Knowledge based authentication through IVR provides this safety. Organizations must consider all the tools at their disposal to keep consumer data protected while preserving and promoting a positive customer experience. Given the interactive nature of knowledge based authentication, it is quite adaptable to various customer access channels, such as IVR, and it enables full automation of both inbound and outbound authentication calls. We know from both our own experience and from working with clients that consumers are more connected, more mobile and more networked than ever before - and fraud trends demonstrate this increases risk. As consumers continue to expand online profiles and fraud artists continue to seek out victims, successful fraud prevention will become paramount to financial survival. Leveraging products already in use by combining the technology capitalizes on an existing investment and is good business.

Cybersecurity is back in the news, thanks in no small part to a number of government reports and developments with WikiLeaks. It’s also becoming increasingly important to businesses and lawmakers alike. Although not a new concern for the telecommunications industry, cybersecurity is quickly becoming a priority for the new Congress as pressure increases to develop a national plan. What should cybersecurity protect? A national cybersecurity plan would likely entail setting baseline security standards to protect critical networks – many of which are run by private organizations. For policymakers, the challenge will be to craft guidelines that protect consumer data and still allowing technological innovation. Last year, we saw a number of legislative proposals debated before Congress that would place new requirements on network infrastructure and strengthen coordination between federal regulators. So far, the proposals have been broad and have only raised additional questions. The hurdle for lawmakers will be addressing how existing data protection laws fit within new proposals in order that businesses do not face over burdensome requirements. Where does the FCC fit in? When it comes to cybersecurity, the role of the FCC is even more undefined – however that’s changing. Last summer, the FCC asked for public comments about the creation of a Cybersecurity Roadmap to identify vulnerabilities to communications networks and to develop countermeasures and solutions to cyber threats. The roadmap was first recommended as part of a broader strategy to create a National Broadband Plan that required the FCC to identify the five most critical security threats and establish a two-year plan to address them. While the Commission has accepted public comments, it’s unclear when a final Roadmap will be introduced. A national breach notification standard As part of a comprehensive plan, policymakers are also looking at what happens after a breach occurs. Currently, 46 states have passed laws requiring companies to notify consumers after a security breach. As a result, policymakers have begun to examine whether a national data breach law is necessary given the varying degrees of consumer notification. The FCC has indicated their support of a uniform law and has recommended that Congress include telecoms in the legislative discussion. Despite the uncertainty, one thing is sure: cybersecurity will be increasingly important to monitor during 2011. One way to stay current is to subscribe via email or RSS as we continue to look at the latest legislative or regulatory developments concerning the wireless and telecommunications industry. In the near future, we’ll be taking a look at recent data privacy recommendations by federal regulators and the privacy agenda of the new Congress. Meanwhile, if you’d like more information on Data Breach Notification or Fraud Management Compliance, your Experian representative can help. Let us know your concerns regarding cybersecurity and pending legislative issues so that we can address them in future posts.

Many compliance regulations such the Red Flags Rule, USA Patriot Act, and ESIGN require specific identity elements to be verified and specific high risk conditions to be detected. However, there is still much variance in how individual institutions reconcile referrals generated from the detection of high risk conditions and/or the absence of identity element verification. With this in mind, risk-based authentication, (defined in this context as the “holistic assessment of a consumer and transaction with the end goal of applying the right authentication and decisioning treatment at the right time") offers institutions a viable strategy for balancing the following competing forces and pressures:   Compliance – the need to ensure each transaction is approved only when compliance requirements are met;   Approval rates – the need to meet business goals in the booking of new accounts and the facilitation of existing account transactions;     Risk mitigation – the need to minimize fraud exposure at the account and transaction level. A flexibly-designed risk-based authentication strategy incorporates a robust breadth of data assets, detailed results, granular information, targeted analytics and automated decisioning. This allows an institution to strike a harmonious balance (or at least something close to that) between the needs to remain compliant, while approving the vast majority of applications or customer transactions and, oh yeah, minimizing fraud and credit risk exposure and credit risk modeling. Sole reliance on binary assessment of the presence or absence of high risk conditions and identity element verifications will, more often than not, create an operational process that is overburdened by manual referral queues. There is also an unnecessary proportion of viable consumers unable to be serviced by your business. Use of analytically sound risk assessments and objective and consistent decisioning strategies will provide opportunities to calibrate your process to meet today’s pressures and adjust to tomorrow’s as well.

By: Staci Baker There has been a lot of talk in the news about the Dodd-Frank Act lately. According to the Dodd-Frank Resource Center of the American Financial Services Association (AFSA), “The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, which passed on July 21, 2010, is unprecedented in magnitude, and will impact every sector of the financial services industry.”  The aim of the Act is to put measures in place that address the issues that led to the financial crisis. This is done by setting up new regulatory bodies, and limiting the dealings of banks and other financial institutions. For the purpose of this blog, I will focus on describing the new regulatory agencies.  The Bureau of Consumer Financial Protection (CFPB), is an independent watchdog housed within the Federal Reserve. The CFPB has the authority to “regulate consumer financial products and services in compliance with federal law.”[ii] They are responsible for the accuracy of information, hidden fees and deceptive practices for consumers from within the following industries – mortgage, credit cards and other financial products. The Financial Stability Oversight Council is “charged with identifying threats to the financial stability of the United States, promoting market discipline, and responding to emerging risks to the stability of the United States financial system.”ii Through the Treasury, this council will create a new Office of Financial Research, which will be responsible for collecting and analyzing data to identify and monitor emerging risks to the economy, and publish the findings in periodic reports.  These new regulatory agencies are critical to US business processes, as they will more closely monitor business practices, create new tighter legislation, and report findings to the public. The legislation that is created will decrease risk levels posed by large, complex companies, as well as address discrepancy that has been raised throughout the financial crisis.     What are your views of the Dodd-Frank Act? Do you believe this is the legislation needed to stem future financial crisis? If not, what would help you and your business?  

Increased incidence of “involuntary renters” According to the Mortgage Bankers Association, one out of every 200 homes will be foreclosed. The incidence of “involuntary renters” will increase as a high foreclosure rate continues, in turn, fueling the current trend of consumers who rely solely on mobile service instead of landlines. Implications for communications companies Does it necessarily follow that foreclosure equals bad risk? I don’t think so. For example, many consumers who have undergone foreclosure were subjected to a readjusted ARM that doubled or even tripled their mortgage payments. While taking a mortgage out of a consumer’s credit file can negatively impact the overall credit score, it can also potentially generate a more positive cash flow. The consumer’s new rent payments would be lower than the readjusted mortgage would have been, making the consumer a potentially good customer for communications services. Wireless companies, in particular, prefer to approve customers for regular installment plans (as opposed to prepaid plans). The goal, for nearly all communications companies, is to qualify customers for service without the need for a deposit. The key, when assessing credit risk, is to look at the total credit/payment history, not just the credit score alone. Best Practices for qualifying involuntary renters: Validate ID/authenticate. Checking the credit application information against several data sources will help avoid potential fraud. Look at the overall credit picture, especially the current debt-to-income ratio. Review third-party data for payment history. Along with the typical payment data, Experian now offers rental histories through RentBureau. This data has the ability to increase credit report accuracy for renters. Consider the basic lender mentality. Consumers who have exhibited good payment history on utilities, credit cards, and other debt in the past are likely to continue that behavior despite having lost their house to foreclosure.   Considering the total credit picture allows you to rank-order customers and group them into populations that are lower risk, identifying, for example, those who can be serviced without an upfront deposit. In future posts, I’ll provide some guidance for rank-ordering customers as to their credit-worthiness.

In an attempt to out-innovate competitors, today’s communications companies seem busier than ever. The number of new products, services, devices and bundles continues to skyrocket, giving consumers more shiny new options than ever before. A double-edged sword More choices means greater opportunity to cross-sell, upsell or otherwise optimize customer value. But there is also increased risk, due to process or information gaps between internal acquisition, billing, account management and collections teams. There are also threats from the outside. Avoid being hit by “cyclers” These include hard-to-monitor, multiple-account households, and high-risk account “cyclers” who attempt to game the system by manipulating personal data; for example, providing different information when opening an account, buying a device or activating service. Undetected, such activity can severely impact corporate profitability. Fortunately, you can gain a clearer picture of both positive and negative activity by using assets and resources you already own. Extra benefits. No extra cost. The first step is working with IT to better mine internal data by linking disparate databases together (tips and best practices will be presented in future posts). This will give you a holistic view of all accounts. Experian recently did this with greater-than-expected success. In a similar effort, one utility we know identified more than $2.5 million in uncollected bad debt from current, active customers. What benefits can you expect? Besides gaining insight into driving the full value of multi-product customers, linking together internal data sources also enables you to: Illuminate resell/cross-sell opportunities and unfulfilled revenue potential Mitigate risk by identifying low value, high risk customers, and fraudulent behaviors Help in-house credit professionals “bridge the gap” with marketing and work in a more collaborative and integrated fashion Improve the customer experience across sales and support Best practices yield best results You already own the data you need. The secret to success is linking it together and putting it to work—without burdening already overworked teams. A structured set of best practices can make it happen. So what say you? What challenges does your communications company face with regard to customer data?

Experian’s Fraud and Identity Solutions team recently conducted a webinar entitled: “A risk-based approach to finding opportunity in today’s market: New approaches to fraud, compliance, and operational efficiency in an evolving economy.” I specifically discussed the current business drivers and fraud trends we, as a consumer and commercial authentication services provider, hear most often from our existing and potential clients. I was encouraged to have the following forces validated by our audience, and I thought they’d be worth sharing with you via this forum. In what I believe to be rank order with most influencing first:   Customer experience is king. The addressable market for most of our clients is effectively an ever more limited pool of viable consumers. From the consumer’s perspective it’s a ‘buyer’s market’. ‘Good’ consumers know they are ‘good’ and those 750 scorers don’t tolerate poor customer service.   Risk seeking credit policies may be making a comeback. Many of our clients are starting to heal from the past few years, and are ready to get back on the bike. However, this does open the door more widely for application fraud activity and risk.     New products and associated solicitations and access channels translate to higher risk as fraud prevention and fraud detection processes may be less robust in the early launch stages and certainly less time-tested.     Human & IT resources are still in short supply. As these new channels open and fraud risk increases, necessary fraud prevention and authentication oriented resources are still overly constrained and often significantly lagging in proportionality behind the recovery-minded marketing minds.     Regulatory pressures continue to equate to higher operational costs, in the form of fraud referral rates, in process engineering and human intervention and activities, not to mention the opportunity costs associated with denial of service to those ‘good’ consumers I just mentioned.     So, hosted services and solutions are where it’s at these days. Our clients want their vendors, including us at Experian, to save their IT resources, deliver quicker to market services, such as fraud models, knowledge based authentication, and other authentication tools, and provide collective capabilities that would otherwise be years away if left to the mercy of their internal development queues.     All products and processes are under review, as you might imagine. Cost control is no longer a back-burner policy and focus. ROI is the key metric these days, and likely above any other. Our clients demand flexible tools that can be deployed in multiple process points and across multiple business units. Blanket policies (including fraud prevention and authentication) are no longer good enough. Our clients’ tailored products, access channels, and market segmentations require the same level of unique design in the products we deliver.    

In the communications industry, effective acquisition is a multi-step process, best begun by asking (and accurately answering) simple, but critical questions: Who are our best prospects? Where can we find them? What should we offer them and how? Of course, the “why” is obvious—beating competitors to the punch. The similarities of today’s increasingly undifferentiated products and services make attracting high-quality customers more critical than ever. On the surface, the “who” seems equally straightforward. But it’s surprising how many communications companies still blanket the nation with ads and offers without knowing whom they want to reach or which messages to lead with. This brings us to the “how” of effective acquisition. Banks get it right Banks provide a good acquisition model. In these days of tight budgets and high expectations, most would never dream of investing in a campaign without first creating a well-defined, data-driven segmentation strategy. To get the results they want, institutions usually establish some credit-score threshold, check past payment history and assess other factors and behaviors, before starting up their marketing machine. Not surprisingly, the rewards for this foresight often include higher response rates, lower costs and greater value per promotional dollar. What’s next? Once you zero in on a fresh crop of qualified prospects the “whats” come next: what’s the best marketing channel? What products or services should we offer? What terms? Again, clean historic data, combined with up-to-date information from surveys and questionnaires can reveal surprising insights into why customers choose your company or offer over your competitors’. In communications, as in banking, reliable data is a proven source for answers to a whole slew of customer-acquisition questions. But does it offer similar value in other phases of customer lifecycle management? And if so, how? Funny you should ask. Because that’s exactly what future posts here will cover, so please check back often.

When we think about fraud prevention, naturally we think about mininizing fraud at application. We want to ensure that the identities used in the application truly belong to the person who applies for credit, and not from some stolen identities. But the reality is that some fraudsters do successfully get through the defense at application. In fact, according to Javelin’s 2011 Identity Fraud Survey Report, 2.5 million accounts were opened fraudulently using stolen identities in 2010, costing lenders and consumers $17 billion. And these numbers do not even include other existing account fraud like account takeover and impersonation (limited misusing of account like credit/debit card and balance transfer, etc.). This type of existing account fraud affected 5.5 million accounts in 2010, costing another $20 billion. So although it may seem like a no brainer, it’s worth emphasizing that we need to continue to detect fraud for new and established accounts. Existing account fraud is unlikely to go away any time soon.  Lending activities have changed significantly in the last couple of years. Origination rate in 2010 is still less than half of the volume in 2008, and booked accounts become riskier. In this type of environment, when regular consumers are having hard time getting new credits, fraudsters are also having hard time getting credit. So naturally they will switch their focus to something more profitable like account takeover. Does your organization have appropriate tools and decisioning strategy to fight against existing account fraud?