While we’re all still trying to adjust to the new normal, we’re also trying to plan for the next normal. But with so much disruption and uncertainty, it’s hard to know what the next normal will actually look like. The dynamics of the pandemic have created a unique combination of opportunities and dilemmas for financial institutions: While some business sectors and consumers are thriving, others are struggling to survive
- Behavior has fundamentally shifted as customers change where and how they spend their money
- Fraud and default risk are both increasing, yet many don’t have the insights to adequately prepare
- Margins and profits are squeezed, but the need to invest is elevated
Where to invest?
There are definite patterns emerging. Credit card use is down, and debit card use is up, but that doesn’t mean all your credit cardholders are spending less. It’s critical that you identify and grow those cards still in play, as well as develop specific strategies to engage where card use is down. Analytics gives you the insight to identify separate groups and use targeted strategies for each.
For example, according to a recent Mercator assessment, charge off rates could double in late 2020 and into 2021. Credit analytics can help you manage your way through that better. With chargebacks running high, a key piece of your profitability is at stake and depends on how you manage through that. If you understand what’s going on in your portfolio with the right insights, you may find that a small portion of your cards account for a significant percentage of your charge offs. Furthermore, you may want to analyze spend patterns through a geographical lens. Based on where pandemic cases are expanding or contracting, you may find that spend patterns vary based on how communities, local businesses, and citizens react to pandemic conditions. That insight empowers you to design an appropriate strategy, such as leveraging the account level detail from your analytics to take actions that will mitigate losses and keep these accounts from getting even worse.
Fraud is another area of concern as bad actors take advantage of a vulnerable population shifting to digital channels and ecommerce. Here again insights can not only help you make decisions but improve the quality of those decisions by allowing you a fast way to understand your risk footprint and spot trends in your portfolio.
By drilling down into your data, you can quickly identify and confirm fraud hot spots in your portfolio to see where real-time declines are increasing, the rate of change is occurring over time, and the geographical areas that need attention. By spotting trends in the data, you may discover a cluster of accounts with dramatically higher rates, which can point to strategies to dial it back or cut it off. Maybe issuing new cards for a select group immediately drops those cardholders back into acceptable range. Going into 2021 this is another way to manage loss and drive up net gains on your portfolios.
A one-size-fits-all approach in the near term is certain to maximize your risk. Targeted engagement strategies are critical to your success and survival in this new normal and I suspect in the next normal too. To keep your customers connected and engaged with your brand you’ll need to revisit your engagement strategies, update your marketing and dig deep into your analytics and data tools to build the best experiences to keep your customers loyal.
Seize the moment
This is a moment of decisions. In fact, a monumental moment of decision making. You’re likely facing more consequential decisions right now than you may have ever had to before and information is critical. Good, quality, insightful and relevant information that you can not only use in making data-based decisions, but also information that is actionable in a way to support your decisions.
As you prioritize your needs and where you focus in the coming months, now is an especially important time to evaluate and move forward with your data-driven strategies. FIS can help. In fact we’ve made significant investments into a wide range of data solutions as part of our new Ethos ecosystem, including new Analytics solutions and a common platform for all your data sets. Reach out to talk with one of our sales consultants to learn more and see how we can help.