Defend revenue in depth - Credit Assessment, Fraud and Credit Management

Summary

Billers lose revenue by selling to customers who don't pay their debts. This outcome can be through customers' lack of financial means, customers who incur debts they have no intention of paying (fraud), or by allowing customers who run into financial difficulties the opportunity to continue their purchasing. At each point in the billing timeline, specialised systems can assess the financial risk posed by a customer and alert billing staff to take action when problems or 'riskiness' appear.

The revenue impact is doubly important for products where the biller incurs a direct external expense with each customer sale. For example, revenue sharing with third parties for digital purchases (e.g. content settlement for song and movie downloads), and inter-network telecom transactions (e.g. interconnect termination settlements for voice calls and SMS).

Credit assessment is performed at the beginning of the billing relationship, fraud management is performed continuously assessing new transaction between customer bills, and credit management is performed at the end of the billing lifecycle defending the payment of the billed transactions.

Credit Assessment

A biller signing up a new service or customer must assess the 'financial risk' the customer represents. Questions such as:

How sure is the biller that the new customer will pay their bills?
Do they have a prior history of bad debt or non-payment (internally at the same biller or noted externally at an agency)?
What products are they seeking to purchase? How quickly can substantial charges be incurred for those products? Are third-party revenue settlements (costs) involved?
What (if any) initial limits should be placed on a service/customer? e.g. deposits, billing frequency, spending limits

In addition, the biller may also credit assess an existing customer if their desired new product or service is expensive and therefore presents an increased financial (revenue) risk.

The assessment can performed using a comparison against the biller's previous experience of similar customers (e.g. demographic similarity, product mix, relationship length), and using external organisations such as credit bureaux and reference agencies. By avoiding or placing spending limits on 'bad risk' customers the biller minimises their exposure to incurred revenue (transactions) that will not be paid by the customer.

Fraud Management

Once customers are established, they will start performing transactions that will be collected and placed on their bill. Fraud management assesses customers that perform transactions with a 'normal' count/volume range will be assessed as having a 'low risk' of fraud. However, customers that perform unusually high transaction volumes, or specific high-risk transactions, will be assessed as having a 'high risk' of fraud, and will be escalated for manual review by the biller's fraud analysts.

Examples of high risk / low risk assessments might be:

a telecom biller may assess a dozen SMS transactions in a day as 'low risk', but one hundred in an hour as 'high risk'
a telecom biller may assess calls to the USA as 'low risk', but calls to the Caribbean as 'high risk'
a content provider may assess up to three movie downloads per day as 'low risk', but greater than six downloads in a day as 'high risk'

The assessment of 'fraud risk' is a spectrum from very low to very high. An assessment model that provides a 'risk score' to the biller enables prioritised review by the biller's fraud analysts. With fraud management being a process of continuous assessment, analysts can focus their attention on the riskiest customers (based on their 'risk score') and know they are most likely to find fraud (where it exists), and confirm acceptable behaviour by other customers deemed 'risky'. The assessment model can gain a better idea of an individual customer's normal behaviour the longer the billing relationship exists, and for this reason new customers are often assessed as higher risk due to their lack of prior history.

If a customer is assessed by fraud analysts as having a 'high risk' of fraud, the biller can suspend further transactions and/or request interim payments for debt (revenue) incurred to-date. If the customer is not performing fraud they can explain their transaction pattern and/or make an interim payment. If the customer is performing fraud, their ability to incur further costs to the biller, such as interconnect payments or revenue sharing, will be stopped.

Examples of detected fraud can be updated back into the fraud assessment model so that examples of similar transaction behaviour can be assessed as risky and escalated earlier for manual review.

Credit Management

Once a customer has 'passed' their credit assessment and established their billing arrangement, they will be billed for the products, access and services they have consumed. Assuming a post-paid billing relationship, the customer must pay each bill's debt, preferably by the due date. In a normal billing relationship this cycle is repeated in an ongoing manner for the duration of the customer's relationship with the biller. This repeating process finalises and formalises the recognition of the revenue.

The biller's risk is that a customer will not pay their incurred debt (bill) either intentionally (fraud) or due to poor or changed financial circumstances. There is also the financial impact of delayed customer payments (debt repayment) that places borrowing costs on the biller until customers eventually pay.

Credit management examines customers over time assessing their 'bad debt risk', and modifies how the customer is reminded of their outstanding debt. Reminders for payment sent to each customer can be adjusted to reward (and forgive) an occasional late payment, and to hasten the 'next steps' for customers who habitually pay late.

The riskiest customers, such as new customers who are yet to pay their first bill, or those that incur high bills and delay their payments, can be assessed and reviewed aggressively, whilst customers who pay on time can have their 'next steps' delayed on the presumption that payment will be received (based on historical payment evidence).

Tags: Fraud, Credit, Risk, Revenue