CECL is considered by some to be the most significant change in accounting rules in decades. However, it's much more than that.
The most obvious change is that loan loss reserves must be estimated in a completely new way. Instead of basing ALLL on impaired assets lenders must now estimate losses over the remaining life of their loans. These new estimates must be based on historical experience which means you need data to support your estimates.
The need for data can be viewed two ways. The first is that this imposes new costs on all lenders because they need to collect, structure, analyze and update their data on a regular basis, all with no benefit to operations and financial results. The second is more enlightened. Financial services is becoming more data driven every day. Lenders who do not adapt are destined for the dust bin of the economy. They will be consumed by or simply run over by competitors who rely on data and insights for advantage.
Lenders, large and small, are faced with a choice. All need to develop new CECL based loss forecasts. The choice is between seeing this as a cost or as an opportunity to compete effectively.
CECLNow is here to help you get started with CECL and then begin to exploit the power of your data. Speed your success by working with us to discover more about your customers than you ever imagined and using those insights to create greater value for your customers and you as their provider of choice.
Move Your Strategic Decision-Making to Whole New Level
BUILD VERSUS BUY
Reasons You Should Use CECLNow
QUICK IMPLEMENTATION
The key to getting quick benefits from your CECL implementation is to take your data, structure it to support your analysis, and then perform and document the loss estimate. Creating the workflow might involve trial and error, starts and stops, and competing priorities. This all takes time and money. For a faster, easier process we apply our standardized and well documented approach to build your forecasts.
LOW COST APPROACH
Because we aren't recreating the wheel every time it keeps costs down to both create the forecast process and to repeat it every month. In addition, by partnering with AWS for cloud storage and processing your capital investment is limited and future spending leverages the purchasing power and smarts of Amazon's technology and management. Net, low upfront investment plus cost savings every month.
LEVERAGING YOUR DATA
Lots of data exists at every lender. Data on how you acquired new customers, their demographic and credit profiles, as well as how they've performed. Each piece of data is like a puzzle piece. Our goal is to make that data accessible and useful to you by offering a range of services to understand and leverage all your data easily and cost-effectively.
Increasingly we will see competition based on data. What data you have and how accurate it is. To get accurate forecasts you need as much data as possible to ensure stability of your estimates. That extends to other decisions on targeting, cross-selling, pricing and risk. Pooling data will bring the power of data to smaller players.
We have developed a road map that takes us well beyond developing CECL forecasts to help you leverage your data to get full value from it. We begin with CECL and quickly add on account level profitability, product/program targeting, benchmarking, and full CRM capabilities.
Comparing your performance to your peers helps identify areas of opportunity. This is especially valuable as you begin to understand 'most profitable' segments. Are your best customers as profitable as those of your peers? How can you improve performance of each segment? Answers to these questions can drive your profit growth.
Don't Forget the Opportunity Cost What Else Could Your People Be Doing to Improve Your Business?
Galileo Galilei
"All truths are easy to understand once they are discovered; the point is to discover them."
Driven By Partnerships
Partnerships will be crucial to our ability to deliver quality CECL and added value solutions at a low cost. Each of our partners will be chosen because of the unique skills they bring to the table. For example, we may partner with:
Cloud Provider
Data Storage
Wharton Customer Analytics Initiative
Data Modeling and Analytics
Drexel Finance and Accounting
Accounting
Drexel and Northeastern
Internships
TransUnion
Credit Data
Acxiom
Demographics
Turn CECL Pain Into Insights
Jump Start Your Analytics
Financial Institutions Face 2 Big Hurdles
1) Capturing and Structuring Data 2) Finding and Managing Analysts
Data and analytics can boost your returns significantly. Customer insights will dramatically improve your understanding of what's working and what's not in your strategies and tactics. The best part is that you can do it at a modest cost.
Here are some ways you can leverage your data:
TARGETING
Knowing who your best customers are is a first step to understanding the types of customers you want to go after. Finding more of the right types of customers can reshape your business.
Your customers match a certain profile. Are there 'missing customers' who might be highly profitable? Are your risk and pricing policies excluding some segments? Learning more could mean a ton to strategies and earnings.
Evaluating how customers use your current products, especially compared to those of your peers, can help identify product gaps that can boost profitability.
All customers are not created equal. Yet we tend to treat them that way. Knowing which customers generate the bulk of your profits and deserve keeping versus those who only lose money can be a game changer.
Do you know what customers are calling about? Have you addressed the most common issues to drive down costs? And how productive are your service operations compared to industry peers?
What types of accounts do you collect most effectively? Should strategies, tactics or training be changed to address any weaknesses? Or should work be out-sourced to third parties? Appropriate choices can improve results.
We'll help your marketing in 2 ways. First, the characteristics of your customers and what products they match to will help you understand what type of customers your products appeal to. You can continue to tap this vein of customers or develop new products that will appeal to other segments. Second, analysis of your performance data will reveal the types of customers you'll want to go after and those you might want to avoid. Apply this insight to future marketing programs will definitely boost their profitability.
Identify Missed Opportunities
As you analyze your portfolio and its performance you will identify groups of accounts that are very attractive. Sometimes it's easy to see what's there. But it's also important to see what's not there that may be equally attractive.
The benchmarking component of CECLNow will help identify white space that others are not competing in. Tied to delinquency, loss, and profit information that shows how well subsets of customers are performing you can begin to imagine how to grow your business.
Develop New Products
Profiling customers at application helps to determine the personas of who your potential customer are. And by default, who they are not.
You can compare these personas to those of your other customers. Once you identify the gaps you can determine the nature of the differences and hypothesize what type of product features will appeal to them. You're on your way to a new product!
Risk Based Pricing
You should review how accounts are priced for each product. Are all customers priced the same regardless of risk?
Reviewing actual performance will identify segments with high write-off rates. How likely is it these segments are profitable? Simply looking at expected net interest margin less write-offs to quantify the size of unprofitable segments. Depending on the size of the deficit you can determine if a price increase would cover the high risk. If not, it's time to think about changing underwriting policies.
Enhanced Risk Management
One of the primary benefits of the presentation/drill down tool is that you can quickly identify high risk segments. You can get quite detailed in your analysis provided you've captured profile data at application and/or periodically thereafter.
You can use a range of metrics based on delinquency or loss rates and on a unit or dollar basis. This flexibility ensures that you can make the right decisions based on a complete understanding of the situation.
Another consideration is how many accounts you have in a given segment. Taking action based on a few write-offs can hurt your business if it's not part of a clear pattern. Comparing your results to benchmarks provides greater certainty.
Higher Customer Retention
Tracking customer attrition and improving customer retention can have significant benefits for your business.
The primary benefit of improving customer retention is that your revenues will be higher. This goes without saying. The positive net interest earned falls directly to the bottom line. It's almost always better -- meaning more cost effective -- to keep an existing customer than it is to acquire a new one.
Boosting customer retention also improves risk management results. More good accounts are part of the denominator in calculating loss rates. The bigger the denominator, the lower the loss rate. Plus this will also improve your ratio of CECL reserves to total balances.
Better Cross-Sell Rates
In addition to better retention, doing more for your existing customers by cross selling them additional products can be a high value activity.
An add-on benefit of CECLNow is that you'll be able to capture the results of your cross-selling efforts along with your other data. We will be able to link the results to your customer profile data to develop custom models. You could use these models to conduct more cost-effective cross-sell programs in the future, lowering your new customer acquisition cost.
More Efficient Customer Service
In addition to your customer application and performance data you can also load the detail of your customer service interactions.
CECLNow can provide add-on services to evaluate your customer service operations. This will include trend performance and comparisons to peer benchmarks that will allow you to identify any unusual contact patterns.
You can also identify customers who are calling frequently. You may be able to eliminate some future calls by preemptively educating these customers. You may also be able to determine which customer service reps are most (and least) effective in resolving issues on the first call. This could determine coaching and training needs.
More Effective Collections
Similar to customer service you could also capture collections contacts for later analysis. The analysis might include basic reporting on factors like cure rates by collector.
The analysis could supplement current internal reports or simply streamline existing reports to ease the burden on staff. Providing feedback to collectors on their performance can be a lasting benefit.
Transitioning to CECL will be a journey given the substantial change required in data, process, governance, and documentation. Will you sink or swim?
The change won't be easy for anyone. We are here to provide our accounting, data, and analytics expertise to make sure the journey is short and certain, achieved at a low cost, and delivering new insights into your businesses to improve long-term performance.
Benchmark Your Performance
How Well Are You and Your Accounts Performing Compared to the Competition? Get Smarter to Find Opportunities
Leverage CECL and Compete Effectively on Analytics
Ready for Action?
Meet all your CECL and regulatory compliance requirements and start down the road to gain insights into your business, improve strategies and tactics, and boost overall profits by contacting us now.
