Under normal circumstances, economists and financial forecasters are divided into bulls and bears – those who have a positive outlook, and those who fear the worst. In the current climate, you won’t find many bulls. As the world attempts to get the COVID-19 crisis under control, the high streets are empty of shoppers, factories have slowed or suspended production, and millions of people have been furloughed or made redundant. The estimates vary, but most experts are predicting a long and bitter recession.
The telecommunications sector is one of a set of industries where these gloomy predictions should set alarm bells ringing. Like banks, utilities and many retailers, telcos gain a large proportion of their revenue from extending credit to their customers and receiving payment later. As a result, they are exposed to credit risk: If their customers cannot pay for the services they have used, the provider must bear the loss.
Economic downturns almost inevitably increase the levels of bad debt that a telco has to deal with. Customers who were perfectly solvent when they first signed up to a phone or broadband contract suddenly find their finances slip out of their control. And if they have to choose between buying food and paying rent or settling their phone bill, it’s only natural that they will make the pragmatic choice.
Throwing customers a lifeline
However, while there’s nothing telcos can do to prevent a recession from happening, there are still steps that they can take to help their customers get through this difficult situation and avoid sinking deeper into arrears. If you can read the signs that customers are starting to struggle – for example, they might be cancelling direct debits to cut down their outgoings – then you can potentially intervene by reaching out to offer them a new payment plan or a different contract.
Of course, your ability to make these interventions depends on your ability to recognise the warning signs – and that’s not possible with a traditional approach to credit risk management. If the only time you run a credit analysis on your customers is just before they sign their first contracts, then you won’t have any visibility into how their creditworthiness is changing over time.
That’s where intelligent decisioning can help. Instead of treating credit risk analytics as a static checkpoint that customers have to pass, you can build a platform that makes it possible to run risk regular analyses on your clients as a normal part of business. By automating the credit scoring process and combining it with other analytical models, you can gain daily insight not only into customer creditworthiness but also across a range of other key metrics and performance indicators, such as customer lifetime value and propensity to churn.
At SAS, we’ve been working with telco clients around the world to enhance credit and collections processes. You can read more about what we’ve learned in our newly published use-case analysis “Optimising credit risk management in post-paid markets."Transforming credit risk analysis from a static checkpoint to a regular analysis can help organisations support their vulnerable customers while avoiding bad debt. Click To Tweet
Moreover, intelligent decisioning can help you solve many other telco industry problems too. If you’d like to learn more, check out the other two blog posts in this series, where I discuss the benefits of intelligent decisioning for digital customer experience and network management.