2004 C.I.P.A. Winners

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RBC Financial Group

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A client-centred solution helps reduce credit losses while growing revenue.

RBC Financial Group is a leading North American financial services organization, pre-eminent in Canada, with specialized global businesses in those areas where they have a strong competitive position. Its new Client Centric Risk Assessment and Credit Granting System transforms the way the company approves credit and manages collections. The solution generates an individual risk profile for each of RBC’s 11.5 million customers – making RBC the only financial institution in North America able to determine the credit risk of each customer based on their entire relationship with RBC.

Challenge

Lending money is a key part of any bank’s business. But there are risks as well as opportunities. There’s the risk of lending money to the wrong person. There’s the equally important risk of turning away potentially good clients who may not fit the profile of the ideal borrower.

How do you tell the difference? RBC Financial Group has been using automated tools for credit risk decisions for approximately 10 years. But like the rest of the industry, up until 2002 the company’s approach was product-based. Clients applied for specific credit products and credit staff used specific product scorecards to evaluate their applications. These scorecards did not consider the individual’s total relationship with the company. As a result, RBC was sometimes declining good customers – and losing their business to competitors.

RBC knew it could do better. But it would need added customer insight and new risk assessment capabilities to get a true picture of a client’s credit risk.

Objectives

RBC set out to build a new client-centric risk assessment system that would:

• Increase the company’s automated risk decision capabilities, while building on the strengths of its existing risk management framework;

• Streamline and reduce the number of credit collection processes; and

• Provide better service to RBC clients, driving improved customer satisfaction.

• Its fundamental goal: to reduce credit losses while improving customer service and profitably growing its lending business.

Solution

Launched in December, 2002, the new Client Centric Risk Assessment and Credit Granting System generates an individual risk profile for each of RBC’s 11.5 million customers by interfacing with the company’s enterprise data warehouse, CRM, sales desktop and lifecycle credit systems. The solution features:

1. A core management information system, including a scored portfolio data mart, to streamline information access, reports and key performance measures.
2. State-of-the-art management software that facilitates implementation and management of automated risk strategies.
3. A Customer Risk Index that enables RBC to harness customer behaviour data.

RBC partnered with Experian UK throughout this project. In addition to developing the Scoring Engine Software, Experian UK helped RBC identify its key predictive factors, design custom scoring models, and identify best practice lending and collection strategies in order to better manage RBC’s Personal and Small Business loan portfolio.

Innovative Use of Technology

With its new Client Centric Risk Assessment and Credit Granting System, RBC no longer relies on product-based scores. It creates a single customer risk score which provides significantly higher predictive power and aligns with RBC’s customer relationship management capabilities. As a result, the company not only can make better lending decisions; it can better understand each individual customer. Clients who may have been turned down for loans in the past based solely on RBC’s product scorecard, now have a greater chance of being approved. Yet, the company has still been able to reduce its lending losses.

The benefits are clear:

• A forecasted $180 million reduction in loan loss provision for credit losses or revenue growth over 5 years,

• An estimated 8% increase in credit product sales and other revenue generating opportunities,

• Increased market share of mortgage, deposit and personal credit products in Canada,

• Greater client retention.

The company also used client-centric risk measurements to improve a number of its processes related to collection and debt control. The number of processes used for credit collection has since dropped from 96 to seven.

Today, RBC is one of only a few financial institutions in North America able to determine the credit risk of each of its customers based on their entire relationship with the company. Meanwhile, most of its competitors are still dependent on calculating risk on a per-product basis.

"The powerful synergy between RBC Financial Group’s retail banking strategy and the technology that supports it gives our company a distinct competitive advantage," says David McKay, Senior Vice President, Financing Products. "It also plays a key role in helping us maintain highly personalized, one-on-one relationships with 11.5 million people."

A 2004 CIPA Winner!

For its exceptional and innovative application of Information Technology to solve real-world business problems and bring greater benefit to all its stakeholders, RBC Financial Group was awarded a 2004 Canadian Information Productivity Award of Excellence in the Organizational Transformation category.

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