Many FICO clients are seeing benefits from customer-level decisioning. But some of the impacts are a bit tricky to quantify. One of these is the so-called “halo effect.”

It’s intuitive that customers who have a good experience with one type of account are likely to be more receptive to offers to extend the relationship into other types of accounts. “My bank is doing a good job with A, so they'll probably do a good job with B.” When this broader relationship is established and nurtured, customers tend to behave more profitably across all their accounts than customers with only a single account.

The halo effect also works in reverse. Customers angry at being charged fees on their debit accounts, for example, may transfer a negative view of the bank's performance to other existing or potential future account relationships. Even if a customer closes just one account and looks for an alternative provider, the opportunity is now there for that competitor to develop a halo effect of its own. They might do such a good job that the customer begins to look to them for other financial needs.

Preventing this kind of erosion in customer relationships is a key reason many banks today are working to improve management of and expand transactions in their current accounts / demand deposit accounts. The more advanced the use of these accounts for inter-account transfers, as well as for automatic payments, point-of-sale purchases and other transactions, the more challenging it becomes for customers to migrate to another financial provider. Strong performance in this area, therefore, creates "sticky" relationships that yield longer-term loyalty and encourage cross-sales.

In a week where FICO has published its interactive fraud map showing how European card fraud has changed over the last 5 years, and reflected on the considerable reductions across the UK card fraud market, there was a cautionary tale issued by the mass media. The Guardian has published an article about how UK banks are getting tougher on card fraud consumer victims: “Now banks are trying to pin the blame for card fraud on you.”

As I reflected upon in this blog almost 2 years ago, there remains an “ambient” level of fraud caused by fraud migration and mutation. Banks are now often grappling with an increasing frequency of identity theft, first-party fraud and “friendly fraud” (the latter where credentials are shared maliciously). Trying to distinguish these types of fraud attacks from the otherwise innocent consumer victim is often incredibly difficult.

Is it any wonder, therefore, that the banks and even the Ombudsman may increasingly conclude that card and PIN use denied by a consumer must have its origins in either neglect of the payment token, such as sharing a card, or disclosure of the verification credentials, such as writing down or disclosing one’s PIN? Otherwise how else could the fraud occur? Unfortunately, there are times when an innocent consumer may find themselves subject to apparent neglect/disclosure fraud.

This serves as a strong reminder for consumers to be vigilant and to treat their cards and personal access details “like cash.” Anything less may lead to an unwelcome conclusion by one’s bank in the event of unauthorised use.

This cautionary tale is also an excellent example of why banks must continue to adopt and maintain anti-fraud defences in spite of chip and PIN successes. Anomalous or irregular access, spending or withdrawals can be spotted and distinguished from genuine consumer activity, and verification contact made to the consumer, before a fraudster has the chance to perform runaway spending or plunder available credits.

My fellow blogger Rita Chakravarti recently noted that customer centricity has become a central theme in her conversations with banking professionals. I’ll add that most financial institutions are tackling this in stages. We’re seeing them move toward full customer-level management capabilities gradually, and reap profit gains at each stage for each product line.

Here’s an example. I’ve been working with an Australian bank committed to putting the customer “at the center of every decision.” The bank began by implementing a policy that required all account-level strategies to be evaluated with customer-level data and scores, even if only as a knockout rule.

The bank then advanced to customer-level scoring. Traditionally it had calculated account-level risk scores in isolation then rolled them into a cumulative customer-level score. But this resulted in sub-optimal identification of risk, as influencing product relationships (cards, deposit accounts, insurance, investment/pension holdings) were not being taken into account. Also, multiple good/bad definitions created complexity and structural weaknesses in decision processes.

By integrating its models and scorecards, the bank is now able to generate a streamlined customer risk score, which it is incorporating, along with other customer-level analytics and data, into action-oriented segmentation aimed at expanding customer relationships.

For the time being, the bank is creating decision strategies that match offers and other treatments to customer segments at the account level. A credit card line increase strategy, for example, was optimized to maximize both offer response and profitable utilization. The ability to run multiple scenarios by varying constraints also helped the bank adapt to the country's changing regulatory environment.

The holy grail, of course, is for banks to use customer-level data in customer-level analytics for decisions implemented at the customer level. Most aren't there yet—but it’s on the horizon.

We've just announced a call for entries in the second FICO Decision Management Awards. The awards honor FICO clients that have achieved outstanding results from their use of analytics and decision management technology to grow their businesses, manage risk and reduce costs.

Nominations are due August 1, 2012, and winners will be announced October 1. If you'd like to enter a nomination or get more information, visit www.fico.com/dmawards.

This year, awards will be presented in four categories: credit risk management, fraud control,  insurance claims management and analytic innovation. Winners will receive recognition at FICO’s annual conference, FICO™ World, which will be held in Miami from April 30-May 3, 2013. Winning implementations will be featured in conference activities, and two representatives of the winning company will receive complimentary conference passes. In addition, a $1,000 contribution will be made to the charitable organization of each winner’s choice.

An independent panel of judges will evaluate nominations based upon measureable improvement in key metrics; demonstrated use of best practices; project scale, depth and breadth; and innovative uses of technology. This year’s judges include Douglas Blakey, editor of Retail Banker International; Karen Pauli, a research director at CEB TowerGroup; James Taylor, CEO of Decision Management Solutions; and Dan Vesset, program vice president of IDC's Business Analytics research.

Winners of the first FICO Decision Management Awards were China’s Bank of Communications (credit risk management), Highmark (insurance claims management) and Lloyds Banking Group (fraud control).