Private label credit card originators face a challenge. They manage credit card portfolios that must meet overall risk management goals, yet each brand in their portfolio has unique requirements for interfaces and credit risk. Only a few labels generate enough volume to justify purchasing an independent account origination system. As a result, it seems that many underwriting departments either settle for a shared system that addresses the least common denominator or endure significant manual processes that reduce the profitability of their portfolio. There is a better way that will lead to a stronger return on investment (ROI).
What these private label programs need is a more efficient process for handling diverse brand requirements. This would increase profitability by lowering costs. I’ve recently seen increasing interest in credit card origination systems designed to do just this. The idea is actually quite simple. A single loan origination system facilitates every step in the process, automating as many of those steps as possible and making manual underwriting more efficient when it is necessary. The difference is that the system will apply unique attributes to the process depending on the private label brand or co-brand. For example, specific credit risk attributes could reflect different underwriting commitments, alternative data sources might support under-banked markets or VIP programs, and branding should be specific to each partner. A consolidated system provides one more significant benefit; a smaller staff is able to manage all of the accounts and portfolio while still providing a unique experience to the customers of each brand. This further reduces cost and improves efficiency, but also improves customer interactions.
Over the years we’ve seen many private label credit card programs shut down because they fail to provide the expected ROI. In many cases, a more efficient account opening and servicing process would have resulted in a profitable card program. Looking specifically at some of our clients, we are seeing issuers reduce the incremental cost of adding a co-brand card to their underwriting platform by as much as 90% by using a multiple-brand platform. Ongoing savings of reduced IT support and staff training further add to the savings.
Automating the account opening process for credit card underwriting is critical to create a strong ROI. Underwriting processes from the largest issuers to the smallest and from affinity to private label contain a surprising number of inefficient manual processes. In some cases the inefficiencies are large and noticeable, such as printing out applications that require a manual review and completing their underwriting in a fully manual environment. These inefficiencies are typically a side effect of taking an opportunistic approach to automating business processes; that is, automating processes that yield strong ROI, but never stepping back to look at the big picture. Credit card issuers seeking to improve the ROI of their partner platforms should certainly start by looking for these white elephants.
In many instances the inefficiencies are subtle and much harder to identify. The most common subtle inefficiency that we’ve encountered is with underwriting screens that were designed for a different process. The result is that underwriters must switch between multiple screens and sometimes pull data manually from different sources in order to complete the application. While the impact can seem trivial at first glance, it can easily double or triple the time necessary to complete each application. The problem is that few underwriting systems provide a reasonable way to update manual review screens and queues quickly, inexpensively, and without IT support. The ideal system should enable the institution to tailor the review screens to their unique business processes and ensure that underwriters spend no more time than is absolutely necessary to complete each application.
Whether building a platform for private label, co-brand, affinity, or even a corporate branded card, the core requirements to provide a solid ROI remain consistent. Automation must be systemic and effective, manual processes must be efficient and minimize their impact on the automated process, and new products and partners should be easily added at a moderate cost. Certainly implementation of a platform like this will require a more significant upfront investment, but the improved ROI of every new product launch will reward that investment for years to come.