|
The growth of e-commerce is phenomenal. Predicted figures of growth are set to
escalate, especially as the new e-commerce bill creates a solid legal platform
for transactions taking place on the net, providing a security buffer for
on-line traders.
The introduction and growth of e-commerce coupled with the introduction of
greater competition and genuine market globalisation mean that change is
inevitable and no business can afford to be complacent about the impact of
e-commerce.
The virtual commerce world is fast becoming a reality and in less than five
years, it is estimated that nearly 70 percent of large business transactions
will be conducted and signed-off over the Internet.
The steady stream of companies that are launching virtual stores, branches and
new Internet arms each month supports this statement.
For example, in retail banking Prudential launched EGG, a new Internet bank,
followed rapidly by the Co-operative Bank with Smile.com and HFC with Marbles.
Banking transactions, weekly shopping, even buying a car and
business-to-business transactions are now taking place on-line.
Numerous new products, goods and services are set to become available as
companies are pushed either by consumer demand or the realisation of the huge
financial benefits offered in the virtual world.
The benefits of e-commerce
One of the top five industry users of e-commerce is the financial market and
many of the benefits being realised by this sector mirror those for all
industries and market sectors. These benefits are:
Direct customer contact / direct marketing
On-line banking presents the best opportunities to reach potentially the most
valuable customers and cross-sell products and services.
Lower set up costs
To set up an Internet bank that will attract customers from around the world it
costs approximately £1.6 million, the same price as one high street branch.
Reduced running costs
Lower overheads and direct contact with a customer cuts down the cost of on-line
transactions. For example, the running cost of an Internet bank is lower as the
cost of a transaction on-line is approximately 7.5 pence compared to 67.5 pence
in a branch.
A potentially huge new market
The potential source of revenue available from a global market is huge. For
example, the Butler Group predicts that by 2005 two billion people will be on
the Internet, representing 90 percent of the population’s buying power.
Driving down costs, improving sales volume and entering new markets are key
attractions which will continue to drive the growth of e-commerce.
The challenges
To reap the benefits of e-commerce there are a few challenges which
organisations will have to face.
Speed
First, the window of opportunity to sell products and services is when a
customer is on-line, therefore service will have to be rapid and
decision-support systems will need to cope with this demand.
Recent studies by psychologists and marketing experts have revealed that on-line
shopping has resulted in a different breed of much more knowledgeable, demanding
consumer, that wants information and wants it quickly!
These reports reveal that e-commerce is going to create a very different
playground than traders are currently used to one that demands an extremely
customer focused strategy.
Therefore, systems need to be in place to help provide the rapid, real-time
decision, expected by the new more demanding customers.
Competition
Secondly, the global market increases competition, as competitors from around
the world are now just a few keyboard taps away.
In addition, new competition will come from a host of new e-companies that are
emerging due to the cheap set up costs. These will challenge the market position
and values of the traditional high street names for example, Amazon.com and
first-e.
Competitive pressure will be increased by the introduction of more trading
portals, in which the demand for a faster reaction and quicker service will
become paramount to an organisation’s success.
Retention
Lastly, it is important to retain a customer on a website.
Companies are realising this is successfully achieved by involving a high degree
of personalisation.
Ultimately this means a web-site should tailor itself to the customer,
instinctively directing and presenting the customer with the goods and services
which would appeal to them, resulting in an on-line customer actually browsing
and revisiting this site.
This will mean that companies will employ a modelling procedure that is capable
of rapidly profiling a customer to determine the products or services that match
their profile.
Essentially, these factors highlight that on-line shoppers have more choice,
access to more information and, more importantly, that they can hop between
competitive websites with little inconvenience or cost.
It is perhaps this last fact that is the most important to all on-line traders,
whether it is a bank, retailer or a travel agent. It highlights, that when
someone visits your site you have to react quickly, providing real-time
decisions, answering enquiries and making the most of this window of opportunity
to cross-sell or up-sell products.
Risk management
The greatest impact created by all of these challenges will be in credit risk
and fraud management.
Credit risk and fraud managers need the support tools available to them that
will allow them to make instantaneous decisions to grant credit or provide
products or services to unknown parties across international borders.
The luxury of static scorecards to aid decision-making is rapidly becoming
outdated as they make way for real-time, adaptive solutions which respond to the
ever-changing demographics of a global customer portfolio.
This global customer portfolio means that clients will differ from day-to-day
and the demand for decision-support that offers credit scoring covering world
sectors will far outstrip the capabilities of existing systems.
E-commerce demands the ability to produce scoring models that cover various
cultural as well as geographical boundaries by, initially, utilising very
limited volumes of historical data.
It is also likely that the small amount of data available will be liberally
peppered with noise and missing data, all of which will make the records harder
to model accurately.
For credit scoring solutions to be effective, numerous models will be required
to cover country sectors as diverse as China and the United Kingdom — the list
is endless.
In addition, the models and modelling tools utilised need to be capable of
adapting to the changing socio-demographics of vastly differing social and
cultural environ-ments, and constant re-analysis of data is a must to ensure
models are up-to-date and adapt to the world’s evolving markets.
The demands forced upon scoring models by e-commerce far outweigh the current
capabilities of traditional scorecards.
Therefore, companies need to look at employing an alternative scoring service
that can cope with demands set by on-line trading, in order to gain the optimum
benefits that e-commerce offers.
Modelling systems
Modelling systems will need to:
1. Provide organisations with real-time, accurate decision-support on-line.
2. Enable the credit granter to accurately score/profile a customer rapidly and
cost-effectively.
3. Offer an automated means of creating advanced, accurate and robust scoring
models in-house allowing for rapid monitoring and updating.
4. Enable the credit risk manager to be involved in the on-going development of
scorecards.
5. Be easy-to-use, functional, and not require an IT degree to operate.
6. Enhance an organisation’s customer services reputation by providing timely
and accurate decisions.
Credit risk and fraud managers are looking to combine traditional statistical
techniques with advanced technology such as neural computing and advanced
modelling that can understand the high number of multifaceted, non-linear
interactions that exist among data variables.
Rather than allocating a fixed score for a fixed variable, advanced credit
scoring solutions are providing insight into the often complex,
inter-relationship between variables hidden deep with data to consider the
individual applicant.
It is undeniable that e-commerce offers a wealth of opportunity for
organisations. It is also undeniable that it is going to reshape the way we
conduct business.
E-commerce is swiftly changing from a position as an extravagant application
used by a select few, to a convenient, basic necessity craved by the growing
horde of Internet users.
Current trends and surveys clearly indicate that the Internet is driving the
growth and diversification of all markets at an astonishing rate.
On-line clients will expect to receive a variety of services and instantaneous
decisions and mastering this revolution in the competitive landscape makes the
Internet and associated developments a major CEO-level issue.
Strategically, traders must reassess opportunities for adding value in the open
environment to defend their positions and compete on the basis of superior
capabilities.
Change is inevitable and most are only just beginning to understand the demands
on-line trading will make on credit scoring and how they will need to adapt to
meet the necessary changes of evolving credit decision-support solutions.
Nick Ryman-Tubb is
CEO at Neural Technologies Limited
Source:
Credit Control Journal
|
