Customer Acquistion-Using Process and Compliance to Drive Revenue

Customer Information Programs, also known as CIP, were originally part of the USA PATRIOT ACT and were enacted after 9-11-2001 as a response to accounts set up by terrorists. Those accounts allowed several terrorists to gain access to bank accounts and financial vehicles to fund the 9-11 terror attacks. The initial regulations were implemented in October of 2003. Now, more than a decade after the introduction of CIP, we are finally starting to see a shift in the attitudes and role of CIP in the overall acquisition process. All I can say is, it's about time!

Too long, especially in the prepaid and non-traditional space, the attitude was that this process was a “barrier” to customer acquisition.  Our only focus seemed to be "what is our acquisition rate?"  Unfortunately, such a narrow focus on preventing the slowing of acquisition can limit our attention on the true opportunities and risks in the onboarding of customers.  For any business, acquisition can be a costly proposition with systems, risk assessment and verification, and manual processes eating up a large chunk of revenue.  Prices that approach $1 each or more seem like they put an extraordinary burden on the organization.

This perceived “burden,” however, pales in comparison to what the costs could be. Consider, if you will, the cost of NOT verifying and performing any risk mitigation on new customers being acquired. By calculating the cost of loss from bad customers, as well as the manual process that occurs to investigate unusual or suspicious behavior, the cost can easily reach as much as $6 per customer.  By understanding what fraud and risk looks like for your organization, you can also compare and contrast these risks with the dynamics of good customers.

Most recently, regulators have shifted their focus to creating a better understanding of risk from the acquisition point through the life cycle of the customer. So, for financial services, this is a necessary part of the process.  However, for non-bank businesses, there are opportunities in identifying customer risk.  Risky customers are, hopefully, less than a 5% slice of the population trying to get in the door.  That leaves 95% potential opportunity.  What if we mined the attributes that make up our best customers?  Could you provide a white glove service for the segment of high potential customers identified at the beginning of the relationship?  How would that impact your long term relationship with that customer? We could drive a lot of potential value from identifying and prioritizing our customer segments as they enter the business.  By applying the data and understanding the potential, we can minimize the impacts of the risky behavior and customers.  One of the philosophies that I have always brought to the table is that, for each dollar we spend on the front end, we can save $5 on the back end.  By understanding the details of the customer on the front end, we can realize significant returns and benefits in understanding the customer. That, in my opinion, is a worthy endeavor for any business.