My previous post https://www.finextra.com/blogposting/12517/beware-the-financial-crime-bite-of-the-back-book talked about the dangers lurking in a firm’s back book of existing customers and how to find and address them. A key part of this exercise is to understand the data that describes a customer, and hence understand whether they are a risk, an opportunity or in need of remediation.

The activity level of a customer, be that in terms of transactions or changes to their records, is an important input to our analysis, and there will be customers who are more active than others. So as hinted in the title of this post, we will look at some quasi customer states that may look the same in terms of low levels of activity, but require very different handling and assignment. For example, the person deciding what action to take for a quiet customer will often bias the outcome:

• Marketers will often see an opportunity to retain/rekindle a quiet customer for revenue
• Operations will see an opportunity to cut out processing for cost and time saving
• Risk/compliance may see the change in activity pattern as a red flag to be investigated to reduce risk

This presents a mix of challenges and risks depending on the customer’s circumstances. So how do we define the different types and how do we identify them sufficiently to assign the right department to follow up? Whilst not the complete range of options, we will concentrate on the three main states of dormant, deceased and gone away.

Dormant is a state where there have been no material economic transactions, remembering to exclude automatic transactions such as annual interest payments or non-transaction account fees, for a significant time as defined by the institutions policy. Once this occurs for all accounts, the customer will be marked as dormant and require a special process, potentially with a reconfirmation of KYC, to revive it to normal active state. Whilst this may limit the AML risk, if an individual or company becomes sanctioned it does not matter to the authorities whether the customer is dormant or not.

Deceased is simple in concept, but as with so many things related to customer data can be complex in practice. So much depends on other people or institutions passing on information. Handling of the customer’s accounts in the same way as dormancy will potentially complicate an already complex and delicate situation. Also if activity does restart on the deceased persons account, as happens more often than you might expect, there is a clear and urgent need to investigate further.

Gone away typically means that the customer is no longer in contact with the bank or financial institution. For example, the customer may have moved, but not told them of the new address. This may simply have been forgetfulness, likely in the case of a low or nil balance, or deliberate – say in the case of an account in overdraft. Initially the customer may simply look dormant and unresponsive until other indicators such as returned mail are identified and linked with this customer. As more and more statements or other regular communications move to paperless processes this returned mail trigger is less likely to occur before a customer moves to dormancy. Customers who are marked as gone aways raise financial crime issues – the need to rerun and prove parts of the KYC process including the new address without access to the old address - and operational problems as reissue of lost statements, collection of debts etc.

So what is required is sufficient data of sufficient quality to identify the state of the quiet customer. It is then a matter of balancing the demands of the different business actors involved so as to enable the cost, risk and potential for revenue to be managed in line with an institutions appetite. To get this data may well be a problem as the internal data held may be stale for a quiet customer so other sources are required.

External data can be a useful aid to differentiating which state a customer is in, and hence which action or mix of actions is preferred. For example, in the UK there are services for identifying gone aways and various feeds of information on deceased individuals. However, as with all external data, it is important to ensure the correct quality feed (or feeds) and knowledge of how it should be matched against each other and against the base customer record. With a feed like this combining data from multiple sources, it is important to understand the construction of the feed, it's detailed quality challenges and whether it can be used for the specific purpose. There has been more than one example of overzealous application of the deceased feed information to switch off bank accounts by simply matching initial, surname and address. Both financial firm and data provider have potential incentives to suppress as many customer records as possible for cost and revenue reasons respectively. However, this does not help when having the “challenging” conversation in person at a branch telling the son of a recently deceased person that his account has also been terminated – the outcome typically does not go well for the bank.