Gavin: Hi and good afternoon, everybody. It's Gavin Westmoreland here. I'm the Head of General Life Insurance at Barclays Corporate Bank and I'd like to welcome you all to the first in what we hope will be a long series of calls that we're running under the banner of Evolving Insurance.
Those of you who are already Barclays clients will hopefully have heard us talking for some time around evolving insurance. In summary, it's our customer-focused approach to banking the sector. We recognize that the sector is changing. The insurance industry is changing quickly and customer expectations are evolving and adapting. We, at Barclays, want to partner with you, our clients, to help you meet and exceed those expectations in order to drive your own businesses forward and to that end, we hope that you'll find these calls to be helpful in terms of giving you some topics of interest and development within the sector to think about and obviously we hope to be able to follow up with many of you on a one-on-one basis afterwards.
I'll hand over to Matt who can give you a little bit more of an introduction to the topic we'll be talking about today.
Matt: Thanks, Gavin. So my name is Matthew Paul and I work Business Payment Solutions and have been supporting the evolving insurance piece of work, as Gavin mentioned. Once again, we'd just like to thank everybody for dialing in today. Really appreciate your time and hopefully you'll find the session useful. I think one of the most exciting pieces or one of the most exciting things around the evolving insurance piece of work is the collaboration across the Barclays group and some of the unique assets that we have. And today, my colleague, Deanne Mott from Barclaycard Payment Solutions, will cover the work we're doing with a number of our merchants on payment acceptance optimization which is supported by issuing data that we see from our debit and credit issuing businesses which we -- which we believe kind of provides a really unique insight and is of really benefit to our merchants. So without further ado, I will hand over to Deanne.
Deanne: Good afternoon, everybody. Again, thank you for joining this session. So my name is Deanne Mott from the payment optimization team. I'm a consultant within that team and as part of my role, what we do is we look at how we can optimize acceptance rates for our customers. There will be a certain number of transactions that you process that will be declined.
A certain amount of those will be what we call "hard declines," so ones that you wouldn't want going through, but there are some that we would deem as "soft declines." So there might be something that we can do working with you individually to increase those acceptance rates for you. So the purpose of this session is just really to go through what we've looked at in terms of the insurance sector, how we feel we can support you going forward and what we can do with you on an individual basis.
So I guess initially what we do is we offer a consultancy service optimizing payments for you and we do that by leveraging our unique position as an acquirer, but also as a card issuer. So we work with our colleagues across the bank looking at our issuing data as well as our acquiring data to identify any areas where we can improve acceptance rates for you. We produce benchmarking reports which benchmarks you against your peers and also benchmarks us against other acquirers to see where we stand within the industry.
What we're there for is to enable businesses to maximize revenue, but minimize losses at the same time. What we don't want to do is to allow transactions through, but at the back-end you see an increase in charge-backs or fraud happening. So we want to make sure we're allowing the correct type of transactions to come through for your business.
Just at a high-level, industry insight shows us that there are a high volume of what we call ECI 7 transactions. That's non-secure e-commerce transactions and these are going to be impacted by PSD2 and strong customer authentication will also come in in September. (I know) Gavin alluded to a future webinar that will cover that for you.
What we're also seeing is around 15% of all declines for insurance companies potentially due to out-of-date card details held on file and there are areas there that we can help you with in terms of ensuring that card details are up-to-date before you attempt to authorize and debit those cards. And we see around 19% of all declines within the business are due to low funds.
So things that we can look at in terms of accepting or improving acceptance for you are things like the account updater service. That allows you to update card details before attempting authorization. The use of things like enhanced decline codes. So this gives you a wider transparency in terms of the type of declines you're seeing so that you can react in the appropriate way when you see those declines.
So if you see a decline that is for low funds, for example, you might try that later on in the day knowing that funds might be available later on or later on in the week. So it allows you to apply a certain amount of logic to how you retry those transactions going forward. And then also we can offer things like acquire exemptions for strong customer authentication and the impact that PSD2 might give you. So as I said, what we do is we do produce reporting. We look at benchmarking reporting and what we do with that is we look at you individually as an insurance company and benchmark you against all other insurance that we have and acquire for on our books.
This is just the industry report. So this just gives you an idea of the sort of things that we can do. As an industry, we see the average decline rate is 7.57% and we'll have some customers that are below that line and some customers that are above that line just purely by the way that they're processing transactions, the way in which they do them, the timings in which they process those transactions, etc and we can share that insight with you.
We look at declines at different parameters and do deep dives into those parameters and as I say, we do industry level analysis, so where you are against your peers at an industry level. So this graph just shows you different pricing points to (0.25, 25, 50) going up and what declines we're seeing at an industry level for each of those pricing points.
What we also look at is issuer analysis. So we look at the issuers that you are seeing as a business, identify issuers that have low acceptance rates and what we can do is deep dive into those issuers to understand why they might not accept as many transactions as some of the other issuers as an example.
So we have found that certain issuers, it might be just a profile of their customers that they are more likely to get low funds declines than other issuers as an example or it could be that some issuers don't allow transactions to be processed on an online basis or in a recurring transaction basis. So again, we can work with those issuers to understand the reasoning behind their declines and improve that for you.
What we can also do is look at the channels that we're seeing transactions coming in on. This is quite key for identifying any areas that are going to be impacted by PSD2 going forward or any areas where we believe traffic might move to. So the green line that you see there is the ECI 7s, or the non-secure transactions that we're seeing across the whole of the industry. That's showing the volume of transactions that we're seeing and the decline rate there which is the grey diamond that you can see on that graph sitting at 5.6%.
Now, that portion of traffic is going to be impacted post-September and we can work with our insurance customers to alleviate that impact. What we also anticipate is we will see that some people will move to mail order channel, particularly the fraudsters who want to use the channel of least resistance. So again, that's another area in which we're monitoring to see what the impact is post-September for our customers.
The box at the bottom (and the) yellow line, that shows the recurring transactions that we see within the industry. Those are the regular payments that we see across the insurance industry on a monthly basis where people are paying premiums and you can see there that the decline rate there does stick out as being higher than the other channels and I'll go into the reasoning behind that later on.
What we have looked at as well, particularly for the insurance sectors, we do know that you do batch authorizations. So where you're doing recurring and you debit customers on a monthly or weekly or yearly basis, that you might push all your authorizations through in a batch file at a certain time of the day. So we've done our own analysis across acquiring and issuing and across the bank in terms of looking at (fax) data for salaries coming in and things like that to identify the best time for acceptance rates if you're pushing a batch authorization file through.
And what we've identified is the key time for acceptance rates is around 10:30 in the morning. It's normally the end or the beginning of a month. Obviously that coincides when people are generally paid and the best day of the week is a Friday. So again, we've had some success with some of our insurance customers in moving the batch timings and then seeing an increase in acceptance rates just purely by moving that batch by a few hours. So again, that's something we can work with our customers on.
We also look at decline reason codes. So to split it down even further, see exactly what the reasons are behind the declines. The majority of declines do sit in what we call "do not honor" (pot). So various issuers who do put a lot of their transaction through as do not honor. That isn't transparent. There's no way of knowing the true reason behind that, but where issues do (flow) the different reasons, then we can identify those and share them with you.
You can see the second highest there is low funds and again, by moving things like the batch authorization file, you might find improvement in those sort of declines. There are other areas as well that you see, things like expired card, bad card number and transaction not allowed. They point to maybe card information being out of date. So either cards have expired between the times that the authorization has taken place or the cardholder has lost their card or changed their card number for some reason and you need to acquire the updated card details.
So again, there are areas where we can help you with that. As I spoke about before, things like the account updater service can provide updated information prior to you attempting authorization and therefore could alleviate some of those sort of decline codes.
We also look at retrys as well, so where transactions of sale, for example, CVV2 failures, we look at was that down to customer lethargy? I'm guilty of it myself. I don't take my card out of my wallet. I think I know my three digit number for my credit, but often get it mixed up with my debit card. So I fail on the first attempt, but on the second attempt, I'm successful.
So again, we can look at things like that to understand customer behaviour, understand whether it is the customer that is just making a genuine mistake or is it a potential fraudster that is trying several times to try and get that number right?
From a Barclays perspective, it tends to be fraud related or it's down to the way the card is set up. So things like CP remote purchase, that means that the card has been set up for card present only and therefore the decline is because this is a remote purchase or the card is not present. So again, we can try and identify and look into the reasons for those do not honour decline codes from our perspective.
We look at specific issuing data and what that allows us to do is actually benchmark us against our peers as an acquirer. So we benchmark ourselves against (the likes of Will Pay) or Lloyds TSB, HSBC to understand what we look like in terms of the industry. Thank you. Hopefully you're seeing that.
So again, what we're looking at here is the decline reason codes for each of the issuers that we see using Barclays debit cards, again, in the insurance sector. Each of the colored blocks represent a different decline reason code and you can see there are certain issuers that have higher declines.
So for example, hopefully you'll see there, Lloyds TSB, the third column in, you'll see that they have quite a high volume of insufficient funds in terms of declines compared to Barclaycard. But again, I'd want to caveat to say that that could be purely down to the type of insurance companies that Lloyds have on their books. It could be particular insurance companies that have high premiums and therefore lends itself more to having declines that are due to insufficient funds.
And what we can do is drill that down further, again, down to channel level. So where we did it from an acquirer lens view, we can do that from an issuer lens view. So again, the far right-hand column, so if you're looking at October, you can see from a recurring transaction perspective. So we look at the way the transaction's flagged from a recurring perspective. We see that acceptance rates are the lowest across all the channels and again, the top one there is insufficient funds, but there are areas that we can work with you on in terms of bettering those acceptance rates.
I'll just touch on this quickly. I know there's going to be another webinar in terms of PSD2, strong customer authentication, but from our team's perspective, we can draw on the data to identify where we can support you from a PSD2 and strong customer authentication perspective. So as an acquirer, we can provide exemptions up to €250 and what we can do is identify which transactions fall in the non-secure e-commerce bracket up to the €250 mark and where we could support you as an acquirer to flow low risk transactions via our own acquirer exemptions.
So that will lower the friction that your customers see. They won't have to authenticate themselves. You can route those transactions via us for under €250 and we can then route those out with an exemption flag attached to them.
We also look at secure e-commerce as well. So we're not just concentrating on non-secure. From a secure e-commerce perspective, we will still see further friction. So where you process transactions securely, there will be a large percentage of those that are actually passively authenticated at the moment.
When we say passively authenticated, none of those (are) stepped up. If you're a regular user of a particular website, you won't be asked for your password as a cardholder, but post-September, that will kick back in again. Cardholders will be asked for those passwords again. So there will be added friction through the secure channel as well and we can help with those.
This just gives you, as a say, the percentage of transactions that sit in each bracket and how we can support you with each of those.
We work closely with Admiral and we've got a case study that we can share. We will share this with you after the event, but there are some sort of, I think, key areas that I just want to draw out from it for you. So I guess in terms of being a client of Barclays, they've been a client with us for over 10 years and they wanted to review their corporate structure and payment ecosystems, looking at whether there are any areas in the customer journey where there were pain points? Did those pain points generate or impact the declines? Did those pain points cause additional cost within the business as well?
As well as just looking at payment optimization, we also look to where we could cut costs for the customer. So that could be cutting down the process that the call centre agent or the time that the call centre agent spends on the phone with a customer, sorting out issues through transactions not being authorized or identifying the best time to push through their batch authorization.
So we worked closely with them on that. We did deep dive analysis on our acquiring and or assuring data and introduced things like the account updater service so that all their details were up -- were up to date and as I said, change their batch processing time to minimize declines relating to insufficient funds.
I think they key part from that is that (obviously) Admiral saw (€)24 million in additional revenue. So when we talk about additional revenue, that is a combination of reduced costs, increased time that call centre agents can spend on higher value and premiums and increased premiums as well.