Bad debtors turn up like a bad penny in communication service provider networks (CSPs). Recent studies estimate 65 percent of “new” subscribers who were found to have a history of prior bad debt incurred even more debt the second time around—30 percent more than the original debt they owed—and were gone within 12 months.
This is not a profitable model for CSPs.
Uncollected debt and other types of fraud cost CSPs an estimated $40 billion last year, according to the Communications Fraud Control Association. In the U.S. alone, fraud can eat up as much as 13 percent of CSP’s annual revenue. These providers are more exposed than ever because of their up-front investments in hardware including modems, HD receivers and smartphones associated with triple play and quad-play services. All of this adds up to a single cold, hard fact: CSPs need to get smarter about how they sniff out and stop debt before it happens.
Fraud, of course, isn’t a new problem. Most CSPs have dedicated fraud teams in place to track, flag and prevent fraud activity. The sheer number of subscribers and the frequency of subscriber turnover make it difficult for fraud teams to catch fraud before it happens. So what can service providers do to become more proactive? Here are four ways that service providers are beating bad debt and fraud at the door:
- Match new subscribers against your own data. A change in name or address may not cause a red flag to trigger immediately. That’s why it’s a good idea to run new subscribers against the most complete and reliable data you have—your own customer database—and look for a match in a wider variety of fields including tax ID numbers, bank account numbers, driver’s license data and more. For example, our Risk Management Solution can do this in real-time and help providers catch potential repeat debtors before they sign up and help you meet the “red flag” regulations.
- Catch ‘em and collect at the door. An added benefit of a real-time debt detection system is the ability to turn a subscriber’s registration into an opportunity for debt collection. In one case, a Risk Management Solution customer used this approach to collect $9 million in bad debt in one year alone!
- Use “fingerprinting” to catch fraudulent calls. People who commit fraud may change their names often, but they don’t change their friends and habits so quickly. By matching calling patterns with a database of known fraudulent cases, service providers can catch new cases of fraud as they happen. (Given the volume of data to analyze, it’s best to let an analytics engine handle this.)
- Know your subscribers. It is impossible to know every subscriber, but you can know their calling patterns using pattern detection algorithms like those found in Neustar’s Risk Management Solution. Subscriber-based profiles give providers a standard by which to measure calling deviations which, when combined with alerts, can help fraud teams catch ID theft and fraud early and minimize the damage.
The growing popularity of bundled services means higher revenue per user, but it can also mean higher risk as more users try to cheat the system. Early detection is key to cutting what can be substantially higher losses, especially in a business model where CSPs don’t expect to break even until a year or more into the service contract. That’s why it’s more important now than ever for providers to catch bad debt at the door and protect their paying customers from paying more than their share.