BUILDING YOUR ROADMAP TO UNDERWRITING AUTOMATION

Why We Wrote This Guide

How To Get Started With Automation

Key Elements of Automation

Conclusion

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CONTENTS

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This eBook was inspired by first-hand accounts of risk teams who had rushed to automation without first establishing the framework to guide the process. These teams saw the potential impact that automation could have on their organization, but didn’t know where to start. Sound familiar?

The move to automation is a gradual process and requires methodical up-front planning. So, before your team dives right into automating components of the risk process, we recommend reviewing this guide to build a

framework that prepares your organization for automation.

Once you establish your framework, the road ahead will be a lot clearer.

Who This Guide Is For?

This guide is for Risk Managers, Compliance Officers, and Underwriters who are striving for improvement in the way their organization measures risk.

After Reading This Guide, You Will Be Able To:

• Craft a clear vision for your underwriting objectives

• Apply a solid framework that prepares your organization to automate

• Build your own path to underwriting automation

Why We Wrote This Guide

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Before you plan a trip to your final automation destination, keep some of these key points in mind:

You can’t take shortcuts to automation. We commonly encounter organizations jumping into automating particular parts of their process, before creating the correct framework for what they envision achieving with automation. This shortsighted approach can lead to a series of critical process errors along the way.

You can’t l ive with “pass” or “fail ,” you need to score real values. We often see lightweight risk models that attempt to bypass the actual calculation of a numeric score. This leads to limited risk management in your organization.

Resist the temptation to gather too much information. Too much data doesn’t make for better decisions, in fact it often leads to a high rate of false positives.

An extraordinary customer onboarding experience begins with a best-in-class underwriting process. If this is your end goal, you’ve stumbled across the right guide. We firmly believe you need to get your underwriting right to make your onboarding exceptional.

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Getting Started – Trip Planning

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CREATING A STATEMENT OF INTENT

A Statement of Intent is recommended by the Electronic Merchants Association’s Risk Guidelines and is meant to guide your underwriting and risk procedure. In reality, a Statement of Intent is the guiding principle for your entire organization’s merchant acquisition plan. This statement should outline the kind of customers your organization chooses to do business with and why. A Statement of Intent provides your marketing and sales teams with clear direction of who to target. In turn, risk teams are provided with merchant applications that have a higher likelihood of fitting within a defined risk profile.

Key Elements For Automation1

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MAPPING OUT YOUR CURRENT PROCESS. WHICH BASIC STAGES CAN BE AUTOMATED?

Evaluating and optimizing the current document flow at your organization is the first step to automation. Are you hitting all the right people in the right order? Are you collecting the right information, or is it too much or too little? The sooner you figure out what this process should look like, the better. Once you map out what you are doing today, you’ll start to see if your team is on the same page. It ’s always best to start an automation process with having not only consensus, but the business context of the overall flow.

If you can develop a basic process that suits the organization’s needs, there’s less chance that all your effort toward automation will get heavily reworked

2 or rejected. Don’t let the manual steps distract you from your goal. As long as everyone is following the same process, you’ve begun to lay the groundwork for automation. This will ensure you have a consistent and repeatable process in place.

CODIFYING ELEMENTS

Codifying each data point into a numeric value is a best practice over a pass/fail/monitor stamp. Applying weighted values may take longer to achieve, but this provides your organization with a more complete picture of your merchants:

• Who your marketing is targeting• Who your sales people sell to• Who the applicants are• How you score them• What your risk threshold looks like

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Even some of the most sophisticated organizations are working from simple pass/fail metrics. We often see charts like the one shown above.

At first glance, this data appears to be insightful. Although the volume was lower this week than last, we only had to review 15% of our applications and a full 62.5% of the applications received a pass. The

DATE

THIS WEEK

LAST WEEK

NEW APPLICATION

200

220

PASS

125

80

FAIL

75

140

REVIEW

30

50

problem is, that may not be true. If last week our marketing efforts brought in a lot of prospects that were near our threshold of risk as defined in our Statement of Intent, we may have failed exactly the right number at 140. Underwriting may have done their job perfectly!

With the data from this chart in mind, consider the on the next page:

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-3 -2 -1 0 1 2 3

-3 -2 -1 0 1 2 3

LAST WEEK

THIS WEEK

A more sophisticated underwriting model that actually applies scores to every merchant will allow you to plot the distribution of the merchant scores in a histogram (covered in more detail on page 10). If the top graph is last week, and the bottom is this week, with zero being our target client and the orange line representing the average customer score from each week – underwriting was perfect week over week.

EVEN SOME OF THE MOST SOPHISTICATED ORGANIZATIONS ARE WORKING FROM SIMPLE PASS/FAIL METRICS.”

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you to measure the difference between what your automated process is scoring and what your people are scoring. It also allows you to see which sources of data your underwriters are really using to influence their decisions and how much effort it takes to look that information up. Quite often you’ll find that you’re only using some data sources infrequently when others aren’t available.

Knowing which data sources your organization needs and when to use them is key to getting an appropriate model in place.

AUTOMATED VALUE SCORESTuning and adjusting score values to match your manual evaluations is critical as you begin to optimize with automations and data feeds. Often, firms want to jump right to integrating every product or service; but we caution against this approach. We recommend building integrations after evaluating your risk model.

Operating your underwriting model in parallel to the staff who are performing the underwriting allows

KEY TAKEAWAY

When you codify your data and you score every merchant that comes in, you consume powerful insight required to effectively run your business. A simple pass/fail won’t empower you with the same level of information.

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VISUALIZING MERCHANT DATA

Once you’ve applied numeric scores to your underwriting elements, you can start to evaluate

your merchants on a histogram. This is a visual representation of how the scores you’ve

collected are distributed on a normalized line. With this visualization, you can interpret where your risk threshold sits, where merchants lie in respect to

your risk threshold, and the volume of merchants you’re bringing in relative

to your threshold. But it ’s important to remember that a risk score is not a point, it ’s a range. You’ll want to start with a wide range of merchants, on

either side of your risk threshold, that you progress to human underwriter

evaluation. As you refine your model and increase your confidence in your ability to

score, you can begin to reduce the percentage of merchant applications you’re manually reviewing.

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PRO TIPWhen two sources of data

are telling you essentially the same thing (for example Better

Business Bureau rating and Yelp rating) then choose the best one and

ONLY use the other one if the first isn’t available. Choosing two variables that tell you overlapping information

is called a “specification error” which is the leading cause

of risk model errors and false positives.

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“Sage entered into the process looking for way to speed up our merchant adjudication process and automate as much as possible. During the review we realized not only do we acquire the enhancements to our underwriting process we also gain an entire merchant signature and onboarding experience.

Success Story: Sage Payment SolutionsAs a part of this onboarding experience the addition of document capture and digital signature have been viewed as critical enhancements to our merchant onboarding. Not only are the products top notch but so are the people.”

TODD METHENY SAGE PAYMENT SOLUTIONS

Fast Underwriting Automated Onboarding Unbeatable Merchant Experience

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ConclusionAutomating underwriting is entirely achievable if you have visibility into the required steps and the right tools for the job. Remember that for every step you map into the underwriting process, and every piece of information you request to be collected, there is one more item that needs to be included in your onboarding process. The more complicated the underwriting, the more difficult it will be to onboard with your organization. We all know that the most successful organizations are the ones that make it easy to do business with them.

A smooth and efficient onboarding process isn’t just a competitive advantage, it ’s a necessity. There is no reason to sacrifice due diligence to create an unbeatable underwriting and onboarding process.

Contact an expert: sales@agreementexpress.com, www.agreementexpress.com

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