You've been quiet - are you Dormant, Deceased or just Gone Away?

When a financial sector customer becomes less active it is often an important signal that they have reached a new stage in their lifecycle, and critically need specific handling. We will look at some possible customer states that all share this common symptom but require quite different handling and priority from different business functions. The situation is often not straightforward. Different people will interpret low levels of customer activity differently based on their perspective. For example:

• Business Development will often see them as an opportunity to retain/rekindle a quiet customer for additional revenue
• Operations will see a cost reduction opportunity to reduce processing and effort
• Compliance may see any material reduction or change in activity pattern as a risk or red flag to be investigated
• Regulators will need to be reassured that lack of activity does not mean a customer has become decoupled from their rightful assets.

So, there are a mix of challenges and risks to correctly interpret the symptom of low activity and decipher the customer’s circumstances to initiate the correct course of action. Diagnosing the root cause of low customer activity is only possible when we understand the potential causes of the behaviour. Whilst not an exhaustive list, we will here start with three dominant categorisations; 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 specific period of time, as defined by the institution’s policy. Such a cessation of activity can be due to a material change in the customers economic circumstances, such as redundancy, or other events like switching to using an alternative provider. From a Compliance perspective, once this occurs across all of a customer’s accounts the whole customer will be marked as Dormant and require a special process (potentially involving a reconfirmation of Know Your Customer checks) to revive any of their account to a normal active state. Whilst dormancy may limit the Anti Money Laundering risk, if an individual or company is added to a list, such as the United Nations Security Council Sanctions list, it does not matter to the regulating authorities whether the customer is dormant or not. Hence, sanctions screening will need to continue for Dormant accounts, their owners, and any connected parties. Operations, on the other hand, may be able to exclude these customers from some processes. In the meantime, Business Development will want to target them with a marketing campaign to bring them back if they have gone to a competitor despite the resulting Compliance and Operations overheads of reactivation.

Deceased seems like a simpler customer status, 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 the relevant information. Defaulting to handling the customer’s accounts in the same way as dormancy will potentially complicate an already complex and delicate situation, especially if the granularity of feeds is not sufficient. There has been many examples of overzealous application of information gleaned from the deceased feed to freeze bank accounts by simply matching initial, surname and address. Just think of the “challenging” conversation in a branch when customer service employees are forced to tell the child of a deceased customer that their account has also been frozen, as well as their parent’s, simply because they share very similar names and addresses. Such a scenario rarely has positive outcomes for a bank. If activity does restart on the deceased persons account, as happens more often than you might expect (even if only for closing out probate) there is a clear and urgent need for compliance checking to be involved to avoid potential fraudsters taking advantage.

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 physical mail trigger is less likely to occur before a customer moves to dormancy. Again defaulting to dormant is not an adequate solution. Customers who are 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 such as reissue of lost statements, collection of debts etc. Fraudsters may target Gone Aways by making the old address appear current just long enough to switch to their new contact details and steal the identity. Financial institutions may not be capable of robustly checking that the old address is, or is not, current, and are likely to have an incentive to accept the new contact to clear an operational issue. Also, regulators often now mandate that financial firms return any positive balances for dormant accounts, which poses a significant challenge in the case of the truly Gone Away customer if the trail is left to go cold.

Ok, I understand the problem, so now what? It is clear from the analysis above that to correctly handle the customer situation we need to diagnose the status of a customer displaying the symptom of low activity. To do this we need sufficient data of sufficient quality. Once that data has been gathered and analysed, it is then a matter of designing processes that balance the demands of the different business actors involved with the customer to enable the cost, regulatory risk and potential for revenue to be managed in line with an institution’s risk appetite. But this initial data gathering challenge is by no means simple – not least as the internal data held on a low activity customer is likely to be stale, so other external data 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. However, as with all external data, it is important to ensure that all feeds are of sufficient quality, granularity, timeliness and understand how they can be compared to one another and the base customer record. In the case of a complex external feed which combines data from multiple sources, it is vital to understand how that feed is constructed, the detail of any quality challenges it faces, and whether it is in fact suitable for the specific purpose you have in mind. Both the financial firm and the data provider involved in the collection and analysis of such a feed have potential incentives to suppress as many customer records as possible for cost and revenue reasons, respectively, and such contradictory incentive structures need to be accounted for. Finally, a changing regulatory environment may mean that sources of data that firms have traditionally used may well now require explicit customer consent – and how do you obtain this from a Gone Away when you have lost contact?

In the UK, data services for Gone Aways and Deceased individuals are evolving, and what is required is that financial firms also evolve and better understand the complexities and challenges so they can robustly and correctly address them. Defaulting all inactive customers to the same Dormant state and resulting handling is no longer a viable approach.