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CommBank using AI to help triage loan deferral customers

James Eyers
James EyersSenior Reporter

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Commonwealth Bank is deploying machine learning technology to help it triage customers whose loan repayments have been deferred, highlighting the complexity of the task to ensure the economy does not fall off a COVID-19 cliff in September.

The artificial intelligence system, developed with US-based software company Pegasystems, is being used to identify and then contact CBA customers granted repayment holidays during the pandemic, helping the bank to work out who is in financial hardship and in need of special attention.

CBA is reaching out to mortgage holders most likely to face financial hardship. Rob Homer

The application of the AI comes after Treasurer Josh Frydenberg said at the weekend banks had promised an "orderly transition" when six-month deferrals come to an end.

"One of the things we understood early is how important it is to communicate with customers reaching out to ask for our help, and we have pretty sophisticated strategies for all of the different cohorts of customers we want to help during this period," said Andrew McMullan, the chief analytic officer in CBA's retail bank.

CBA has pushed the pause button on loan repayments for 127,000 customers. This could involve $59 billion of loans, Morgan Stanley estimates, assuming an average loan size of $460,000.

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To help work out who should receive additional leniency, CBA will use its "customer engagement engine", which gives it a real-time view of every interaction all of its customers have with the bank. The system is using more than 200 machine-learning models to drive automated communications with customers inside the bank's app.

"We will be using this technology during check-ins with customers," Mr McMullan said.

"We can use it to get in contact with customers who are looking more distressed from an income point of view to make sure they have all the support and information they need."

'Benefits finder' feature

As the government considers more sector-specific packages to support the recovery – whose designs are being influenced by data banks are providing to Treasury – CBA says customers are still claiming government assistance through its app even though the focus has turned to reopening the economy.

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Between the middle of March and early May, 150,000 CBA customers began claims for specific coronavirus government benefits through CBA's banking app. The bank has been conducting analysis over customer data to proactively notify those who can take advantage of particular government support programs.

CBA says there has been a 500 per cent increase in customers using this "benefits finder" feature compared with before the crisis, which also allows the bank to see in what areas of the country there is the most stress.

"A lot more customers are going in to see what is available given how tight money can be for some of our customers right now," Mr McMullan said.

After meeting the major bank chief executives and regulators on Friday, when the performance of particular state economies was discussed along with the timeline for opening up CBDs, Mr Frydenberg said banks had "supported their customers on the way into this crisis and they will be supporting their customers on the way out. This is how it should be."

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Across the sector, repayments have been deferred on about 11 per cent of the major banks' mortgage portfolios, Morgan Stanley analyst Richard Wiles said, and "the ability of these customers to meet repayments in the future will vary, depending largely on changes to employment and household income and their existing savings levels".

Morgan Stanley estimated that about 40 per cent of borrowers were more than six months ahead on mortgage repayments prior to the crisis, while 20 per cent had no buffer and a further 20 per cent were ahead by less than one month.

It is understood that no other major bank has a system similar to the CBA Pegasystems engine. Not having a real-time record of every customer interaction could make it harder for rivals to devote resources to the customers most in need.

The Australian Prudential Regulation Authority is considering whether to extend the capital relief offered to banks in March on deferred loans, and whether – if this is provided – this is done in a blanket or more targeted fashion. APRA is planning to provide more insight on its thinking on July 22.

With the government's open banking regime switching on on Wednesday, the ability of major banks to engage with customers and deepen relationships through their banking apps will become more important to stop customers switching to alternative providers.

Luke McCormack, the Asia-Pacific vice-president of Pegasystems, described the "loyalty dividend" which CBA is generating from engagement using the system. "There is empathy, which has sponsorship at the highest level as a cornerstone of how CBA wants to go to market," he said.

Mr McMullan said, "We want to create a simple, personalised, informative relationship with customers, and make it easy for them to know what is going on."

James Eyers writes on banking, payments and fintech. He is a former legal and investment banking editor at the AFR, has degrees in commerce and law from UNSW, and is co-author of Buy now, pay later: The extraordinary story of Afterpay Connect with James on Twitter. Email James at jeyers@afr.com.au

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