UCS Co., LTD, the financial services subsidiary of a large Japanese retail chain, experienced a slowdown in its credit card application screening process when new regulations forced changes to screening rules. The company had to use an inefficient manual screening process for 92% of its applications. To solve this problem, UCS
selected Progress Corticon as the core of a new, flexible Business Rules Management System (BRMS). With Corticon, UCS has been able to increase automated screening from eight percent of credit card applications to 40%, a 5X improvement in productivity. The manual screening processes have dropped 50% while the speed of approving applications has increased 33%. UCS now has the ability to change screening rules quickly and inexpensively if regulations or internal policies change in the future.
Automating Credit Approvals in a Changing Legal Environment
Japan’s government enacted a sweeping reform of its consumer lending industry in 2010. The Money Lending Business Act and Installment Sales Law placed a host of new rules on credit card issuers and consumer lenders. The laws capped interest rates and set limits on lending as a percentage of a borrower’s annual income, among many other rules that brought change to the industry.
The laws had a serious impact on UCS Co., LTD (TYO: 8787), the financial services subsidiary of the $6 billion, 227 store Uny Group Holdings retail chain (TYO: 8270). UCS has over 3 million holders of its UCS Cards and more than 1.1 million electronic money customers. While UCS had strong synergy with other companies in the broader Uny Group and ambitious plans for growth, the business faced a major operational obstacle in complying with the new regulations.
Automated screening of new credit card applicants slowed dramatically as using UCS’s mission-critical application screening system proved inflexible in the face of these new regulations. Before the law took effect, UCS’s mission-critical application screening system automatically screened the majority of applicants. For instance, the system
could automatically validate an applicant’s phone number and length of residency.
The system would then check for credit factors, such as income and existing loans, triggering an acceptance or rejection of the application without any personnel involvement in the initial evaluation process. The law made UCS switch to manual processing of applications – a time consuming and expensive process.
After the law changed, the automated mission-critical screening system could only handle 8% of all the application volume. It became difficult to attain cardholder growth goals with 92% of applications being processed by hand. UCS’s choices were to remain with manual processing, hard-code the rules changes in the workflow system, or update the BRMS and manual processing was not an appealing option. Hard-coding the rules changes would be costly but temporary. The company understood that the law could easily change again, setting off another round of hard-coding. As a result, in 2010 UCS began to look at either updating or replacing its own application screening system for its credit card applicants.