Lombard Tricity Finance Ltd

1- Thecontext

LOMBARD TRICITY FINANCE ltd.

Lombard Tricity Finance Ltd. is a subsidiary of the Lombard Bank, which belongs to the National Westminster group. Located in Enfield (East London), it occupies a large building where most activities are carried out. There is also a smaller site in Caerphilly (Wales). Its main activity is to sell credit to individuals for the purchase of white goods (washing machines, fridges etc) and brown goods (furniture, curtains etc).

There are approximately 300 retailers in LTF’s network. All products are not available at the same time or everywhere. There are, for examples, defined campaigns on specific periods for “Free Interest credit” or “buy now and pay in x month” credit. The “Free Interest credit” is the simplest product : the retailer pays a fixed fee. The second most popular offer is the “Fixed Rate on Fixed Period” credit : a small fee is paid by the retailer, LTF’s revenue is based on the interest rate they get from the final customer. The « Credit/budget » offer is a revolving credit. The initial submission creates an account, served by a card. Customers can reimburse the credit amount over several months ; the interest rate is much higher than on the previous credit type and there is a minimum monthly repayment equal to 5% of the amount of credit used. The card is supposed to facilitate repeat purchases. Retailers like this product, for which they only pay a yearly fee.

“Buy now/pay in X months » is similar to the « Fixed Rate/Fixed Period » credit offer ; the first payment is just deferred by a number of months. The interest rate is slightly higher.

On average, the number of open contracts at a given date is around 45 000 contracts. The portfolio overall value oscillates 13 500 000 £. The average amount of a credit is around 300£.

In high season, the number of contracts open per day can reach 8000 ; the large retailers (20% of the network) can have more than 100 new contracts per day.

The following table presents LTF portfolio in Value and % of new contracts per products last year.

Offer

% of new contracts

% in value

Free interest credit

46%

35%

Fixed rate/ Fixed period

36%

42%

Credit / budget

8%

12%

“Deferred fixed rate/fixed period”

10%

11%

The general organization of the company is based on the route a credit agreement follows from the moment a customer requests a credit product to the end of the credit period.

The New Business department is the main contact point for dealers offering LTFs credit products. The department’s mission is to guarantee a rapid answer to the authorization requests presented by the retailers. Practically speaking, the necessary credit scoring is done through an Internet tool that the retailers access with their ID and password. When the request is approved, the system provides an authorization number which must be entered on the contract itself. However, in 5% of the cases, the system cannot make a decision and human intervention is needed. In that case, the request enters a queue of « decisions to be made » and these cases are reviewed by one of the 3 supervisors of the New Business Dpt. This department must be operational 7 days a week, from 8am to 8pm. The number of employees is quite high to accommodate this availability.

There is another type of authorization process, called « instant credit » which does not apply for « credit/budget ». This process enables retailers to automatically grant a credit under certain conditions : the credit amount must be under 750£ ; the customer must provide a Bank Guarantee card or a Bank Credit Card (there is a list of accepted bank credit cards), an identity document, his bank details and a phone or gaz/electricity invoice. In that case, the retailer fills in the contract with the customer who can then leave with the goods and his copy of the contract, after signing it. The retailer then transmits the contracts and scanned documents to the New Business Department. This process actually represents more than 60% of the new contracts created in aday, on average. It’s the preferred process for retailers and for customers : the fluidity and ease

of use of this process generates many sales for retailers. When the credit type or amount do not fit the criteria, or the customer does not have the necessary documents, the retailer must follow the non-instant process described earlier : connect to the extranet, log into Autoscore, enter the customer and credit details, obtain (or not) an authorization number.

AUTOSCORE is a complex credit scoring tool which uses several data bases to which LTF has subscribed. These data-bases include the address book, the phone book, council tax payers etc. The system tests the validity of the information given by the customer and also checks the consistency of the various data. The tool and the data bases belong to CCN, a consumer credit bureau and a facilities management company.

Instant or not, a paper contract is signed and is sent to New Business via e-mail and normal mail. When the digital version reaches New Business, it is checked and validated : is it properly filled in, does it have the right attached documents, does the authorization number (for non-instant credit) match the data in Autoscore. In case of anomaly, the contract is diverted to the anomaly management sub-department. Errors and anomalies must be solved within 4hrs, usually through a phone call to the retailer. If this does not solve the issue, the contract is sent to the litigation department. Final acceptance of the contracts must be made in the 4 hrs. which follow its reception by New Business. Contracts received after 4pm must be dealt with before 10am the following morning. Once validated, the contract is then transferred to Customer Services or the Concept Business Unit. Free Interest credits are transferred to the Concept BU. All other types of credit are transferred to Customer Services.

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