Evolution and opportunities forthcoming in the collections and recoveries ecosystem
In the current situation, some individuals and businesses who ordinarily would not have had cash-flow problems, are now faced with the prospect of missed repayments, seeking payment holidays and searching for additional credit facilities to help pay off debts. Collections and Recoveries (C&R), at both lender and agency level are sure to see changes and also potential opportunities; let’s take a look at what they might be.
Volume: Logically one can anticipate there will be a spike in volume, both in terms of new ‘clients’ falling within the C&R radar and also in terms of enquiries into operational teams such as call centres. Not only will C&R departments within lenders and at agencies have to manage this spike, they will have to do so at a time when they themselves may be suffering from staffing challenges, such as limitations due to remote working infrastructure.
Strategy: Lenders, C&R agencies and Debt Management companies will need to reassess their collections strategies and bring them in line with updated FCA guidance. A number of new ‘clients’ will form a new cohort who have fallen into this category solely due to redundancy, sickness or being furloughed as a result of the virus. They will score highly in morality profiling (*1) and may return to financial health in a far shorter period of time compared to the majority of clients on the books. Repayment solution offerings will also need to be reviewed and reconsidered with innovative and agile solutions shaped to the needs of this new cohort.
In-house treatment: Will banks review their strategies and grace periods before handing over to C&R agencies for dunning (*2)? A possible scenario is that banks choose to manage the collections and recoveries process internally, for a longer period of time, which could avoid negative customer sentiment and retain client loyalty. Banks need to try to anticipate whether the time frame for a customer to return to good ‘financial health’ might mirror that of the 2008 financial crisis (nine months on average), or extend out for a much longer period.
Data: Capturing and using the data will be key to setting strategy. Banks and C&R agencies will need to understand and identify underlying causes of the new debt and defaults, the reasons why a client began to miss payments and their likely ‘return to good’ time frame, including their family, employer and industry data. Accurate segmentation will allow for prioritised recoveries with an increased understanding of expected outcomes.
Digitalisation: A seamless and secure digital platform and customer journey will now, more than ever, allow for increased customer retention and loyalty; it will also provide much needed scalability to the lender, thus reducing some of the load on the traditional operational systems and teams such as telephony and postal systems.
Distributed Ledger Technology (DLT): Embracing DLT could lead to more effective repayment tracking and data reconciliation processes in the lending and collections industry. Repayments could be tracked from ‘grace period’ through ‘late’ to ‘write-off’, with each individual collections repayment able to be traced and immutably timestamped at each stage, whilst ensuring compliance with internal governance processes. Identities can be verified much faster through the use of ‘smart IDs’ and access to richer shared information allows for more informed decision making by the lender with regard to collections prioritisation.
Automation and Artificial Intelligence (AI): There is already tangible evidence of the benefits that AI can bring to the collections arena, for example, in augmenting traditional workforces through machine-learning models. Focusing on artificial and augmented intelligence can help banks limit the impacts of the current uncertainty and ensuing challenges. Due to the predicted increase of collections and delinquency volumes, organisations need to strike a balance between human interaction and artificial technologies; using artificial intelligence and analysis, the human element of a bank’s workforce can be augmented and work more effectively to prioritise collections and re-evaluate customer risk profiles.
Here are a few proactive steps and concepts to consider in terms of evolving your digitalisation journey for collections and recoveries:
Messaging hub: Design and implement an end-to-end messaging hub to drive communications with customers in more cost effective ways. Development of real time communications infrastructures can lead to considerable cost reductions.
Rapid data diagnostics: Our team of Cambridge based data scientists perform rapid data diagnostic assessments and proof point confirmation. This enables firms to stop “looking in the rear view mirror” and focus instead on future predictive outcomes of customers and segments, leading to better decision making both for customers and institutions alike.
Lenders and C&R agencies need to focus their energies on how they are going to scale intelligently to ensure they are able to manage the best outcomes for both their customers and themselves in dealing with the current wide-reaching economic disruption. Those who use their data wisely and scale smartly will emerge with strengthened customer relationships and their reputations intact. Those who do not, may well find themselves dealing with the overwhelming repercussions of Covid-19 debt for a very long time to come.
*1: Morality profiling – The categorisation of the behaviour behind reasons for delinquencies, i.e. blatant avoidance of payment vs inability to pay due to illness
*2: Dunning – The act of making persistent demands on (someone), especially for the payment of a debt.