As the year began, some economists were bullish on the economy. Yes, there were signs that a recession could be coming. But no one could have anticipated a coronavirus-induced downturn.
Federal agencies are now encouraging financial institutions to prepare for more consumers experiencing financial hardship. While deferrals and other aid will help, they can’t replace a booming economy.
But how can lenders prepare? The answer lies in accelerating a transition that was already underway. Default-management organizations must focus on three key areas: customer experience, augmented intelligence and an improved operating model.
Customer Experience: Balancing Empathy and Need to Collect in Coronavirus Times
Ultimately, in the months to come maintaining a positive customer experience must be a priority, especially in the face of this unique period of credit troubles. But financial institutions will need to strike a balance between empathy with troubled consumers and company needs and responsibilities.
In Genpact’s report, “Banking in the Age of Instinct,” we predicted that, to survive and thrive, financial institutions would need to shift from being authoritative and functional to being more supportive and emotional. The time for that shift is now.
This means transitioning from simply collecting debts to enabling financial betterment — in this case, working with customers to restructure loans and make payments more manageable.
We believe that customers have certain rights when dealing with collections organizations. They should:
- Be respected, listened to and treated with empathy.
- Receive personalized treatment.
- Receive assistance to prevent delinquencies in the first place.
- Understand what delinquency means and how it impacts their financial health.
- Be given choices for the method and timing of their payments.
Honoring these rights will become more important with each passing week. In the short-term, the fight to be at the “top of the wallet” for receiving payments will intensify. Even within the same asset class, such as credit card debt, consumers may have more than one debtor to whom they owe money.
Those lenders who deliver on customer experience will be paid first and will come out much stronger than their counterparts when this crisis is over.
Augmented Intelligence: Support that Can’t Catch COVID-19
It’s a paradox: As credit issues ramp up, lenders will have fewer resources to face the mounting wave of delinquencies. Right now and looking forward, agent absenteeism due to illness or self-isolation is leading to the closure of collections centers. Even if a financial institution scales up and the resource situation stabilizes, the sheer volume of delinquencies will overwhelm collection centers.
As a result, collections organizations need to rethink the balance between human intervention and the use of digital technologies. Lenders need to use advanced technologies and analytics to enhance people’s capabilities, helping collections agents to work smarter, not harder. This is augmented intelligence.
Digital-First Contact Center Thinking Accelerates Under COVID-19
Even before coronavirus, customer contact preferences have been steadily shifting away from the traditional methods lenders use for addressing delinquency, such as phone calls and letters, toward digital channels. In the crisis, however, almost everything suddenly shifted online. This abrupt digitization means that financial institutions must quickly enable consumers to pay off debt with a click or the touch of a button.
Digital payment channels — such as text, email, chat, mobile apps and the web — provide options and choices for consumers when it comes to the method and timing of payments. These channels also help the bank, especially as regulators place limits on traditional collections activities. For example, the Consumer Financial Protection Bureau is now proposing to limit the number of calls debt collectors may place to reach consumers to seven per consumer per week. Digital channels provide default-management organizations with another means of reaching the customer. Self-service payment methods also reduce operational cost for the bank. While a text costs virtually nothing, for example, phone calls may cost a dollar per minute.
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Analytics Will Be Essential Throughout the Debt Management Cycle
Data analytics can help collections organizations make more-informed business decisions. Specifically, banks can and should be using analytics to:
• Continuously monitor portfolio health. Lenders must assess the impact of more volatile market changes on their portfolio and key performance indicators, such as losses, reserves and delinquencies. They need to keep reforecasting, to prepare themselves to react in the best possible way to changing conditions. Lenders can use analytics to help their collections organizations assess delinquency volumes, evaluate processes, and identify what’s working and what’s not so they can optimize their models.
• Reset collections strategies at a segment level. A collections strategy that was valid a few months, or even weeks, ago may not be today. As a result, resetting collections strategies has taken on new urgency. Due to resource constraints, a default-management organization may need to focus only on high-risk customers for a time. It may then need to pivot to develop specific treatment strategies for consumers in the hardest-hit areas. When risk levels are changing dynamically, analytics can help segment and prioritize clusters of consumers and accounts with agility.
• Re-evaluate customer risk profiles and hyper-personalize treatment strategies. Today’s treatment strategies must be more agile and personalized, not just on a segment level but also on a customer level. For example, is your collections organization considering payment holidays for customers whose credit-card histories show recent travel to Iran or recent hospital stays?
Institutions must stay on top of changing risk profiles for individual customers proactively, especially for those who are experiencing hardship and could potentially become delinquent — even if they had no past delinquency history. They will need to re-age or develop personalized treatment strategies for them.
• Improve agent performance: You can’t manage what you can’t measure. Manual call monitoring is time and labor intensive and is possible only with a small sampling of calls. Meanwhile, speech analytics allows collections organizations to record and monitor 100% of calls and objectively analyze them to gather insights.
These insights may then be turned into customized agent training to deliver compliance and improve customer experience. For example, speech analytics can be used to evaluate whether agents are following federal guidelines that prevent them from using threatening language.
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COVID-19 Makes Reassessment of Operating Models Essential
In 2008, banks increased their collections staff to handle the growing number of delinquencies from the global financial crisis. Then, agent layoffs arrived in force, like a wrenching second act in the crisis. If institutions don’t scale intelligently, we forecast that they will need to hire up to 150% more collections staff to keep up with the anticipated increase in volume. And history will repeat itself.
The current crisis has brought to light the fact that lenders need to determine the best options for their immediate business continuity needs and identify the most effective longer-term operational models.
In Genpact’s report we predicted that, in this increasingly volatile world, lenders would need to employ strategies to counter shocks and de-risk the balance sheet.
Recent experience has shown that collections organizations need to revisit their site strategies. Lenders cannot afford to have all their collections eggs in one basket. Instead, agents must be geographically distributed to diversify risk. Work-from-home recovery scenarios, which lenders have historically shied away from due to concerns about data privacy and security, are now a reality.
There are readily available solutions. Genpact estimates that a strong collections department generates $10 in recovery for every $1 in operational expenditure. This ratio varies depending on the channel or delivery model. For onshore resources, the ratio is approximately 7:1, offshore 11:1, digital 25:1. Blending these approaches optimizes the customer experience, diversifies risk, and delivers the returns the business requires.