Top 5 Debt Collection and Recovery Posts of 2021

2021 saw debt collection and recovery professionals grappling with new regulations while they developed better ways to monitor and handle vulnerable customers during the pandemic. Our most popular posts in this category last year dealt with valuable disciplines, collections predictions, multi-channel vs. omnichannel communications, collections optimization and digital-first collections approaches for the COVID-19 period.

Here are extracts from those top five posts.

What Are MVDs And Why Do They Matter?

Cyril Cherian shared the 7 essential debt collections and recovery most valuable disciplines (MVDs):

1. A Customer Level View: Define and design a complete and single view of the customer across the multiple product lines, which facilitates the ability to have a strategy in place that ensures collections efforts are directed at a customer level. Collection strategies and apportioning of related costs are therefore concentrated on the appropriate customer level cases. The overall customer experience with the collections department is also better aligned to facilitating growth and profitability through the appropriate retention of future good customers through effective rehabilitation. Feedback from Chief Risk Officers to FICO indicates that a customer view enables 14% lower loss rates than having a fragmented view.
2. Data & Analytics: Define a broad range of input sources available for collections specific decisioning including collections activity data, account performance from initial entry to a past due state, collections transactional data, and relevant alternative data sources. For a full-service bank, data sources can also include deposit account data - especially considering any changes in direct deposit payroll activity.
3. Scores, Segmentation & Models: Define and leverage collection models to increase the ability to collect debts over the COVID-19 / post COVID-19 period while focusing on minimizing the cost of collections by efficient and effective allocation and management of resources and deploying the appropriate treatments on the customers based on their risk levels to protect an adverse impact to impairment with the most cost-effective treatment.
4. Optimization: Define and design a competitive collections strategy leveraging optimization. Experiment with trade-offs between decision factors and business constraints, simulate various scenarios and compare their impact on collections key performance indicators and contributions to the bottom-line. This improves the ability to adopt and deploy the optimal strategy right at outset.
5. Digital Communications Solutions: Define and design analytically driven contact strategies aligned to the risk of the account, IFRS9/CECL implications and compliant with regulatory requirements, and customer contact preferences to achieve improved collections effectiveness via a coordinated multichannel orchestration approach utilizing preferred and efficient contact practices. Efficient omni-channel communication utilizes data and analytics, determines precisely how to make contact, and provides seamless continuity across the interaction with connected decisioning.
6. Collections Strategy Framework: Define and design 3 versions of the Collections Strategy: (a) Collections Strategy for when the tailwinds have propelled growth and the results continue to hold post pandemic; (b) A Collections Strategy for when the headwinds have stifled growth and potentially pummeled delinquency rates; (c) A Collections Strategy for successfully maneuvering the headwinds and tailwinds and positioning the financial institution for continuous improvement through leveraging champion challenger strategies
7. Operating Model: Define and design the Target Operating Model that provides a framework for effective strategy design and seamless execution. Ensure all stakeholders are aligned to business objectives. Assign the appropriate roles and responsibilities to all Collections staff. Create metrics and MIS to ensure that all resources are correctly aligned and effectively deployed, as well as delivering against business goals and expectations. The operating model must also ensure and facilitate a robust, resilient, and scalable Collections and Recoveries department that leverages all the Most Valuable Disciplines (MVD's) efficiently and effectively.

Read the full post: What Are MVDs And Why Do They Matter?

Collection Predictions 2021: Uncertainty and Opportunity

Ted London shared four predictions for collections in 2021:

1. More Debts than Ever will need to be Collected

The payment deferrals enacted in 2020 will likely result in future repayment challenges once collection activities resume. While we would expect that lump sum payment will not be required to make up for the deferred payments, the missed payments will need to be repaid over time, which could result in higher monthly installments being required. This will be particularly challenging for consumers who have adjusted their household budgets without including these payments, let alone potentially higher monthly installments that may now be required.

While Government will likely take a hand in directing the pace of some collection activities, others will be determined by the debt holder. Collection agencies will likely be busier than ever as more debt holders assign debts to agencies. Agencies will face challenges when consumers owe from many different sources. There will only be so much money in the consumers wallet, and multiple collectors may be competing for the limited money in the consumers wallet. Agencies with advanced analytics and strategies will likely reach consumers first, and be more successful.

2. Continued Economic Uncertainty

As vaccinations are rolls out in 2021, the economy is expected to improve. Unemployment is also expected to decline, although it will still remain above the pre-pandemic historic lows. In this environment, Government agencies will likely continue to keep some curbs on the collection industry as the economy and consumers get back on their feet. While some consumers weren't badly affected by the pandemic, many millions lost their job, or significant sources of income.

In 2021, we can expect Government protections to consumers will begin to end. And while the number of debts actively being collected will likely rise, the ability for consumers to pay those debts may not rise as fast. This means that collectors who can quickly pinpoint those who can pay will likely be most successful. An approach that treats all debts and debtors the same, will not be as successful because there will be a significant number of consumers who owe money and have no ability to repay their debt.

3. More Digital Communication

In 2020, the US Consumer Financial Protection Bureau (CFPB) issued two rules in late in 2020 that will significantly affect the debt collection industry when they go into effect in 2021. One in particular established rules around digital communication in the debt collection industry. This will hopefully lead to more digital communications (emails and SMS).

We know from our personal lives that more and more of our commercial communications occurs through digital communications. Consumers have come to expect that they can initiate and complete transactions from their phone, whenever they want 24/7. The good news for the industry is this can reduce the cost of collections, increase the speed of collections while also providing a better customer experience.

Consumers have begun to expect that they will now be able to control the channel used for their communications. They want to select their channel of choice, and be able to make contact quickly, efficiently, and securely. While the new CFPB rules establish best practices for digital communications, they do not provide full clarity, as the industry likely hoped. It will be interesting to see if the CFPB uses its new Advisory Opinion program to provide additional clarifications prior to these rules going into effect in November 2021.

4. Student Loan Challenges

In December, the Federal Government extended the Student Loan Forbearance Period through January 31, 2021. This means that student loan borrowers do not have to make any payments during this period. It is a safe assumption that this period will be extended by the next administration during their first two weeks in office. It is hard to imagine that a new administration will want one of its first acts to be the resumption of Student Loan collections.

There are over 40 Million Americans who have an outstanding student loan, with over $1.7 Trillion owed. What will occur in 2021 is anyone's guess. There have been proposals to cancel $10,000 of debt for each borrower for example. Most of these proposals would need to be passed by Congress. Given how closely divided both houses of congress will remain, getting anything passed, let alone something potentially so controversial is suspect at best.

That said, at some point next year one would expect Student Loan collections will resume. The Department of Education will need to determine which agencies and approach they will be use, and how collections will be phase in.

Read the full post: Collection Predictions 2021: Uncertainty and Opportunity

Collections Communications: Multi-Channel Vs. Omni-Channel

Huw Vaughan wrote:

Point Solution Approach (Multi-Channel)

Most collections and recoveries clients that I speak with, who are proactively reaching out to vulnerable customers, are typically utilising multiple channels of communication.

This is depicted in the Point Solution Approach above, where we see individual channels being utilised, provided by separate vendors (dialler, SMS provider, letter). Communication attempts are delivered through the separate channels, usually at specific times of the day, and occasionally on ad hoc basis. This is the multi-channel approach.

I am sure that many will relate to this approach, and, although seemingly simple, it is not as straightforward as it appears. One of the big challenges is the amount of manual intervention required to get things up and running and then effectively managed each day:

• Dialler campaigns need to be created and loaded first thing in the morning.
• The dialler then requires oversight to make sure it is running optimally.
• SMS campaigns must be manually created and then sent at appropriate times to ensure they do not create excessive Inbound demand.
• There also has to be an acute awareness, from both an operational and strategy perspective, of when other channels and contact media are being used to ensure that customers are not being overwhelmed with contact attempts.

In addition, multi-channels are usually provided by separate vendors so, from a procurement and governance perspective, the point solution approach results in the requirement for multiple touchpoints with the chosen vendors, particularly if there are service/SLA issues, RFPs, or contract negotiations due, or even when having to attend monthly or quarterly business reviews.

In summary, a point solution or multi-channel approach is fraught with significant manual intervention and ultimately runs the risk of delivering a poor experience and outcomes for some customers.

Continuous Flow (Omni-Channel)

With the continuous flow route, we see the benefits of starting to adopt an omni-channel approach to contacting customers. By taking the available communication channels and managing them in a seamless way, you can immediately see how life gets easier on a day-to-day basis.

By ingesting one simple data file, first thing in the morning, all the manual challenges identified through the point solution approach disappear. This includes the manual preparation of dialler campaigns, SMS lists, dialler oversight, the appropriate timing of sending SMS, and the sending of email and letters. In addition, the requirement to manage multiple vendors also disappears if you utilise a single omni-channel provider.

However, these benefits are mainly operational and are only one part of the story. The other significant aim of implementing an omni channel approach is to deliver a superior experience for your customers and the key to this is channel orchestration.

Read the full post: Collections Communications: Multi-Channel Vs. Omni-Channel

Collections Optimization and Ethical Debt Management at Ultimo

Nikhil Behl wrote:

Debt remediation is at the forefront of the financial services industry's response to the pandemic, and this is leading collections operations to advanced analytics such as collections optimization. Case in point: Ultimo SA, one of the largest debt management companies in Poland and a part of B2 Holdings, will use FICO collections treatment optimization to take the ideal treatment path for each borrower.

Using advanced mathematical optimization from FICO, Ultimo will be able to identify the best, most sustainable collections strategy for each borrower, from among dozens or even hundreds of potential options.

"Our mission is to help people get out of debt," said Marek Czystołowski, Chief Operating Officer at Ultimo. "We are members of the Association of Financial Companies in Poland, we follow the Association's Principles of Good Debt Collection Practices, and each year we receive the Association's Ethical Audit Certificate. As an ethical debt management agency, we need the best way to serve our financial services partners and their customers, and using FICO's advanced data science will help us do just that. We are complementing Ultimo's market-leading collections expertise with innovative data science."

Collections treatment optimization helps organizations of all sizes strike a balance between loss reduction, resource challenges, and operational constraints to help maximize profitability, meet regulatory requirements, and manage customer satisfaction. It can be leveraged across the collections spectrum - from pre-delinquency and early stage collections through later stage and recovery activities. Using collections treatment optimization, lenders and debt collection agencies can easily and confidently choose the best decisions for account placements, settlements, channel selection, and other strategic treatment decisions.

Read the full post: Collections Optimization and Ethical Debt Management at Ultimo

Debt Collection Approaches for the Covid-19 Recovery

Bruce Curry wrote:

More and more customers are now happy to conduct communications via digital channels, and far less inclined to simply respond to 'robo-calls', which also now face regulatory scrutiny. Effective customer engagement, of course, helps lenders better align with regulatory requirements, which favour offering customers every opportunity to find a mutually agreeable debt avoidance or repayment solution.

As the industry continues to move towards more light-touch communications - digital-first, SMS, email and such - while offering extended payment holidays and freezing interest, it's in everyone's interest to try to avoid customer delinquency or deal with it as appropriately as possible.

It's a position that's clearly been flagged by regulators, which have offered clear guidance on how institutions should pursue equitable goals.

Lenders that can get the right combination of digital-first customer support are likely to reap benefits, including long-term customer loyalty. As a handy bonus, this also provides insurance against being left in the wake of more tech-savvy, ambitious peers.

Comprehensive Insight Is Key

Analysis shows that as we start to approach a post-pandemic stage in some European markets, credit cards and extra savings are already underpinning household finances. But as UK government measures to support companies unwinds, many lenders' are likely to have a far clearer picture of the pandemic on finances.

The extensions also offer a timely opportunity for banks and card issuers to ensure they continually interact with customers to better understand their genuine financial position - especially if household incomes take a hit later in the year.

The Value of Optimization in Collections

Among our strategic clients, which have successfully adopted real-time analytics and AI to help better serve customers and reduce commercial exposure, is Swisscard. It's one of Switzerland's leading credit card companies and was able to optimize early collections, driving a 50% increase in revenue from billable collection expenses, a 40% cut in net credit losses and a 30% reduction in account terminations. Crucially, customer approval was also reflected by an 11-point uplift in Swisscard's Net Promotor Score for customers in collections, through improved communication and interactions.

Another customer, Toyota Financial Services, was able to help more than 6,000 customers stay on the road and avoid vehicle repossession, while 50,000 were prevented from reaching a stage of delinquency that may have directly reduced their credit rating. Toyota's Collections Treatment Optimization program integrated advanced analytics with a cost-effective route to customer communications and optimised management.

Read the full post: Debt Collection Approaches for the Covid-19 Recovery

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