Fair Isaac Corporation

05/21/2024 | Press release | Distributed by Public on 05/22/2024 04:39

Collections Strategies — Adapting to Today’s Digital Landscape

In today's value-based approach to transforming business using digital platforms, just putting in place new and flashy digital technologies is simply not enough. Real transformation needs to take place. It starts with realigning organizational structure, culture, engagement models and competencies across the organisation.

Given the environment of rising interest rates, high levels of unemployment, escalating food and energy prices, many people are under pressure and late payments are rising. They're facing extraordinary financial headwinds and struggling to service their debt on home loans, vehicle loans, credit cards and overdrafts. At the same time, there are significant decreases in disposable income.

Realigning Yesterday's Collections Structure to Meet Today's Needs

Against this backdrop, data shows that payment default rates are on the rise and are expected to increase further in 2024. Significantly higher volumes of accounts are entering collections, which inevitably puts pressure on operations, forcing many of our clients to rethink their operating models. We're also dealing with questions around insource, or outsource, digital or dialler, restructure or legal.

Customer experience is also a key focal point. Historically, CX has been a key driver during the onboarding process, but our clients are realising that applying the same approach to collections is also proving a successful route to maximising the lifetime value of customers.

Many are opting for a far more customer-centric approach, with more focus being placed on preferences and understanding a customer's specific needs, while providing solutions that are suitable for both the customer and the lender's risk appetite.

It's a common picture across the globe. The lenders who react fastest are likely to win and retain a competitive advantage over the laggards.

Digital Debt Collection and the Future of Lending

As we move into the second half of 2024, these trends are likely to continue to shape the debt collection landscape into an ever-more digitally driven environment, where the basics are no longer enough. Simply relying on intuitive strategy design, one-way messaging, or manual processing will be ineffective.

The new collections landscape means lenders need analytical and data-driven strategies, the ability to serve a growing base of digitally savvy customers, smart optimisation of back-office workflows and a tech-led environment that empowers the organisation.

The Emerging Collections Landscape

There's a need to span multiple collections dimensions to be effective and compliant. Regulations concerning breathing space, persistent indebtedness and right outcome are already in place in the UK, in the shape of Consumer Duty. Other global regions, including South Africa and Brazil, are set to follow suit by adopting similar levels of compliance and consumer guardrails.

Customers expect lenders to know everything about them, and get frustrated when collectors don't know what they should know - because the technology is available to make this happen:

  • Cloud enabling the layering of capabilities to service use cases.
  • Enterprise-wide platforms enabling advanced data orchestration and wrangling, with collaboration across authoring and decision management and immediate response to events.
  • APIs and micro services driving real-time decision and strategy execution.

In addition, credit providers have got much closer in their understanding of what drives results, including the way institutions deal with debt collection, especially under IFRS9. Inefficiency and ineffectiveness in collections has a long-term cost.

With all this in mind, let's look at where the industry stands today with regard to developing and executing more advanced collections strategies, and how we can improve strategies.

Two-Way Digital Dialogue Will Always Speak Volumes to Customers

In the past, customer communications hinged on a combination of case management, queue monitoring and alert management systems. All were there to take stock of accounts in collections. While there may have been some one-directional digital channels like text or email, the bulk of activity was underpinned by a big dialler, which is still prevalent in some regional markets like Africa.

Despite its commercial popularity, it has subsequently proved not be the best channel to speak to customers - highlighted by consumer activity at the height of the pandemic.

But now, the industry is moving on at pace with technological step-changes in stronger analytics, faster, smarter omnichannel engagement, data streaming and real-time triggers - all of which help inform the most appropriate strategy execution by leveraging data and analytics with optimisation to deliver the right solutions in place.

It means auto resolution quickly becomes attainable at scale by enabling customers to self-serve at any time thanks to orchestrated, bi-directional omnichannel solutions.

Let's look at where most collections strategies are now and what the future should look like.

Common Collections Strategies

  • Basic analytics - originations and CEM-driven behaviour score, predicted roll to default.
  • Product-level view - with minimal to no view of other product holdings or history of collections activity on those products.
  • Campaign structure - this is the focus, still driven by month-end decisioning and working in 30-day blocks. The dialler has become the decision engine!
  • Multichannel - multiple independent channels with no integrated dialogue between the differing messages, resulting in hectoring of customers.
  • Policy rules OK - the lack of analytic insights and data-driven rules means policies are used as a safety net.
  • Limited forbearance tools - predominantly term extension, no ability to use the differing instruments of restructure - interest, arrears, principal, term, step ups, balloons, settlement.

Occasionally Seen Collections Strategies

  • Cycle-specific predictive analytics - used from cycle to cycle or better to avoid IFRS9 stages. I'd certainly like to see more analytics focussed on maximising the in-cycle multiple strategies for digital, dialler and placement.
  • Customer centric:
    • View - all products and relationship data, allowing for a fully rounded view,
    • Events - synergy of treatment and relevance if holding more than one product.
    • Engagement - communication pulse across all activity, not just collections.
    • RFD, DOI & DI related forbearance - true understanding of the customer's circumstances, including reason for delinquency, duration of impact and disposable income.

Rarely Seen and Best Practice

  • Real-time prescriptive decisioning - driving best next action and extending across the 1st and 3rd party strategy.
  • Optimization - the most optimal decision targeted at an objective goal with quantification of constraints. There are 11 key areas of optimization across the C&R cycles.
  • Bi-directional auto resolution - let those that will self-serve do so, efficiently, conveniently, with confidence and trust. Aim for full self-serve forbearance.
  • Adopt a sale and return philosophy and share the hard-earned data.
  • Dynamic forbearance - how dynamic can you be to retain future good customers? From solar panels to house swap to repo avoidance optimization.
  • Only one policy - if you truly take a data-driven, customer-centric approach, your one policy for agents should be to follow the screen!

Why should it be done now? Because we have to, we need to, and we can.

How FICO Platform Can Advance Your Digital Debt Collection