In March, when the economic ramifications of the virus began to emerge, lenders were immediately inundated with payment holiday requests. Collections departments, where the brunt of the operational work lay, promptly deployed temporary freezes often in the face of higher call volumes, a reduced workforce and system constraints.
In this blog, Nevan explores six steps you can take to ethically refine your collections strategies to prepare for future challenges.
While this initial rush of payment holiday requests has concluded, collections departments should brace themselves for the many new challenges that lie ahead – with a bounce-back in the economy an unlikely scenario and the payment holiday scheme set to be extended to October.
With this in mind, here’s six pointers to help lenders prepare for and overcome the challenges that lie ahead:
1. Review all current strategies
The government-backed payment holiday initiative has led to an effective freeze on arrears statuses of the hundreds of thousands that have taken up the scheme. This intervention, combined with widespread changes in credit behaviour due to the lockdown, create a mass of disordered data that will play havoc with collections actions via sub-optimal models and strategies.
For example, an account in early collections may have a payment holiday in place that is masking underlying issues that are not related to Covid-19. For this account, late-stage collections actions are more appropriate. Another worthy point to note as we enter a downturn period is the impact of the reduction in price that debt purchasers will be willing to pay.
These factors and more should prompt a review of the suitability of current collections strategies. Lenders should consider introducing tactical approaches to maximise collections performance through this challenging period.
2. Devise new segmentation
The key to managing losses from payment holidays is to differentiate between those customers with short-term liquidity shortfalls from those with more serious longer-term financial impacts. Lenders with access to deposit account information have an advantage, but for everyone else, this segmentation will prove challenging up until the point where bureau data reflects those customers’ struggles with repayments.
Internal credit application data should also be used to understand the likely customer profile and determine contact prioritisation.
Segmentation tailored to this unparalleled crisis will enable lenders to prepare suitable strategies based on individual circumstances with the objective of reducing losses, whilst ensuring delinquent customers are treated fairly.
3. Digitise where you can
Lenders must prepare for two further peaks in operations:
- Extension of the payment holiday period.
- The conclusion of the entire scheme, which could signal a rise in arrears or the deployment of further forbearance measures.
Digital self-serve points, virtual agents and non-phone outreach frees up agents’ time, enabling them to focus on specialist cases. Open banking-based solutions could be used to facilitate the increased need for income and expenditure assessments as income and spend patterns continue to fluctuate.
Never has there been a more appropriate time to explore the range of digital solutions that are available to ease the pressure on operations, particularly Collections teams.
4. Run deeper assessments
The initial rush to issue payment holidays may have impeded a thorough assessment of each specific application as well as the gathering of any relevant data to understand the customer’s individual circumstances. Gathering specific information such as the customer’s employment sector can help to inform future decisions on collections actions and the deployment of further forbearance.
Moreover, gaining an understanding of willingness and ability to pay in this crisis will enable you to introduce more personalised messages to your customers.
Investing in a more tailored and thorough assessment for the next wave of payment holidays, and understanding the resulting outcome, should lead to more successful collections outcomes.
5. Be empathetic
The scale of the downturn is as yet unknown, although it is clear that many businesses will not recover; many employees are already suffering from a reduction or even a complete loss in income.
This can be an incredibly stressful time for households as they try to cope with financial hardship – often for the first time. The most tragic outcome from the pandemic is the loss of life that many households will have endured.
The human side to this crisis must be front and centre of contact strategies with frequency and methods of contact altered as well as agents briefed and trained to be empathetic to individuals’ circumstances.
6. Measure outcomes more effectively
Understanding the effectiveness of your collections strategies at a high level is great, but do you know the contribution to a successful collections outcome made by each incremental step? Whether it was the letter, the outbound call or the SMS intervention that prompted the response, and what combinations of activities genuinely add value?
Artificial Intelligence (AI) techniques that underpin our marketing attribution services can also be deployed to optimise collections activities, by exploding each sequence of activities into a multitude of theoretical journeys, measuring the effectiveness of every combination of actions.
Collections activity produces a myriad of rich data such as Dialler contact attempts, call outcomes and agent notes. This data can be difficult to access and interpret, meaning that traditional modelling methods can struggle to accommodate it. AI can exploit the use of these additional data sources finding powerful patterns within the data.
With a long period of economic instability lying ahead of us, collections strategies - which tend to deteriorate quickly even in benign periods as they are often play catch-up with operational and regulatory changes - will benefit from regular re-generation to keep them optimal, a feat which is considerably more practical using automated AI modelling solutions.