Credit, Collections & Insolvency News
The financial outlook for many people in Britain is looking very different to what it looked like six months ago. Existing job roles are under threat as employers assess what they need as business interruption loans come to an end. Furthermore, government figures reveal companies froze hiring from April to June 2020, with the number of job vacancies falling 463,000 between March and May to a record low of 333,000.
As the furlough scheme starts to wind down, collections departments are likely to be bracing themselves for a tsunami of people financially affected by COVID-19.
Proactively identify vulnerable customers
Customers in arrears, but not for the usual reasons, haven’t the typical market data to help identify and segment them which means there is a real urgency to understand the true degree of risk on these customers. Be it from call, collections or communications systems, vital information needed to separate these economic victims from the steady state collections customer needs to be found.
Information needed includes:
Without much of the above, COVID-19 related customers will be considered low-risk at the end of payment holiday periods. Priority should, therefore, be given to capture key data at the earliest possible opportunity:
This information is necessary to help understand where the customer is now, where they are likely to be for the rest of this year and beyond. Customers will also need regular communications to understand the changing nature of personal circumstances.
Better assess affordability
Assessment levels should be triaged to ascertain the degree of assessment necessary for a short-term collections solution versus the amount of validation for a long-term forbearance solution.
Look at household balance sheets and cash flow and use Open Banking data to determine accurate affordability assessments. Credit bureau data and other behavioural indicators will signpost trouble with current debt, as will the use of forward-looking analytics to detect the effect of incremental debt on default risk.
Step up communication to capture additional data to manage performance
Communication is key to stay informed about the customer’s circumstances and to segregate those who are falling into delinquency.
Additional data captured in the context of COVID-19 should include:
Apply an omnichannel communications strategy
The best engagement strategy should be led by the customer – so the question has to be how open you can make your systems to customers?
The ideal is an omnichannel approach – contacting the right customer through the right channel at the right time. Organisations that can adapt their contact strategies quickly to enable customers to auto-resolve on omnichannel platforms will be the winners. Ensure that all channels are in scope including auto voice, SMS/WhatsApp, digital direct API, email, mobile app, online or through edocs.
Manage payment holidays ending
COVID-19 customers may have a higher financial morality with a higher intent to service their debts. Now’s the time, therefore, to review your restructure toolkit. Can you optimise the selection using the right tool for the right customer segment?
For example, can you provide a temporary solution which can be automatically reviewed frequently, thereby freeing up creditor teams to focus phone capacity on those with most need?
It is essential to maintain contact to understand situational change and generate monthly updates via Open Banking, or chatbot to identify any changed circumstances.
This is a balance as you don’t want to over structure your procedures. Ask yourself these questions:
Better segment customers for treatment
Consider pre-delinquency segmentation, lockdown and payment protection segmentation and post-payment protection segmentation and how the segments change across these categories. Decision science teams need to provide regular insight as to what they are seeing and how these insights should influence customer treatment decisions.
Use advanced data-driven strategies
Mathematical optimisation is the most sophisticated analytics available to determine decision strategies and specific actions that will best meet objectives given all available data and constraints.
Optimisation in collections can be applied across the different stages of the collections and recovery lifecycle to solve different problems at each stage by defining the decisions that need to be made. It also helps evaluate and discover successful decision strategies which meet business objectives and cater to the conflicting constraints. It can also be used to explore different analytic techniques and it is vital to capture the right data for each technique and overlay decision modelling to optimise collections actions.
Optimisation can also assist in strategies to determine which accounts are best to be worked internally vs accounts that should be placed or sold.
Review of operations
With four UK tier 1 lenders announcing an expected £20.2 billion increase on impaired loans, the need for digital-led payment plans is likely to increase significantly with higher demand for loan modification so that the longer-term financial impacts can be worked through. Ultimately, companies will have to manage higher impairments and losses, which will attract C-level attention to the overall collections and recovery performance.
Given the cost of bad debt on the balance sheet, now is the time for a comprehensive analysis of policy, insight, people, processes, tools, technology, data, management information and data and analytics and strategy, to gain maximum operational efficiency.
