Are a holistic view of a customer’s income and expenditure & early arrears detection the future for collections?

27th July 2017

According to July’s Money Statistics published by the Money Charity, the level of unsecured debt in the UK at the end of May was £199.7 billion. News around personal debt will always be a topic of concern and be in the headlines but what can organisations do to help support those in financial difficulty and identify debt before it goes bad?

Even though I&E assessments have been carried out routinely as part of the collections call structure for the best part of the last 10 years, with particular focus since the inception of the FCA’s treating customers fairly (TCF) outcomes and principles for businesses, there has been little innovation in this space and the customer journey remains much the same – often dictated by disjointed and bureaucratic processes.

The benefits of early intervention

Early intervention is often ignored or underdeveloped within the collections process but can often yield the best results. Various reports and consultations looking at early arrears management, in unsecured lending especially, have also helped bring this into focus.

The value and benefit of a well thought out process supported by relevant and up-to-date technology (rather than just blanket rules and policies) for arrears management is often overlooked. A smooth and efficient income and expenditure (I&E) process at early/pre arrears stage can benefit both the customer and business. Automation via digital channels can also help improve collections practices and engagement and new innovations are now helping to shape the future of the collections and recoveries industry.

Income and expenditure from the eyes of a customer

When a customer encounters financial difficulty, they often have to prioritise their expenditure. This means seeking assistance from the credit providers with whom they may not be able to continue their service payments.

For the majority of us, this would involve contacting multiple providers to negotiate a payment arrangement or other form of forbearance solution. As part of this process, individuals may have to provide the same income and expenditure information several times to various different organisations. This can prove to be extremely frustrating and time consuming, as calls can be lengthy and each organisation will likely be using a different piece of software to capture the information, meaning different questions will be asked for each assessment.

Hopefully, the Standard financial statement will help solve some of these problems but isn’t necessarily a panacea. There are still many organisations using the Common financial statement or even their own in house version and going through a period of updating their own systems where this information is captured. A consistent approach by all organisations is needed to help improve the customer journey and final outcome.

To further compound the issue, if it is the organisation initiating the contact about the outstanding debt, it can be difficult for the customer to accurately recall all the necessary information without preparation. This creates a risk that the conversation is not a true reflection of the customer’s personal circumstances and therefore increases the possibility of a poor outcome.

Reducing risk, improving accuracy and improving the customer experience

The way we interact with each other is constantly evolving and technology is shaping the future of customer experience and as such the way we manage the collections process should also reflect this.

Investing in technology to enable creditors to capture a holistic view of a customers’ key income and expenditure information consistently and accurately will be invaluable in streamlining the process and lowering costs.

Arguably, there are five key elements in a collections journey. Using and building on existing technology, these can be significantly improved to make the entire collections process more successful, for both the customer and creditor:

1. Income validation

Traditionally, collections departments have reported that customers often understate their income when speaking to a collections agent to leave themselves with a surplus buffer if any arrangement is agreed. Conversely, the customer may overstate their income and commit to a repayment arrangement that is unaffordable and unsustainable. To combat this, many departments request copies of wage slips, bank statements or other accompanying documentation, potentially delaying matters for weeks.

Digital solutions capture current account turnover and application salary information on the majority of individuals in the UK, and they can speed this process up into a matter of seconds. This enables businesses to be confident that any decision made in relation to forbearance is both affordable and sustainable.

2. Credit verification

It is not unusual for individuals to have multiple lines of credit and neglect to disclose certain debts.

Therefore it is important to ensure that all current outstanding commitments are captured so that priority debts can be highlighted and an appropriate solution that is affordable and sustainable can be agreed.

The technology now exists to view all outstanding types of credit and time series stamped data over the last three, six, nine or 12 months. This can highlight any improvements or deterioration, giving a true view to understand an individual’s level of overall debt.

3. Household expenditure

The problem organisations often face when using common measures, such as the Money Advice Trust’s ‘Common Financial Statement’ (CFS) or now the “Standard Financial Statement” (SFS), to determine a customer’s amount of household expenditure, is that there can be quite large differences in reasonable levels of expenditure depending on the geographical location of the individual.

Using technology such as the single use sealed smart browser provides customers with the facility to simply, securely and quickly package up their bank account information for use in collections affordability assessment processes. What was once a process that could take up to ten working days can now be delivered in 60 seconds, providing the customer with a first class customer experience and removing significant operational cost for the creditor.

4. Self-serve

Customers often get contacted by creditors at a time that is inconvenient for them to be able to accurately and reliably provide all the information required to complete an affordability assessment. Equally, they may feel unable to speak to someone directly.

So, perhaps one of the most important pieces of the jigsaw is to offer customers the ability to self-serve an affordability assessment through an online portal. Also, allowing customers to re-use the data captured previously with one lender with other lenders would only be in the best interest of the customer and their overall journey.

5.        Customer Journey Optimisation

Creating affordable and sustainable outcomes is key to the income & expenditure (I&E) process. To be fair, with enough time and resource, this is possible for everyone but the real challenge is being able to do this within a process that is acceptable for the consumer in terms of time and energy and not cost prohibitive to the organisation compiling the I&E.

Callcredit provide a full I&E solution that also contains an initial dashboard assessment. The dashboard verifies the customers income, credit and uses SFS expenditure figures plus Callcredit Cost of Living analysis to account for people’s cost of living depending on their geographic location, to produce a financial assessment of the customer within a couple of minutes.

This is key for the customer journey experience as the accurate use of data and technology can determine if the customer requires an in depth I&E or immediately highlights customers that really should be referred for free independent debt advice. Rather than the lender spending 30 minutes on a full I&E only to then refer the customer for debt advice where the customer starts the process again the correct next steps for the customer can be determined within minutes. Of course there are operational cost benefits to the company deploying this method but the real win is that customer receives the correct advice and their journey is optimised to reach the correct outcome as quickly as possible.

What is clear, is that as technology shapes the future of customer experience, automation via digital channels will drive collections practices across the industry, improving income & expenditure assessments for both the customer and the creditor and hopefully facilitating interventions and contacts even at a pre-arrears stage.

By embracing new technology, like end-to-end decisioning tools that completely transform the customer experience and provide a holistic view of an individual’s level of overall debt, creditor organisations can get ahead of the curve and benefit from the streamlined processes.

James Connolly, Head of Debt and Utilities, Callcredit Information Group