While financial enterprises have been in the digital race lately, the industry hasn’t been able to efficiently leverage technologies in default management and subsequently improve efficiency and customer experience. With rising inflation and interest rate increases , loan delinquency has also increased at an alarming rate. With delinquencies on the rise, lenders need to transform their contact approaches now to suit customer preferences.
Solution is Going Digital.
As the evidence for a deteriorating credit cycle mounts along with increasing losses, lenders can take steps to increase institutional resilience. By strengthening collections capabilities and embracing digital communications, they will be better prepared to address any further increase in delinquencies that may occur.
Traditional collection challenges
Traditional collection is driven by focus on delinquent accounts. Led by aggressive targets, the priority is to ensure the repayment of as much of the outstanding debt as possible. Traditional debt collection methods may be putting the relationship with the entire portfolio of delinquent accounts at risk due to lack of understanding of customer behavior and inaccurate risk segmentation.
In most cases, the intensive collection strategies are just measures to overcompensate for unknown and perceived risks posed by the ever-increasing delinquent portfolio. At the core of this problem is the inability to identify risk accurately. This is a big gap and the reason for the phenomenon, primarily, lies the inhibitive cost of conventional methods of risk modeling that a lot of times overweighs the returns. Additionally, there are costs associated with model governance and maintenance of the model.
Top challenges:
- 1. Lack of customer data
- 2. Increased burden of regulations
- 3. Failure to track and reconcile accounts
- 4. Inability to execute
Despite the trend, many lenders are still focusing on the old ways of doing things. During the last recession, some firms even added staff to make more calls. Now a digital approach is needed.
Digital collection transformation
In response to rising delinquencies, shifting consumer preferences, and the current regulatory environment, leading financial institutions have begun a journey of digital transformation in collections. Develop a digital collections strategy that addresses a future-state customer experience journey and defines a set of required capabilities and investments across people, process, and technology to support that strategy.
Elements of a digital debt collection transformation
Customer Segmentation: Design modeling that leverages multi-dimensional risk factors, customer personas, and activity insights to drive optimal strategies
Personalization: Rules-based prescriptive and personalized messaging with call-to-actions and proactive marketing of payment relief offerings
Digital Capabilities: Communication channels, including SMS/text, email, chat, online banking/app alerts, and outbound automated interactive voice response (IVR), can help exceed today’s customer expectations
Reporting and Analytics: Performance dashboards, predictive analytics, and classification modeling that supports testing, decisions, and competency improvements for holistic transformation
Process Optimization: Process automation and workflow designs that accelerate performance and long-term customer loyalty and retention
Act now
Even with a sound plan of action , many institutions will lack implementation capabilities, leaving collections operations extremely vulnerable. By failing to digitize their collections operations, these institutions risk potentially crippling losses in a future downturn. Prioritize and act now. By strengthening collections capabilities and embracing digital communications, your firm will be better prepared to address any further increase in delinquencies that may occur.
Being risk positive with Insight Consultants
Insight Consultants solution can help firms identify customers in different risk categories early in the cycle and follow up by creating personalized resolution strategies, considering the financial disposition and behavioral aspects of the borrower. This will help in striking an early deal, thereby reducing the inconvenience and hassle the customer go through. We can help achieve the balance between alleviating risks and elevating customer experience and create an edge over the competition using digital collection strategies.
Let’s Talk, Insight Consultants can support your digital collection needs.
