Tag: collection risk in lending

digital collection 

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. 1. Lack of customer data
  2. 2. Increased burden of regulations
  3. 3. Failure to track and reconcile accounts
  4. 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.

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. In the post COVID-19 world, loan delinquency has increased at an alarming rate. So, how lenders can focus on reducing delinquencies and loss due to charge offs but without compromising customer experience. Solution is  Digital Debt Collection

 

Here we’ll discuss how lenders can bridge this gap by effectively mapping customer segments, helping collection agencies and lenders gain some traction on data and get insight as to what motivates individuals to pay or default their outstanding debt.

 

Traditional debt collection challenges

 

Traditional debt 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
 

AI revolution in debt collection

 

Accurate customer risk segmentation achieved with the help of AI helps financial organizations enhance customer experience with personalized collection and communication strategies. The growing use of AI and Machine Learning is ushering in a new era in debt collection, one that includes an early warning for delinquency, refined methods of categorizing borrowers and optimized strategies for customer engagement to reduce defaults.

 

AI and ML can transform the debt collection practice in two ways:

 

(a) Embedding intelligence into their collection strategies

 

(b) Enhancing contact strategies through intelligence

 

AI-driven collection strategies

 

Early warning system: Advanced AI/ML analytics will translate some insights into actions such as identifying early potential defaulters using predictive modeling, notifying collectors to check on at-risk debtors proactively and provide credit counseling support, and restructuring payment plans.

 

Categorizing borrowers: Debt collection strategies can be modified using insights based on customer’s demographic and socio-economic data, salary, occupation, and historical interactions. This will ensure the right channel and follow-up actions where you will probably get a positive response.

 

Optimized customer engagement: Artificial intelligence solutions with automation bots can carry out smart dialogues between businesses and customers via email, SMS, or any social media platform. This will enable collectors to reach exactly where the customer logs in several times a day and can pay the outstanding debt online, resulting in faster delivery of receivables

 

Being risk positive with Insight Consultants 

 

Insight Consultants solution can help you accurately 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.

 

Key benefits of our digital debt collection solution

 

Reduced delinquency rates and charge offs – Through early delinquency prediction models clients can create proactive plans and prevent delinquencies

 

Enhance Customer Experience – Personalized recommendations for time, channel and tone of communication with the borrowers along with recommendations into right resolution strategy ensure most desired outcomes for both borrower and the lender

 

Improves Operational Efficiencies– Improve process efficiencies, productivity and compliance, based on intelligent prioritization of accounts along with prime time recommendations

 

Intuitive Experience – Visualize key insights with the help of configurable dashboards

 

Hyper personalization– Understand personality traits, negotiate and connect well with customers, based on analysis of e-mails, texts, public posts, blogs and tweets

 

Efficient recovery strategy – ML-based prioritizations help focus on accounts with higher likelihood of recovery and suggest appropriate channels and time for contact

With a looming risk of financial meltdown of the economy, the financial institutions will soon find themselves in the dilemma of having to choose between managing the risk and minimizing losses vs customer experience.

 

Insight Consultants can help achieve the balance between alleviating risks and elevating customer experience and create an edge over the competition using digital debt collection strategies.

Contact Us

 

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