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May 2020 | Collections | Credit Decisions | Process management
By Posted by Experian

For collections teams, the coronavirus outbreak has created a paradox

How to deal simultaneously with escalating volumes, changing FCA guidelines and high customer expectations – all while experiencing the worst frontline staff shortages most have ever seen. It’s undoubtedly a mammoth task. So where should you begin?

Rapid changes to millions of people’s incomes, triggered by the outbreak, mean huge numbers of people will be looking to their lenders for additional help over the coming months. In fact, the government and FCA have made clear they expect credit providers to be supportive and flexible, setting an expectation it will take strong teams and processes to achieve.

However hard you work to help your customers, there will be some who inevitably fall into the collections process, putting pressure on your existing resources. For the millions of people showing signs of financial vulnerability before the crisis, hardship looks likely to get worse. Meanwhile, others with falling incomes and low savings will become financially at-risk for the very first time.

To help consumers, the FCA has pushed back new rules on suspending credit cards for people with 36 months of persistent debt. Originally due to come into force in March, the changes were designed to limit consumers’ ability to build up debt. With increasing numbers likely to be dependent on credit over the coming months.

Spot the new signs of financial strain

It’s just one more reason why, now more than ever, lenders need to be able to asses vulnerability, and the affordability of products, both at the onboarding stage and throughout the lending lifecycle. You need greater visibility, insight and resilience, but escalating volumes and stretched resources make that a significant challenge – and one that’s not going away any time soon.

While pre-COVID-19 indicators of financial vulnerability included spending without funds, faster spending, excessive overdraft use, increased ATM withdrawals and a high appetite for short-term borrowing, things have markedly changed. Right now, the warning signs for vulnerability include loss or drop in income, a shift in spending to high-priority items, new or unauthorised overdraft use, greater reliance on savings and an appetite for high-cost loans.

Lenders need to be able to recalibrate their radars for these new signs of risk, listening to the warning signs, as well as tracking KPIs like roll rates and pre-delinquency levels. This ability to draw on the right data will also help you weather the storm of any further regulatory changes.

Take a proactive approach to picking up problems

We’ve identified three key strategies that can help lenders shore up their collections teams, provide the support customers need (and expect) and keep their portfolios strong. The first? Be proactive. Really focus on those signs of potential nonpayment and offer support to the people you believe are at risk – without waiting for them to ask for it.

When customers do request payment holidays, track the prevalence and type of forbearance they need. It’s likely you’ll have a high volume of requests, with many needing help over longer timeframes. You may also be restructuring loans over longer periods, suspending interest or even removing arrears. Whatever step you take, analyse your data for emerging trends.

If you’d like our support, Experian can help you quickly build an up-to-date, accurate view of your customers’ disposable income and financial health and resilience through Open Banking. Our insights include categorised bank transaction data that can be used to understand the income and expenditure of an individual in real time, proactively identifying stress and pre-delinquency.

We can also conduct digital, virtual customer interviews, gathering real-time information in a non-intrusive way, without straining your resources. This can provide validated income and risk factors associated with financial difficulty, helping to create individual, effective contact strategies.

Use tech to make life easier for your team – and your customers

Chances are, you’re working with a smaller, more scattered collections team. So, our second strategy is to take the pressure off your people by using automated processes wherever possible. Interactive self-service systems can also make it easier for customers to find answers or make a payment – taking control of their finances without needing to speak to your staff.

Our experts can help you automate manual case handling and customer communication using SMS, email, websites and automated phone systems, lightening the load, capturing details and identifying vulnerability – so you can focus your team on the areas where they really need direct contact. We’ve even specifically developed systems that can be rolled out rapidly by secure file transfer protocol, reducing overheads and helping you deploy the help you need, fast.

Refocus your energies on high-risk customers

In times like these, you need to concentrate your skills and resources on the areas where they’ll make maximum difference – for your customers, and for the health of your portfolio. It’s inevitable that processes designed to give people much-needed breathing space will experience dramatically higher volume. They’ll need to be managed properly to make sure cases are followed up effectively and customers understand their obligations.

At the same time, you’ll need to flag customers within moratorium periods and identify the impact these moratoriums will have on the credit facility being used. It’s all extra work, requiring significant increases in operational overheads.

So, as a third strategy, consider whether you could relax your approach to other areas of your collections work. Perhaps right now your lower-risk customers don’t need so much of your attention, outbound telephone campaigns could be suspended or your scorecard strategies could be used differently to let your team reprioritise.

However stretched your team, there’s a whole range of effective steps you can take to achieve big things in these most difficult of circumstances. If you’d like some expert help, at Experian we’re right by your side – not just to help you define robust plans for the current crisis, but also to help you mitigate the risks ahead and future-proof your collections team.

Find out more about Experian’s analysis of the COVID-19 crisis, its impacts on consumers and lenders, and how we can help your business through it, in our white paper ‘How to effectively manage consumer credit risk in a turbulent economy‘.