After the 2008 economic downturn, the industry threw more resources at collections, often with underwhelming results. With the economic outlook for the coming years unclear, you need to be smart about how you manage collections to treat customers fairly and make the best use of your resources.
According to the FCA, 9 million people are in ‘serious debt’. And the Money Charity echoes this reporting that the average household owes £29,379 excluding mortgages (112% of the average salary). 247 people a day are declared bankrupt or insolvent with 2,012 CCJs being issued a day, and 18 properties were repossessed every day last year.
They also predict that this level of debt isn’t going to subside and household debt is expected to reach £2.6 trillion in Q1 of 2021 (which currently stood at £1.5 trillion at the end of March). The UK debt trends highlight the breadth of possible challenge that your customers could be faced with in the not so distant future. And the challenge that you may need to resolve. Or prevent.
Let’s explore what else is influencing and impacting collections:
The regulatory focus is now more service led and will continue to evolve
Regulatory focus is much more service led. The customer is at the heart of everything you, we, and the regulator does. This includes the importance of making sure you provide clear information and making sure a person’s circumstances are absolutely understood and considered appropriately. For example knowing why the treatment that is being applied, is applied.
It isn’t about a queue, it is about being proportional. But what does proportional mean? It means addressing a person’s entire financial situation when necessary, and proportioning arrears management in accordance to it. Unfortunately, your debt may not be the first on the list – and possibly, shouldn’t be.
To break it down:
- Fair customer outcomes must be at the heart of business culture, with appropriate management information (MI) in place to measure the six (Treating Customers Fairly (TCF) outcomes
- Customers must be provided with clear information and kept informed accordingly, of all the possible options/outcomes available to them
- Customers circumstances are to be fully considered when deciding on the most suitable outcome for all customers
- Business’ should implement and frequently evaluate the effectiveness of your customer treatment policies
- Business’ must be able to evidence, at a customer level, why any strategic treatment has been applied to the account
Traditional focus and practices are now evolving into much more compliance driven outcomes. Every action is underpinned by protocol and governance. Debt collection should be informed by how much the customer can afford.
Digital technology has influenced collections strategies and processes
The traditional ‘call and collect’ method is no longer appropriate.
The digital revolution has been creeping into collections activities for some time with alerts and demands for money sent by text and email. But this may not be how the customer wants to be contacted – and therefore you should question ‘is it helping the customer?’ Giving your customers access to tools and the ability to self-manage their debt may be a better way for them, and you.
One way to do this is to invest in the right digital collections strategy. This allows you to gain a much fuller understanding of a customer’s situation, to prioritise customers who are most able to pay, and to ensure that all repayment schemes are affordable and fair. Many people actually prefer digital interactions, finding them less onerous or intimidating than speaking to someone in the contact centre.
In fact, 75% of customers have stated they want to use their smartphone as a mechanism for self-service. Smartphones are an integrated way of life. So why wouldn’t they want to use them in a debt collection situation too?
People struggling with debt prefer to create their repayment plans online to help manage their borrowing commitments, according to our research. Our research also highlights a growing trend for individuals who want to settle their debt without having to talk to anyone. This is, in part, to avoid confrontation and take back control of their finances.
It’s also important to accept that arrears may be a simple mistake. Being able to interpret when they are a mistake, is crucial. By doing so you can look to protect your customer relationship and any future dealings. A simple prompt reminder when a payment is missed may be the difference between a debt being settled – and, in this instance, a genuine mistake. Looking into whether it is a regular occurrence, and identifying trends, using credit data, can equally enhance your knowledge of the circumstance.
But, for those that have fallen into difficulties, the three most popular options (among UK adults) when it comes to dealing with debt are:
- nearly one in three (32%) would prefer an online option as their first point of call for a repayment plan following a missed payment
- 23% would choose to go into a branch to discuss repayments face to face
- for 20%, the preferred option is to do this over the phone
The convenience and ease of online planning is the main reason that people would opt for an online route (62 %). However, a desire to avoid stressful phone calls, letters and conversations are also popular reasons for going online.
Digital collections are much more customer friendly. They can also be rewarding for your brand too – with 27% fewer complaints.
But, how do you effectively respond to a rapid growth in volumes and/ or a constrained budget? Especially when increasing your workforce is probably not a viable option?
Three approaches that can help:
- Significantly reduce the time spent capturing income and expenditure. By phone, typically this takes 40 minutes. Online is around 15 minutes. As an extra point online isn’t as intrusive or off-putting. Digital collections management can be implemented in a shorter timeframe too.
Within a few months you can have an infrastructure that can save you up to £150,000 compared to traditional collections that saw many organisations working on a list based process.
- Optimise your collections. Interpreting data through predictive models can give you a proposed plan of action that is based on a personalised understanding of the individual. Understanding and responding to the methods your customer may prefer, and be more receptive to.
Even shorter to implement in a few weeks, it can uplift your performance by nearly a third.
- Using an integrated platform can underpin both income capture and recommendations. Platforms such as PowerCurve Collections enables you to make sophisticated decisions that are right for you, and your business. It provides a customer interface that enables them to manage their repayments themselves – digitally.
Not only will this remove cost, but it can give a much better customer experience.
By incorporating credit decisions into the equation you can be sure that at every step you are making a decision based on an individual’s circumstance. You can be assured that you are working towards a compliant process as each action is managed according to regulations. In turn, you can focus your resources on the cases that need extra support.
Experian’s Collections Management addresses the collections challenges facing credit lenders by focusing on four core pillars:
- Operational Collections, to manage cases from pre-delinquency through early to mid-collections using automation to improve efficiency;
- Strategic Collections, where segmentation strategies are designed to develop deeper customer insight and increase the effectiveness of the collections process;
- Collections Advanced Analytics and Consulting, where advanced analytics and scoring models can be used to provide key insight for competitive advantage;
- Optimising Collections, where overall performance can be improved by applying the ideal treatments across customers, products and channels
Find out more about Experian’s collections solutions.