Silos just won’t work anymore. But what will? Customer focus.

Figures show the people in the UK owed £1.532 trillion at the end of April 2017. This is up from £1.485 trillion at the end of April 2016 – an extra £886.84 per UK adult[1].

May’s Office of National Statistics release showed that tepid earnings growth continues to be a significant point of weakness in an otherwise buoyant labour market.

Despite the widespread strength in the labour market, wage growth continued to disappoint many. The increase in regular pay of 2.1% (in the period to January – March) was the slowest since July. With inflation jumping to 2.7%, wages are now growing noticeably slower than the price of purchases.

Spending levels are poised to increase, with more demand on collections teams

With rising costs, but a stagnant growth of income to support price increases, it’s likely that customers may be looking to borrow more money to maintain their spending levels. And, if interest rates increase in response to inflation, their ability to repay that credit could become stretched.

The economic picture is complex post-Brexit, with the fall in the value of sterling, a relatively positive outlook from the Manufacturing Index, and consumer confidence in the balance.

While the health of the economy is uncertain in the future, all evidence points to increasing pressure on consumers’ disposable incomes as inflation rises and wage growth stagnates.

It’s likely that the demand for personal loans will increase – especially among the hardest hit middle-income segments. This will require organisations to undertake in-depth affordability assessments, as well as preparing their collections teams for a possibly busy time ahead.

Debt levels and the customer journey

Businesses will undoubtedly be looking at what they lend and to who. Any financial assessments that looks into what customers can afford to pay is critical but shouldn’t be limited to today. With so many economic influences – as well as social ones too, considering the person’s projective credit risk is essential. Let’s look at the customer journey in more detail:

  1. Acquiring

When looking at new customers many businesses face the challenge of identifying the right demographics to lend to. What they are today, may not what they will be in 5 years. Take the much-reported Millennial, they are going through probably the biggest series of life changes. From purchasing their first homes to getting married right across to starting families. How much they can afford will dynamically change over the course of a few years. This doesn’t mean they aren’t credit worthy, but it does highlight eventualities that could influence your lending decisions.

Pre-qualifying these customers can help you determine whether they match your credit criteria or not – but more importantly, saves you and them time.

  1. On-boarding

While you will have already identified who you want to approach to become a customer, doing so efficiently and accurately is imperative. A common expectation is that this is done digitally, using online applications and processes (read more in our white paper on digital on-boarding).

You may, or may not, have pre-qualified them at this stage – but, either way, a full assessment of what they can afford is essential. There are numerous ways this can be done – and the most accurate would be to overlay relevant data sources and scoring.

Ensuring your scorecards are up-to-date will be critical at this step. If they haven’t been updated for a while, then do they reflect today’s economy and today’s circumstances? Accurate scoring models will enable you to offer the right products, at the right price to the right people – or, potentially not offer anything.

  1. Managing

You have taken on a customer and they are now part of your brand. What next? Well, managing them. Stopping or scaling back any contact with them is not good for your brand as it doesn’t become a part of the person’s brand portfolio – you could be forgotten and used as a commodity. Equally, bombarding them in a way that doesn’t suit them could be deemed as frustrating and unnecessary. You have an opportunity here not only to interact with them for operational tasks such as statements and dated communications, but an opportunity to understand them better – and use this understanding within your communications to them – offering a more personalised and related communications plan. If you do this, you can give them a much better experience – giving you an opportunity to grow the relationship.

How you engage them will be critical. I’m not talking about the difference between an online account and paper, I am talking about what you offer them, how you provide it to them and when. I am talking about making things easy, convenient – and accurate. To do this you need to understand them. Do they prefer paper or online? Do they transact (spend and settle), or revolve (carry credit over month by month?) and more. Transactional and behavioural data can identify some key areas that can inform what you do. This could be automated for you too – making it an integrated part of the customer management process.

  1. Collections

While reducing credit risk levels is a huge factor to Credit Risk teams, some customers will inevitably fall into arrears. And, as we explored at the start, a changing economy can bring unexpected challenges to you and your customers. They may also be at a different life stage and therefore present a different level of risk compared to the day you onboarded them. At this stage, nothing different applies. Should they fall into arrears however, nothing different to what we’ve outlined should happen. They expect the same level of service and deserve the same level of excellent customer experience they received at the point of purchase.

There are practical steps to take and just because you are collecting from them, this shouldn’t change.

Using data that is accessible to you to better understand their complete financial situation should be a priority. This way you can understand their entire situation to help them with the best next action. Models and decisions can help you determine the specifics of what this looks like and automation can help you prioritise who you need to spend time manually supporting.

When a customer purchases something, typically, they will do this online. Whether a new jacket or applying for some form of credit. So why should this be different in collections?

Empowering your customers to self-manage their arrears through a digital interface could be the difference between helping them and hampering them.

The lines are blurred

Credit Risk, Collections, Operations and Technology teams are now faced with a fresh set of objectives. A synchronised set: how any action can help the customer.

While collections and operational teams are looking to recover as much debt as possible, they aren’t blessed with additional resource. Automation is therefore critical as is compliance to create the right customer experience.

Credit Risk, focussed on managing debt levels in accordance with the risk appetite of the business, are striving towards actions that balance the overall business success. The role is to manage risk – and this is their primary objective.

Then you have technology. The teams who are focused on the best technology to deliver any action or process. Looking at infrastructure not only from a single department remit but from the perspective of a wider programme. Integrating any change into the overarching platform.

While these areas have distinct roles – what they don’t have, in their traditional descriptions, is customer service. But every single area does deliver some form of customer service – even if subconsciously and not through interacting directly with the customer. Whether you are deciding on a loan, or actively managing customers throughout their lifetime – or leading the technology that will deliver it to the end customer – they are all customer facing. Neither area can hinder the experience of each other and each need to work together.

Time has brought new developments in customer decision technologies

We have seen some significant changes in this over time and tools such as pre-qualification, data pinning and automated software have meant huge developments could be made where decisions lead the customer journey – and not vice versa.

But, what’s next? Some departments, such as collections teams are now having to catch up. Previously being focussed on a single task of recovery, they now need to think about the customer. What this means to them, how they can be helped – and how they can do it compliantly.

Silos just won’t work anymore. It’s now down to deciding what infrastructure is needed, whether technology-based or customer-based. A good platform that knits together all needs and helps protect you, and your customers – is the way forward.

Want to know more, or need assistance in reshaping your collections strategy? Then get in touch.

[1] The Money Charity