Treating your customers fairly, don’t let them fall into a debt trap!

Regulatory bodies are focusing increasingly on treating customers fairly which has resulted in a deepened scrutiny on businesses across a variety of sectors. One of the main challenges organisations face is that they need to determine if a product is suitable based on initial and ongoing assessment of individual circumstances while still providing customers with choices.

To add to this challenge lenders need to quantitatively prove that their customer decisioning processes are fair, according to regulatory guidelines. Regulators will increasingly look at negative outcome-based metrics, such as default and delinquency rates, as part of their “fairness” assessment and will scrutinise these factors when determining whether or not a product was fairly offered.

This means that while businesses can’t take premature collection actions, they must also treat a customers’ financial well-being paramount from the start of their relationship with the customer. This will help prevent delinquency from occurring in the first place.

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Strategies that focus on the customer to prevent difficulties are referred to as pre-delinquency treatment strategies. They aim to identify those accounts that show indications of rising risk, but are not yet in debt. It is usually best to implement measures that encourage the customer to self-correct or to initiate contact with the lender.

It might sound obvious but the large majority of customers do not wish to become delinquents and an organisation that helps them prevent this from happening will increase loyalty from its customer base and its retention rate. The most successful organisations are the ones that have a positive and pro-active approach to helping customers who are struggling to pay their bills. It is critical to first accurately identify this population of customers and then to work collaboratively to help them manage their financial situation more effectively and to prevent them slipping further into arrears. You can do this simply by communicating effectively and appropriately and by providing advice and self-service tools to enable them to help themselves take control of their finances.

The importance of this is recognised by most businesses and they try to identify customers with rising risk or changing circumstances in order to adapt the offering, communications or enroll them onto a Customer Payment Assistance Program if the changes are significant. This enables proactive adjustments to products, terms or the level of customer service, for example. In doing so, businesses can demonstrate fairness while at the same time improving retention and customer satisfaction.

If you want to learn about how Experian’s decisioning solutions can help you increase profitability and customer lifetime value through more effective pre-delinquency treatment strategies please don’t hesitate to contact us on 0844 481 5638