Can customer-centric collections benefit your entire operations?
How often does a bank try to understand the full extent of a customer’s relationship with its organization?
Consider this example: A customer has had multiple accounts with your bank for the last 7 years with an average annual balance of $35,000 in her savings account and a credit card account whose payments have been received before the due date every month since the account’s origination. She took a personal loan of $25,000 last year for a period of 3 years. However, for the last 2 months she has missed her payments. What does your bank do? She has been a loyal customer of your bank for the last 7 years and continuous payment reminder calls could upset this long-standing relationship with the customer. The right approach in such cases is to adopt a customer-centric philosophy across your organization.
Banks often have an ingenious habit of servicing their customers’ accounts and not their customers. Though profitable in financial terms, it does not help in building a long term and healthy customer relationship. For customers with multiple accounts, banks should consider their aggregated value to take business decisions – especially when only one account is in default. An organization-level, customer-centric approach becomes an important virtue for banks to follow in such circumstances. Consistent customer data with details of each product line on a single dashboard (i.e. a unified view of customer) helps banks to coordinate their collections decisions leading to a more informed and appropriate collection strategies, higher recovery and better customer experience. The next step is to identify a unified organization-level communication strategy where decisions are based on policies regarding payment priorities.
A Unified Communication Strategy is key to achieving collections success
An organization-level communication strategy for collections should be based on payment priority rules that promote a customer-centric approach throughout the Collections life cycle.
- Borrowers who are in the early stages of the collections life cycle may simply need payment reminders or information on alternate mode of payments. Using data analytics, banks can identify such customers who historically self-cure early in their collection cycles. Upon identifying such customers, Banks can use modern methods such as reminders via text messages on mobile phones or emails to reduce efforts on collections calls thus significantly reducing collections costs.
- Borrowers who are in late stage of the collections life cycle can be offered incentives such as creating their own repayment plan to achieve a waiver on late fee charges if they proactively agree to pay as much as possible. Banks can uses data analytics to predict expected losses from such accounts and create strategies to negotiate late fee reductions based on those expected losses. Such customer-centric approaches can significantly improve collections results for a bank.
Curtail regulatory risk using a customer-centric collections approach
In the USA, CFPB and other regulatory authorities are continuously monitoring banks’ collections approach relative to the Fair Debt Collections Practices Act (FDCPA), State Laws and the Unfair, Deceptive or Abusive Acts or Practices (UDAAP) standards. A bank’s communication strategy which is customer centric and favouring borrower’s preference will help in mitigating regulatory risks related to collections.
A unified customer-centric approach is important at all the stages of debt collections. Using an automated technology bundled with smart lending analytics will help streamline the collections process, boost recovery rates and lead to better customer experience.
How Nucleus can help?
FinnOne Neo Collections bundled with smart lending analytics promises higher customer centricity. It uses customer dashboards to give a unified account view, data analytics-based decision making for communication boosting recovery rate and predictive analytics for better risk management. Specifically, Nucleus’ predictive and prescriptive collection analytics can help ‘collection optimization’ in the following scenarios:
- Pre-delinquency Treatment: Payment Reminder Strategies can be developed for accounts prone to moving into the delinquency stage. Early warning strategies and customer segmentation can be done using Strategic Planning through Expert Scorecards.
- Early Collections Strategies: Segmentation can be done using early delinquency stage accounts. Based on this segmentation, profiles be recognized as self-cure accounts, high risk accounts and rolling accounts. After identification of account types, strategies can be built on contact time and frequency which in turn increases the overall ROI of collection efforts.
- Late Collections Strategies: Account moving into late delinquency stage can be segmented and Scorecards built on those profiles. Further collection strategies can be developed using Expert Scorecards, based on system generated scores and risk priorit