Debt collection is challenging even during times of economic expansion, so when a recession looms, banks and lenders (and the customers you serve) are in even more of a bind. Higher interest rates are making debt more expensive and potentially more challenging for customers to stay current on payments, especially when facing job loss or other consequences of a recession. This means defaults are rising. Meanwhile new (and constantly changing) regulations put banks at risk of heavy fines for breaking the rules, especially around consumer protections.
This current economic reality means that banks, lenders and credit servicing agencies need to take a hard look at the ways they communicate with borrowers, especially in default or collections scenarios. Improving the content and delivery of your communications has positive short-term implications, to be sure. But it can also result in higher longer-term loyalty when the customer seeks access to credit again in the future. If you treat a customer well during financial difficulties, that can form a lasting impression that results in additional revenue down the road.
So how can you reduce risk of potential losses and improve the customer experience, while staying compliant with the Consumer Financial Protection Bureau (CFPB) and other regulators? The research is clear: traditional methods aren’t working anymore. Even before the pandemic, the average collections rate was below 20 percent, the lowest in 25 years, according to EY Parthenon. Moreover, banks’ outbound collections strategies have been costly and inefficient, with their success rate standing at roughly 5 percent. Despite poor response rates, 65 percent of bank-initiated contact related to debt collection is still through “traditional” channels (phone, voice, mail or letter). Meanwhile CFPB has already put limits on channels like phone calls.
With that, it’s no surprise that lenders are shifting to digital channels for communications:
- Digital-first customers who are contacted through electronic means make 12% more payments than those sought out through traditional channels, according to a 2019 McKinsey report.
- Lenders favoring digital-first solutions have seen monthly installment payments triple across portfolios and the cost of collections fall by more than 15%, McKinsey reports.
Not only are digital methods more effective, but they also hold the potential to demonstrate that empathy. Frequency of contact, tone and the ability to “opt out” are tracked much more easily via digital channels, with some technology solutions offering a full audit trail of every communication sent and received.
Modernizing Collections Communications
Lending and default operations leaders should look at these four areas related to digital-first customer conversations to improve total performance:
- Think about a holistic collections customer journey that makes it easier (and less embarrassing) for customers to get the help they need online, when and how they need it, while improving the amount you can recover. Make it easier for customers to remain current on their payments with digital reminders. Make it easier to consider simplifying repayment with debt consolidation, pointing to digital resources. Replace paper or static web forms with smarter digital interviews that guide borrowers to request a skip-a-payment, loan deferral or modification. Equip your contact center with these as well, so they can lead customers to the right offers.
- Make it easier to update language in your communications across every channel. The more you can empower business users instead of IT to make changes to dunning letters and digital forms – the greater the business agility. At the same time, give your contact center reps places where they can personalize correspondence to the individual to provide a better customer experience, while locking down other sections to ensure compliance. Make it easy for a customer service person to see what communication was sent to what customer, in what channel. And find a solution that gives you a full audit trail on who changed what, when, to support your compliance team.
- Use content intelligence tools to optimize your collections communications for impact. Messages should be clear and easy to read. This is important for regulators too, as noted above. Content intelligence tools are popular for just this reason: they allow you to optimize the readability, tone and sentiment within your communications, enabling you to focus on what you are striving for – truly engaging with your customers. Artificial intelligence tools can also help you coordinate across channel, so you can start maybe with email or SMS, and then fall over to print and mail letters automatically based on customer response.
- Look for customer communications solutions that are cloud-native and have API-driven integrations with best-in-class tools and workflow automation. Many organizations are moving from on-premise credit management solutions to composable, cloud-native solutions, like Salesforce or CGI Credit Studio. When you connect your CCM solution to core collections systems like these, or process automation tools, you can automatically trigger the right communications at the right time, which can help improve repayment rates.
Whether borrowers run into financial challenges affecting their ability to pay – or they simply lose track of the due date – it’s important for lenders to communicate with empathy. This is especially important when it comes to vulnerable or at-risk customers. No one wants to end up in collections, but it can also represent an opportunity to build the customer relationship.
Learn how the Smart Communications Conversation Cloud™ platform enables banks and lenders to solve these challenges, and about our integrations with core systems and download the eBook: Changing the Lending Conversation.