Optimizing collections, the next big challenge for lenders
To help those borrowers, governments and banks have rolled out a wide range of initiatives in the form of loan restructuring, furloughs, payment holidays, to name a few.
But pandemic-related economic support will not continue indefinitely. Lending institutions will soon no longer accept new applications for payment breaks. But what happens when payment holidays end?
Many customers will require assistance as they emerge from the pandemic. Some institutions have begun to recognize this challenge.
To settle an account balance, most organizations dealing with receivables management would need to contact debtors many times, especially if the amount owed is to be recovered in instalments. So, one can easily understand the sheer magnitude of communications required for a successful collections process.
If banks and credit management companies are to fight back against the potential rise in the number of non-performing loans (NPLs) after the COVID-19 pandemic, they will need to improve their collections processes and adopt a digital-first collections strategy.
A recent McKinsey research shows that lenders that have implemented digital-first solutions have seen reductions in NPLs of 20 to 25 percent, and more than 25 percent boosts to customer engagement.
Reduce the cost of collections with a digital-first solution
Financial institutions and collection agencies have their own debt recovery and write-off processes and regulations. They should choose an industry-specific solution that meets all of their needs rather than a generic offering.
VeriLoan’s collection module designed for the lending sector provides end-to-end collection automation for the lending sector improving cash flows and optimizing collection costs.
McKinsey's research shows that lenders that have implemented digital-first solutions witness their cost of collections has fallen by at least 15 percent. VeriPark customers also witnessed a significant reduction in collection costs following the implementation of VeriLoan.
Using analytics to assess their accounts receivable portfolio, and automation to increase productivity, institutions can adjust their collections strategies and focus their efforts on the accounts that need them most.
Debt collection activities can only be successful if debts can be settled at the minimum possible costs to both parties. This also works well to protect debtors from the debt ratio continuously growing due to interests, default interests, charges, etc. Only in this way can lenders be viewed as collaborative and transparent, offering customers every opportunity to find a solution.
Manage end-to-end collection processes in a single automated platform
A digital collection solution provides you a holistic capability to manage all your collection processes from a single platform for both retail and corporate loans, regardless of the channel used by the customer.
VeriPark’s ability to integrate in both ways from CRM to channels and vice versa supports multiple collection strategies to handle all debt collections from a single framework based on options such as automated routing and assignment for customer service efforts, SLAs and escalations.
Customers can create a service request in any of the channels (by visiting a branch, calling the contact center or via a mobile banking app, IVR - interactive voice response, chatbot, ...) in order to ask for a payment holiday, loan restructuring, or even make payments for overdue loans.
With the help of a single framework running at the backend, these service requests captured from any channel become seamlessly available in CRM, and can be automatically assigned to individual representatives or agents. Configuring SLAs for collection tickets and having an automated CRM service workflow moving this ticket from one team to another would improve your chances of being paid.
With straight-through processing (STP), the collection process can even be automated from start to finish without any manual intervention, thus minimizing agent interaction, eliminating handling time, reducing errors, speeding up transaction processing times and reducing operational costs.
VeriPark’s Digital Collections solution sits on top of Dynamics 365 CRM. As a result of this CRM integration, all your customer-facing team members including contact center agents, branch employees, direct sales agents, etc. have access to Single Customer View (360-Degree Customer View) from a central and unified interface, making customer data accessible to those who need it through their browsers, Outlook or tablet apps.
VeriLoan’s Collection Module also integrates with the core banking systems, external systems and other third-party applications. This integration ability eliminates the need for looking through multiple systems and increases the collection team productivity.
Structure the steps in the collection process with minimal effort
A digital collection solution allows you to configure complex debt collection flows easily. You can structure the steps in the collection process to create automated customer journeys and build an automated workflow.
A basic collections journey might start with the bank or the credit management company selecting a segment of customers whose “due date is approaching”, scheduling and sending a proactive SMS to remind them that their payment date is approaching.
If the loan is not repaid on time, you can trigger a second and then a third reminder including SMS, e-mails or push notifications to notify customers of the overdue amount. You can always generate or assign new tasks such as a scheduled follow-up outbound phone call for Collections Officers and trigger collection workflows.
An automated collection system can also be used to send copies of invoices, account statements and letters to your customers. If the borrower intends to pay, the system can send a payment link. If the borrower is not reachable, the system can repeat follow-ups via call, email or SMS. If the debtor does not respond, the system can launch an investigation or take another action you deem fit.
All you need to do is choose a trigger that starts a sequence of actions and sets everything in motion. The only limit is your imagination here.
Migrate customers from assisted channels such as call centers to self-service
Self-service channels such as banking apps, web pages, chatbots or digital collection portals empower today's digital-savvy customers to request payment holidays, restructure existing loans or even make payments for overdue loans.
They combine digital channels with a variety of payment options including bank transfers, digital wallets, mobile payments, micropayments such as a secure payment portal accepting payments by credit card, for example.
Instant and automated reminders and almost real-time interaction with the customer can increase your chances of being paid sooner. And digital push notifications through self-service channels are also less intrusive and less costly than outbound calls.
Self-service automation can also improve efficiency. When routine yet common tasks are automated and customers migrated to self-service for collection activities such as change of address, making automated payments or filling in online forms, time will be freed up for employees to focus on higher-value activities such as engaging with customers effectively for a smoother collection process delivering higher collection rates and faster pay time.
Effective segmentation is key
No matter how good you are at checking the creditworthiness of a new customer or assessing a company's financial health, there will always be some accounts that become delinquent. Sometimes even your best customers end up being your biggest concern.
Take an existing VIP customer of a bank, John, for example. He is a high-net-worth customer of Bank A and even has a personal customer account representative with a velvet-toned voice assigned to handle VIP customers.
However, his wife has missed credit card payments a few consecutive months due to health issues during the pandemic and Bank A starts sending frequent reminders via SMS, email and phone calls because they see her at a higher risk of defaulting on future payments.
Receiving multiple harassing calls per day over a relatively small amount from Bank A or a debt collector in a situation where personal health concerns are the main priority, it is guaranteed that Bank A loses two customers in this high-net-worth household and even do not observe when or why they are lost. This is a sure-fire way for institutions to damage the relationships with a customer who could bring a lifetime of more business.
If Bank A had built a holistic 720-degree household view of their customer portfolio alongside a single customer view (360-degree customer view) using a digital collections solution like VeriLoan, they could have understood that a customer's household is also a critical component of their customer engagement and debt collection efforts.
VeriLoan’s Collection Engine built on top of Dynamics 365 enables financial institutions to have access to detailed insights into the customer lifecycle, identify potential customers who can be offered a long-standing relationship with the bank, segment and classify their customers into debt buckets based on account profile and history, amount due, etc. and implement a collection strategy per segment.
Contact customers on their preferred channel(s)
Different customer segments will use different channels and tools. Lenders should aim to reach customers first through their preferred channels. According to McKinsey, this alone can lead to a more than 10 percent increase in payments. And “digital-first customers contacted digitally make 12 percent more payments than those contacted via traditional channels”.
All your tech-savvy customers do not have to be necessarily young millennials, but they are those who utilize mobile banking, online banking and check their emails regularly. Offering online payment options by including a hyper-link on your invoice connected with a secure payment portal can make ‘one-click’ collections a reality for these segments.
Some customers might not be that tech-savvy and need customer support agents to help them out. If you are trying to reach your customers by sending repetitious emails and they don’t check their emails, then that's a waste of time.
In a world where customers are struggling to speak to an advisor about their situation and get support regarding their finances, it is very important that you offer advice on how to resolve payment processing issues. Helping them book an appointment with an RM or call the contact center makes it easier to get through to you in whichever way they want. If the matter is urgent, live video chat can be used as a way of responding to the customers’ sense of urgency and meeting their needs instantly.
A digital collections solution like VeriLoan can help you develop and execute a customized communications plan for each targeted audience and optimize your communication schedule and tools.
Enhance compliance and transparency
Transparency is one of the key factors for growth in the lending sector, as customers continue to expect complete transparency across all their transactions as well as in collections.
Regulators are also placing more emphasis on ensuring that the institutions’ practices are aligned with consumer protection rules. Regulatory developments and digital changes in business models such as open banking are promoting the development of banking APIs and open access.
The Collection module also improves a creditor’s ability to do proper affordability checks by collating information provided by the customer along with open banking data taking into account customers’ consolidated financial data such as disposable income and expenditure from multiple institutions. By collecting credit reference information, the system creates a single view of a consumer’s financial position and calculates affordability and disposable income. Depending on what the affordability check calculates applying relevant rules across multiple products, it is easier to ensure the collection happens as per the agreement with the customer and the regulations. This presents a win-win situation for your business and the customer under the right circumstances.
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