Author: Reshub Peer, Solutions Consultant, Q2 Sydney Office
The COVID-19 pandemic has left many economies reeling. In some countries, unemployment is at levels not seen since the 1930s, and the drop in economic output, even in the biggest economies, is staggering. As economies grapple with these stresses, new problems are likely to emerge. The fallout and the recovery are both unpredictable.
Financial institutions (FIs) have played an essential role in helping mitigate the effects of COVID-19, quickly disbursing funds to those requesting them and offering payment holidays on mortgages, credit cards, and other lending vehicles. In doing this, they helped improve relationships with their account holders. But many credit providers are preparing to resume customer payment obligations while borrowers’ financial states remain largely fragile. The behaviour of some prominent FIs during the global financial crisis of 2007-2008 has not been forgotten, and the sector can ill afford another dent to its reputation. Put simply, a tough collections strategy won’t be well-received (nor will it get money flowing back into the institution). So, how can lenders collect debt successfully and sensitively?
Many will need a new collections and delinquency strategy. But what might a reimagined process entail? The following recommendations can help build a solid plan to help safeguard FIs’ reputations and relationships alike.
- Use technology proactively
Lenders collect debt in a very particular way, primarily using only a narrow slice of available customer information. Post-COVID-19, lenders will need to leverage new and alternative sources of information about their customers – as well as information about macroeconomic conditions so they can more accurately model outcomes, identify early warning signs, and assign levels of risk. Lenders can also leverage technology to deal with the likely unprecedented scale of collections they’re about to make.
- Help customers restructure debt ASAP
The technology lenders use to provide a more holistic view of their borrowers’ financial lives can also be leveraged to provide information for intelligent restructuring. If lenders use artificially intelligent (AI) technologies to generate personalised restructuring solutions for customers, it may increase the likelihood of collecting debts in full. And because AI is scalable and faster than humans, lenders can spot problems early and relieve pressure on borrowers in good standing.
- Provide personal help in managing hardship cases
Empathy is essential during difficult times, and can become a strong differentiator for lenders that provide personal support to borrowers in hardship. A personalised and empathetic approach to collections can bolster compliance, helping ensure FIs have followed all regulatory recourse that their customers are entitled to – instead of taking a one-size-fits-all tactic.
Engaging borrowers properly, with more than just a red letter or an automated call, will encourage them to make what payments they can and prevent a debt spiral. Whole economies are sustained by small- and medium-sized enterprises. In this case, demonstrating a willingness to help on a personal level, armed with meaningful information about your borrowers’ situation will not only help them but serve a larger purpose too.
- Communicate clearly
One of the easiest things lenders can do is communicate what help is available and the best ways to access it. Many customers are still operating remotely, creating an excellent opportunity for FIs to cement digital communication as a primary channel. By communicating clearly about the length and the terms of payment holidays, lenders can empower customers to plan their finances properly and make arrangements to restructure swiftly.
No matter how FIs choose to reshape their collections strategy, one thing is clear – there is no point pursuing customers for money they don’t have. Lenders should make sure they know as much as possible about the shape of their borrowers’ finances and, when possible, engage the borrowers themselves; they will likely have a clearer idea of what their imminent financial future holds as economies begin to recover.
Find out how Q2 works with lenders to implement successful collections strategies.