Shock after shock – this is the short history of the 2020s so far. The lingering pandemic, disruption of supply chains, war in Ukraine, the energy crisis, and a global economic slowdown. These events have had a profound impact on every aspect of the way we live and work. According to the IMF1, global growth is expected to slow from 6 percent in 2021 to 3.2 in 2022 while inflation is expected to have soared to 8.8 percent over the same period.
After the years of abundance and super-cheap money, consumers today struggle with the harsh realities of a cost-of-living crisis. With the rising tides of inflation and interest rates, cash-strapped families are now forced to drain their savings to meet obligations. However, the challenges of the new era cannot be solved satisfactorily with the old toolsets.
5 crisis-era challenges that banks want to solve when crisis-proofing their collection operations
1. Protection of vulnerable customers
Increasingly, banks want to understand their customers’ vulnerabilities and offer tailored solutions. The first customers to fall into delinquency often are those who had pre-existing vulnerabilities that make them less resilient when things go wrong. The types of vulnerabilities – as explained by the UK’s Financial Conduct Authority2 – are numerous and can interact in a multitude of dimensions: related to mental or physical health, numeric capabilities, employment status, family situation, or caring responsibilities – to mention a few. Since vulnerabilities that materialize in financial difficulties lead to negative payment behavior – the earlier the risk can be detected, the better solutions can be found for the mutual benefit of lender and borrower.
2. Compliance “overnight”
Regulatory compliance continues to require rapidly adaptable systems. Regulations in response to the pandemic were “overnight” and widespread. Regulators are likely to continue to make changes quickly and will further concentrate on financial consumer protection, responsible lending practices and data privacy. For instance the new Consumer Credit Directive3 proposed by the European Parliament and Council requires creditors to apply stronger creditworthiness assessment and to offer reasonable forbearance, taking into account customers’ circumstances. Besides the ability to bring new business solutions and features to market at high speed, it is also crucial to maintain operational stability and security in every aspect. Collection systems must be designed for flexibility, security, and scalability. Rapid configurability of workflows, business logic and user interfaces are essential enablers to tackle this challenge. Automation not only saves costs, but also minimizes risk of non-compliance and improves customer satisfaction while eliminating frictions in complicated administrative processes.
3. Actionable data
Actionable data is at the center of crisis-era solutions. It is common knowledge that banks have plenty of data, but they have difficulty putting it to good use. Meanwhile, customer-centric collection demands a good understanding of the individual’s situation, real-time monitoring of behavior, dynamic segmentation, and continuous adjustment of engagement strategies. Access, aggregation, historization, and transformation can be enabled with cloud-native infrastructure and high-quality data governance practices.
4. Scalable personalized assistance
Excellent customer service at a massive scale. When things suddenly go wrong in the broader economy, collection teams experience a high surge in tasks and calls. All of a sudden email boxes are full, chat windows and phone lines are burning. Everyone is overburdened, while customers are stressed and dissatisfied. It shouldn’t be like this. A composable collection system can solve the problems of scalability and service quality in the meantime. With modular design and no-code flexibility new digital customer journeys can be developed and deployed with high speed. A versatile self-service channel with digital assistance can decrease radically the pressure on call centers. A cloud native microservice based architecture ensures that the system can serve any number of clients without the need to invest in fixed capacity.
5. Parallel digitized and digital-first collection
Simultaneous pressure to build digital-first solutions and to digitize the back-office. Legacy tools are being carried along with the digital banking engagement solutions that established banks bring to market. In the event of crisis, banks face pressure for cost savings and efficiency improvement in every front. They can attack this problem on both fronts. First, readily deployable digital-first solutions can help to enhance collection experience embedded in their existing digital banking application or through separate SaaS self-service tool. Second, digital workspaces with automated workflows, task management, and decision support can empower existing collection teams working from remote places to seamlessly collaborate and to deliver valuable customer outcomes. With a powerful real-time data fabric and workflow automation, workspaces can blend human intelligence with AI, making the latter an integral component of the workforce.
Learn more about the digital trends that shape the collection future
Lenders are already undertaking initiatives to tackle the emerging market dynamics. If you want to know more about the emerging trends in debt collection, get your hand and ear on our first contents.
Read our first white paper “Offering certainty in an uncertain world” that has been published by Loxon in collaboration with IBS Intelligence.
Download the infographics to get a condensed and visually extended version of our white paper: “Five technology trends that are transforming debt collection”.
Listen to our first podcast: “How to improve the collection experience and manage troubled lending”.
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Sources:
1:World Economic Outlook, October 2022: Countering the Cost-of-Living Crisis (imf.org)
2:FG21/1: Guidance for firms on the fair treatment of vulnerable customers (fca.org.uk)