Collections is marketing? What? The process where a creditor informs a delinquent customer about a missing payment is very transactional. It’s rooted in the contractual responsibility the customer has with the financial institution. It’s more legalistic than marketing oriented, right? The senior managing director and head of the global Banking practice at Accenture, Alan McIntyre, takes a different view:
The current crisis provides an opportunity for banks to be active and positive participants, helping both consumers and businesses weather the economic storm we are experiencing. Doing it well with empathy, personalization, but also appropriate risk management, could create stronger, enduring relationships that will be a foundation for future success. This is how banks will be able to survive the short-term and thrive long-term.
McIntyre makes this point in the midst of the historic coronavirus pandemic. However, it’s a point that could just as easily be made during normal times. The pandemic simply increases the volume of customers for whom this mentality applies.
Sure, collections should do no harm to customers who experience temporary difficulties. But consider it a marketing function? Absolutely! Read on to learn about these four principles:
- It costs more to acquire a new customer than to keep a current one
- Create an advantage over the competition to get paid
- Connecting with customer needs
- Word of mouth impacts your brand
Marketing principle #1: It costs more to acquire a new customer than to keep a current one
Industry estimates for the acquisition cost of a new credit card customer range from $80 to $200. Once acquired, there’s no guarantee that the card will be used frequently. This raises the effective cost of acquiring a revenue-generating new customer substantially.
But with a collections customers, we have:
- An already acquired customer, who…
- Has demonstrated an appetite for using the card
There is a clear economic argument for treating a delinquent customer well. At least, one who is in the early stages of delinquency. Later stage delinquencies argue for a more legalistic approach.
Protecting its relationship with these proven revenue-generating cardholders falls to the collections group. Many of these cardholders have experienced the inevitable potholes we all encounter in life. When these consumers are the other side of their temporary setback, how will they view your financial institution? As an Accenture survey found:
According to the survey, consumers who had a frustrating shopping experience are three times more likely than satisfied consumers to not buy from the retailer or brand again. Conversely, companies that consistently exceed customer expectations can profit handsomely.
Collections is a critical part of a financial institution’s relationship with its customers. The treatment a delinquent customer receives becomes part of their view of the financial institution.
Marketing Principle #2: Create an advantage over the competition to get paid
A key objective of companies is to ensure their offerings are understood as better than those of competitors. When consumers have to make a choice with limited resources, how do they decide?
The same dynamics are at play in collections. Customers have an array of expenses every month. When a customer is in collections, money is tight. The consumer must make decisions on who will be paid.
Which creditors will be at the “top of wallet”? Start with the fact that consumers have pre-existing preferences on who sits “top of wallet”. Fiserv identified the specific preferences:
If you’re a creditor for housing (mortgage, rent), you’re sitting at the top of the heap. There’s a pecking order thereafter.
Given customers in collections are more likely to have limited cash on hand, it’s incumbent on financial institutions to go into marketing mode. For early stage delinquencies, what does the collections outreach look like for your organization? Are you sending the standard transactional template that money is owed? Or are you taking the opportunity to create an entirely different experience?
Think about approaches that make your organization stand out from the competition to be paid.
Marketing Principle #3: Connecting with customer needs
When a consumer closed on a new credit account, their circumstances were more stable. The customer enjoyed the new credit they received, and were a source of ongoing revenue for the financial institution. Then life does what it does: springs a surprise when you weren’t looking. The customer’s financial health takes a hit.
What to think about this? At its most basic level, the delinquent customer is an account number from whom payment must be extracted as quickly as possible. This is done at scale. But with the rise of digital tools, a more sophisticated approach is available.
Accenture has developed the Keep Me Index framework. One element of it relays three keys to maintaining long term relationships with customers:
- Establish trust
- Actively nurture
- Grow together
Think of those three keys in the context of a delinquent customer. What does a financial institution really know about that customer? Can you incorporate these keys into your engagement with the delinquent customer?
This is the opportunity for collections to be an extension of the institution’s marketing efforts. While great effort is made to better understand the needs of prospective customers, is there enough spent on understanding the situation of your current customers? For instance, collections groups can quickly develop personas at scale for delinquent customers. Here are two examples:
|Persona||Description||Dollar 90+ DPD rate|
|“Financially secure” forgetter||This customer entered delinquency after forgetting to make a payment. They have means and feel fully in control of fulfilling this payment obligations.||5.0%|
|“On the edge” payer||The defining characteristics of this persona are their high financial fragility and no sense of control over their future financial health. These customers are experiencing temporary setbacks, but are ill-equipped to deal with them.||28.0%|
Two early stage delinquent customers presenting very different profiles, and needs. When collections has a marketing mission, understanding these customers’ needs and applying different approaches is an obvious thing to do.
Marketing Principle #4: Word of mouth impacts your brand
Trusting a friend or family member recommendation for a product has always been a way people make decisions. But in previous eras, this was limited to close circle of connections. With the advent of the Internet, people’s recommendations and experiences have gained worldwide visibility. And it has had its effect on consumer decision-making:
Research shows that 91 percent of people regularly or occasionally read online reviews, and 84 percent trust online reviews as much as a personal recommendation. And they make that decision quickly: 68 percent form an opinion after reading between one and six online reviews.
There are multiple phases to customer’s engagement with a financial institution. From finding the institution, to applying for a credit account, to using the credit account, paying on the account, and yes even moving to collections. All of these are touch points that define the customer’s experience.
Consumer share their experiences via forums, blogs, Facebook, Twitter, etc. For customers in collections, the risk-to-reputation elevates for two reasons: (1) delinquent consumers often are going through a stressful situation, and (2) collecting on late payments is considered an operational cost that follows set policies. This combination puts the financial institution at greater risk for losing the word-of-mouth battle.
Here’s an example posted to a forum:
This is a good example of a customer who hit one of life’s inevitable bumps. However, rather than try to understand what’s happening in their life, the financial institution applied the standard collections playbook. The result? A negative post, searchable on the web, that makes the bank come across as an uncaring and bureaucratic.
There are newer, better ways to engage customers. For instance, rather than follow the legalistic, transactional process that often defines collections, a more empathetic approach could be used. BackOnTrackTM approaches delinquencies as both emotional and financial cases. The result? Happier customers and higher cure rates. These are outcomes worth writing about.
When you decide that collections is marketing, take a step forward with Scorenomics’ delinquency mitigation platform BackOnTrack.