Digital banking (web, mobile apps) has become ubiquitous in the United States. From its roots in the 1990s, online banking has become a primary means for consumers to manage their financial affairs: account openings, deposits, credit applications, wealth management, etc. Smartphones have ushered in banking apps providing equivalent functionality. Digital’s popularity with consumers has translated to a significant decline in branches.
While the move to digital banking has been driven by a combination of consumer preferences and bank cost savings, the coronavirus pandemic has spurred even greater interest in going online. Social distancing and shelter-in-place mandates have made visits to branches rare, putting a premium on on-line and app-based interactions.
Aside from health concerns, the staggering unemployment caused by the pandemic has created a delinquency tsunami. One that strains existing people resources. Similar to the success of digital banking for other products and activities, collections is ready for the self-service model.
Historically, collections groups haven’t participated in banking self-service. But that may be changing; in the last couple weeks we at Scorenomics learned of two Top Ten credit card companies actively pursuing self-service initiatives. Collections groups are joining the bank’s digital strategy.
This raises two discussion points:
- Digital self-service is more than digital omnichannel
- How digital collections differs from the legacy collections model
Self-service collections is more than omnichannel
A number of smart analyses, from the likes of McKinsey, Experian, TransUnion, Accenture, Oliver Wyman, etc., have conclusively demonstrated the value of maintaining multiple channels of connection to delinquent consumers. Rather than rely on the old methods of calls and physical mail, leading financial institutions are using email, text and smart phone notifications to let customers know about their missing payments. This is the omnichannel approach: use the communication mode that most resonates with each customer.
When we talk self-service collections, in one sense you could say that’s been available for years. Customers always have the ability to go to their account (online, or more recently via mobile app) and make a payment. Delinquency solved!
However, the issue of a delinquency is more textured than simply making a payment. There are often household issues at play, for which the delinquency is just a symptom. Other times, a person may chronically miss making on-time payments even though they have the wherewithal.
Below are different examples of issues causing credit card customers to fall into the initial 1-29 day delinquency. The table shows the subsequent roll rates 4-11 months later, for each of the delinquency causes. The data is based on over 13,000 BackOnTrackTM completers.
| Reason | Roll Rate |
| Forgot | 11.0% |
| Uncategorized | 16.3% |
| Health | 24.1% |
| Emergency | 24.4% |
| Overspending | 24.9% |
| Life Event | 25.0% |
| Job Issue | 31.6% |
While those who forget their payments are better able to make a payment and move on (11.0% roll rate), customers affected by job issues have a much harder time staying current (31.6% roll rate). The “one size fits all” of current digital banking self-service does not accommodate those differences.
Collections self-service is more than making a payment. It’s understanding the customer situation and providing appropriate paths for the customer to move forward.
Digital self-service collections differs from legacy collections
Digital approaches have revolutionized the ways different industries work: banking, payments, e-commerce, news media, transportation, etc. And the digital wave for collections will be no different. The table below outlines some changes that will happen with the move to digital self-service collections.
The key aspect of the change is a move to delinquency mitigation vs. a more narrow focus on cash collected. Delinquency mitigation is a holistic approach to understanding the customer’s situation and determining the actions that will help reduce bad debt expense and retain the customer.
Customer engagement in this scenario is more conversational and probing, less working through a checklist of responses to the customer. The goal is still an analytical, bottom-line one: determine the next best action to reduce bad debt expense and retain the customer.
Many financial institutions have adopted risk assessments to evaluate likelihood to pay for their collections customers. These transactional factors are good, but they lack components that are predictive of future actions: what is the household situation now? Also, how empowered to address the delinquency does the consumer feel currently?
Finally, scalability has always been digital’s advantage. For financial institutions that want to better understand their delinquent customers, the ability to do so is limited by the FTE count, and the skills of each individual rep. Digital approaches collect valuable data without any meaningful limitations on scalability. This extends the ability to understand situations well beyond only the worst, hardest cases.
Click here to learn more about how BackOnTrack helps financial institutions enable digital self-service collections, reducing bad debt expense and retaining customers.
