As banks struggle with the current environment of weak revenue growth, effective cost-control returns to the fore. This provides the Collections function with an opportunity to demonstrate its value to the organization not only by recovering defaulted debt but also by salvaging customer relationships that are worth preserving in these difficult times.
Long perceived as simply persistent callers single-mindedly intent on salvaging loans gone bad, Collections in many banks has now become an essential, strategic part of the whole customer care apparatus. This reinvention was born of necessity as the credit crisis and recession shifted many once-good customers into the Collections cycle, making Collections the only conversation those customers were having with the bank.
Today, there remains, and will for some time, a sizeable percentage of customers still a payment or two in arrears but also positioned to become profitable customers again. And given that it’s always more cost-effective to retain current customers than to try to attract new ones, banks have a vested interest in this salvage effort. It is through Collections that banks can successfully re-form their relationships with these customers and make them profitable again. Such a rebuilding effort should be guided by these four principles:
Recognize the Good, the Bad, and the Good Again. It was natural, during two decades of solid economic growth, for Collections to get used to dealing mainly with bad customers – customers with little prospect of being converted into attractive customers for the bank. Back then, collectors rarely talked to high-potential customers.
But that changed in the last few years when job losses spiked, home values plummeted, and otherwise good customers fell into default. It is these customers that collectors have dealt with over the past three years. When these customers recover and restore their credit, some will represent future revenue potential – revenue for their current lender if they have a positive collections experience but revenue for a competitor if they do not. And banks will have a lot of competition from all kinds of providers for these customers’ new-found cash.
In other words, banks are by default entrusting their future income streams to today’s collectors, so it is critical to provide collectors with what they need to manage those interactions to positive outcomes. Only sophisticated customer analytics can help them distinguish between the good, the bad, and the good again. Collectors need to be able to base their customer retention efforts on sophisticated customer data analytics.
Keep Having Customer Conversations. What is the holy grail for Marketing? To hold that all-important “conversation with the customer.” What do collectors do? They talk to the customer. Every day, all day long, Collections is doing that most vital function with three goals: have an authentic conversation with the customer, arrive at an agreeable outcome and make their bank the first choice when the customer decides to make a payment or purchase an additional bank product.
The Collections model of people talking to people is a costly model. Despite remarkable technology-driven advances in efficiency, Collections is still a labor-intensive function and the human capital cost of agents remains its greatest expense. Making sure you get the most out of your most costly resource is nothing but good business.
Everybody knows it costs more to replace a customer than it does to retain one. If Collections can collect payments while keeping good customers happy, and keep Marketing from having to replace that customer at greater expense, the return on investment (ROI) on Collections becomes about as high as any investment the bank might make. Everything you can do to make sure your agents are doing what they do best is money well spent. That means deploying technology and analytics to make sure they don’t waste their time reaching wrong numbers or talking to customers who can’t pay or who will pay without a call.
Measure Value Not Just Volume. For Collections, the business metrics are reduced charge-offs, total dollars collected and customers retained. But for leading indicators, managers have traditionally focused on interim operational metrics such as accounts-per-collector, calls-per-account, penetration rate, agent idle time, and so on. If they performed well on those metrics, odds were good they would also perform well on the business metrics. The correlation held well enough to be part of most traditional Collections’ dashboards.
But today, volume-related metrics have less relevance. Sophisticated analytics can tell collectors what channel is best for reaching debtors and the most opportune time, which ones have money, which ones will pay, which ones won’t and which ones don’t even need a call. Collectors should be able to make fewer calls and still collect more money.
Therefore it is not unusual to see traditional operational metrics degrade even when business metrics are improving. Managers need to be alert to that anomaly so that they are not tempted, for example, to staff based on historical patterns if new analytics have increased the odds that collectors will reach a higher number of accounts and collect more dollars. For a 20% lift in payments, who really cares if agents had 5% more downtime?
Clearly, old volume-based metrics have their place. Somebody has to plan for resources by time of day and staffing capabilities. But it is critical not to lose sight of what makes Collections valuable: revenue collected, charge-offs reduced and good customers retained.
Walk the Regulatory Tightrope. We got a frank answer when we asked a client if his view of Collections’ success has changed. He said, “Yes, it has. Today, every Collections phone call I don’t make is one less chance for a lawsuit.” That’s a powerful indication of the new risks Collections must manage. It is a shift from a general belief that more calls means more payments to its exact opposite: an aversion to making a single unnecessary call.
The motivation for his drastic change of heart is clear. Last year, consumers filed about 14,000 lawsuits against collection agencies and creditors and the consumer press has recently been highlighting the plight of the heavily indebted. Lenders and collectors are acutely sensitive to seeing their company’s name in the media in any way connected to harassment. The fallback position for many is extraordinary discretion.
Equally worrisome to creditors and Collections executives is the prospect of regulatory action. Regulations can vary widely from state to state, change frequently, and be interpreted differently in different jurisdictions. Rules that restrict collectors’ ability to call cell phones have already constrained their ability to reach debtors for whom a cell phone may be the only reliable communications mechanism. The prospect of other restrictions holds collectors back from many types of outreach if they cannot be certain they are legal or if they fear their actions may draw regulatory attention.
In this risk-averse climate, it is critical to have a technology platform that allows for change on short notice, even during the calling day and without IT intervention. Technology and analytics that let collectors be proactive and transparent serve to avert and mitigate reputational and regulatory risk.
During the crisis, Collections earned its place at the customer care table. It would be a mistake to take a step backwards by denying Collections the tools it needs to perform in today’s high-stakes, analytics-driven, customer care world. Given that advanced analytics and decisioning automation are still in early stages in the Collections functions at most banks, the opportunity exists for dramatic initial gains, followed by sustained high performance.
Mr. Miller is president and CEO of ALI Solutions, a predictive analytics company based in Austin, Tex. He can be reached at firstname.lastname@example.org.
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