In the throes of the credit crisis five years ago, who would have guessed that Collections would turn out to be one of the most ardent keepers of the customer experience flame?
But it’s true. We are now seeing a bright new Collections culture emerging at banks large and small. It is clearly a welcome development for banks and their customers. And it is great for the banking industry, helping to restore the trust and reputation that were damaged in an industry often demonized in the crisis aftermath.
Before the crisis, Collections was one of several essential functions considered more or less “back-office.” Collections often looked and acted like a commoditized volume business: Hire as many collectors as you can afford, get them on the phone, make more phone calls and make them faster and more often until you get your money.
For many banks at the height of the crisis, delinquent account holders were not really thought of as customers. Even if these individuals paid their delinquent balance, it was assumed that any future financial activity would occur with some other bank – but not your bank. They had, the thinking went, forfeited their customer status when they stopped paying. As a collections manager it was your job to simply collect that past due balance. You were tasked with and compensated by dollars collected – period.
But overlooked then – and still true today – is the fact that 75% or more of customers who find themselves contacted by bank collectors are good customers with a temporary problem. They have future value. And they are your customers; hard won and not to be made easy pickings for your competitor.
“If you’re collecting money from someone you’ll never hear from again, you may naturally focus on your company’s interests and not on those of the person who owes you money,” a Collections executive explained recently. “But if you are collecting from someone you hope will stay with you as a customer for the rest of their life in a mutually beneficial and profitable relationship, that’s an entirely different proposition. That’s where we are today.”
Where we are today looks a lot like where we used to be before direct marketing took us national, when banks were focused on lending in a defined, more local geographic footprint – their own community – and naturally built deeper relationships. Collecting where you have a deep customer relationship is a whole lot more effective than collecting on a single loan or lease.
To be sure, Collections’ operational objective today remains the same as before the crisis: reach delinquent borrowers early and find ways to collect as much of the delinquent debt as possible. But the underlying motivation has changed. Collections executives now realize that it is not a zero sum game – there doesn’t have to be a winner and a loser. Both the bank and the customer can win and prosper after a well-conducted collection interaction.
Today, when we ask anybody in Collections about their strategic priorities, we hear “customer experience” in the top three. We hear about customer retention and the lifecycle value of a customer relationship, delinquencies notwithstanding. They are eager to tell us about their brand and how important it is to protect that brand. They emphasize their focus on mitigating risk to their bank’s reputation. When we asked five years ago, it was all about operational metrics: calls made, account-to-collector ratios, right-party-contact percentage, dollars collected, roll rates and so on – the metrics of a commoditized volume business.
What changed? For one thing, the worst of the crisis is well past. Delinquencies are down and stabilizing. Consumers are borrowing less. During the crisis, banks were caught off guard when customers they thought were low-risk began defaulting in droves. Their zealous efforts to minimize their losses too often risked the loss of good, high-value customers.
Today, with tighter lending standards, everybody is competing for the same pool of profitable customers. There is simply a smaller credit-eligible population today than there was five years ago. The last thing banks want to do is lose the customers they already have because of poor handling of a late payment or two. When it often costs $100 or more to acquire a new customer, it is simply not possible to make up for customers lost to heavy-handed collections by finding enough new and profitable customers.
Analytics for Relationships
One of the most powerful contributors to today’s improved Collections process is the sophisticated use of analytics. Originally embraced by Collections mainly to enable right party contacts and promises of payment, today’s analytics are mined for richer and more useful relationship information. Analytics enable Collections to target the right customer more accurately, discern the customer’s preferences, and adhere to them.
The significance of analytics has been enhanced by the proliferation of customer communication channels. Customers, debtors among them, tend to exhibit a marked preference for one channel over another for reasons that may not be apparent or logical. But these preferences can be known by leveraging the full scope of information that banks have about their customers. Using the right channel – right for the customer, not just for the bank – has enormous influence on a customer’s willingness to respond and a bank’s collection revenue.
Analytics well organized and wisely interpreted can also play a crucial role in compliance. Compliance and customer experience are not conflicting priorities. When collectors can view a delinquent debtor in his or her entirety, rather than just a phone number and amount owed, they are able to consider the debtor as a customer, and in doing so drastically reduce the risk that their interactions will offend the customer or lead to complaints, with all the attendant risk of lawsuits, negative press coverage, and damage to the bank’s reputation.
By continually refining analytics, the bank can make proactive outreach more information-based – and thus more customer-oriented. The more information put into play, the more accurate and useful it can be in making good decisions and staying compliant. Better analytics means collectors can make one call instead of 30 to reach the customer.
As regulations proliferate and compliance becomes an ever-growing concern, analytics will be a critical tool for predicting and preventing compliance issues. The Consumer Financial Protection Bureau is only beginning to stake its ground and there is little doubt its forthcoming new rules will mandate more consumer-oriented processes and procedures. The many banks that have already made the customer experience a priority in their outreach are certainly better positioned to avoid complaints, scrutiny and expensive fines.
The chastening effect of the credit crisis has led not only to improvements in the granting of credit but also in the collection of debt and the treatment of customers in arrears. Today, the customer experience is no longer exclusive to Sales, Marketing and Customer Service. Now Collection organizations are “paying it forward” by using analytics and the best tools of their trade to drive loyalty and revenue.
Mr. Miller is vice president of Analytics Solutions for Atlanta-based Noble Systems Corp. He can be reached at email@example.com.