From silos to platforms: The benefits of comprehensive risk management
With the rise of automated operating systems and smart phones, consumers now expect to interface with efficient, electronic programs in all aspects of their life—in turn, changing lives in the process.
Applications increasingly “talk” with one another and share information. People easily save login information to apply from one app to the next. Rather than utilize individual CDs or unique programs for each task, users now expect a central hub to access solutions for every one of their needs.
For years, financial institutions, consumers and the world have moved towards one-stop multichannel platforms to handle varying tasks. But in a notable lag, the risk management space has struggled to keep up. Financial institutions that utilize a multichannel platform for risk management services reduce costs and manual errors while increasing consumer financial wellness.
Risk management includes collections, insurance tracking, asset recovery and payments processing. At most financial institutions, these areas work independently—and often in a silo. But there’s a problem with this model: In reality, these functions impact and influence each other. Collections, insurance tracking, asset recovery and payments can come into play, and often do, with any individual account. Therefore, creating unique silos for these functions leaves lenders with many challenges.
First advantage: Productivity and profitability
Financial institutions that utilize disparate risk management systems often face productivity challenges. When an employee has too many processes to follow, utilizing multiple platforms, it typically leads to manual errors in copying data, making careless mistakes and omitting certain steps in the process. These problems, in turn, create gaps between the different risk management areas—and that leads to wasted time on repeat phone calls.
The bottom line: Stifled productivity, manual errors and extended communication times cost financial institutions significant money. But using a multichannel platform, information is instantly shared between risk management areas. It drives deficiencies down. And it enables financial institutions to do more with less.
Using a single desktop, lenders can view all elements of risk management operations on an individual account; including outbound calls, payment and promise history, reason for the delinquency and insurance status. Additionally, lender representatives can read and take notes on the borrower, manage an insurance claim submission and status, and if necessary, initiate and track the asset recovery process.
When talking to a borrower about a delinquent auto loan, for example, lenders can also learn whether that person might have other loans in arrears or deposits from which funds could be transferred. A multichannel platform enables lenders to seamlessly switch between all these functions, even while on the phone with a borrower. But banks and credit unions storing all this information in separate silos lose out on efficiency and productivity.
Second advantage: Tighter compliance
A multichannel platform also reduces a lender’s compliance concerns. Federal guidelines mandate that documentation must effectively and clearly record the efforts a lender or third-party servicer undertakes in the collections or asset recovery processes. This centralized documentation minimizes compliance risk—and benefits the borrower as well. Accurately understanding a borrower’s situation through successfully recording interactions and activities marks a central component of compliance and serves as the foundation for maintaining a healthy lender-borrower relationship.
Third advantage: Better financial wellness
In this regard, risk management processes must be designed to increase consumer financial wellness. A multichannel risk management platform facilitates follow up conversations with borrowers and makes the overall consumer lending process much easier. Collecting on delinquent loans requires borrowers to make a payment. Risk management platforms also need to incorporate simple-to-use payments tools that help staff resolve the delinquency through a one call resolution process.
Incorporating features that enable people to pay debt using funds from other financial institutions will ease the burden on borrowers who owe money to a non-primary lender. Expanding the number of physical locations other than the primary branch network also helps borrowers who can only pay, or want to pay, with cash. Facilitating payment options represents the best solution for lender and borrower; it keeps the borrower from repossession and delinquency and the lender from potentially losing a customer if something goes wrong. When an automated payment solution is included within a risk management platform, it can make a significant impact resulting in the reduction of delinquencies.
Fourth advantage: Timely reminders
“From speaking with tens of thousands of consumers, we’ve found that the simple act of sending payments reminders about what is owed, when it is due and how best to budget can reduce delinquencies” says Jason O’Brien, senior vice president of payments at SWBC financial institution group.
The payments element of a risk management system must be able to send reminders that payments are soon due. This friendly nudge may not be for every customer, but provides a simple reminder for some. It could mark the difference between entering delinquency and making a payment on time. The collections component is stressful for both lenders and borrowers. Using an innovative multichannel system, financial institutions streamline processes and reduce frustrations for both parties.
Putting it all together: Less strain, more gain—everybody wins
Consumer financial wellness is a popular discussion topic matter in the financial industry today. While it receives a lot of coverage in the payments sector, it is not nearly as prevalent in conversations surrounding general risk management. At the core, financial wellness is about managing debt and paying loans on time. A comprehensive risk management platform enables financial institutions to more efficiently collect payments, interact with borrowers and reduce the strain associated with delinquencies on both consumers and financial institutions.
Brad Young is chief operating officer of San Antonio, Tex.-based SWBC financial institution group, which provides insurance, mortgage and investment services to financial institutions, businesses and individuals.