NEXT GENERATION COLLECTIONS: INSIGHTS AND TREATMENT
R&C: Could you outline the key market drivers – both pre- and post-COVID-19 – pressuring financial institutions (FIs) to re-evaluate and update their loan collections solutions?
McGowan: It is important to emphasise that loan collections is not transactional. It is a dynamic customer engagement process that may last for days, weeks or months. This engagement can have a substantial financial impact on the bank, the customer and the tenure of the banking relationship. As delinquencies rise, loan collections solutions will become one of the most important systems to protect profits and customer relationships. There is a lot to lose if institutions get this wrong. The rise in debt was notable prior to the pandemic – think student and auto loans in the US – but we are going to quickly see an extraordinary spike in nonperforming loan and delinquencies, and collections will be about risk-rated forbearance with empathy, obstructed by the continued pressure to collect. How many treatment strategies currently take forbearance and empathy into account?
R&C: In your opinion, how do FIs need to adjust the way they think about and approach loan collections post-COVID-19?
McGowan: Financial institutions are at an inflection point, and the drive to digitalise has been spurred by the operational challenges brought about by coronavirus (COVID-19). However, institutions have focused more on front-end digital business processes and technologies. The pandemic has shaken the roots of organisations’ infrastructure and institutions are quickly realising that back-end processes and technologies are just as critical for future stability and to deliver customer preferences for digital services. After all, when customers default, they are often in a critical time of need in their lives due to loss of job, medical costs or divorce. Therefore, customer engagement during a loan collections customer engagement process can have the largest financial impact on both the financial institution, the customer and the tenure of the banking relationship. The technology components that underpin a modern collection system are data, analytics, automation and connectivity. These components will inform decisions that keep the customer at the heart of a treatment strategy across current, early stage delinquency, late stage delinquency, loss mitigation and asset recovery.
Jul-Sep 2020 Issue
SAS Institute