How can a digital channel support customers with an overdraft in Collections?

Digital banking is now evolving to cater customers in debt. Banks are gradually awakening to realise that the digital channel is a strategic asset to their collections operation, as there is a rapid increase in the demand for non-secure loans and credit card debts.

The viability of a self-serve digital channel to help customers resolve their overdraft debts was dubious until now. Considering the charges being various, the showcased APR calculations weren’t necessarily specific to the individual customer.  Also, a general lack of understanding about how arrangements are made and the impact of crashing into an unarranged overdraft, the ability to educate the customer in simple and effective terms have been weighed as too complicated.

Presently, FCA has simplified the charging structure, allowing us to take a fresh look at how the right digital customer engagement strategy can be utilised to deliver a self-service overdraft collections solution.

FCA and the new rules

In 2019, after a lengthy consultation with the banks, the FCA introduced new rules to govern how the banks charge customers who use an overdraft. These rules are designed to essentially reform the overdraft market, as well as address the problems associated with the high prices for unarranged overdrafts, intricate pricing structures, less consumer awareness and the duplicate use of overdrafts.

The intent was to make the overdraft pricing fairer and easier to manage, additionally benefitting vulnerable customers. Subsequently ditching the current flat-fee charge, banks will charge a fee using a single interest rate (shown as an APR) which will provide better clarity and reduce the overall prices for overdrafts.

But, does this simplification open new opportunities for digital banking experiences that were otherwise too challenging to resolve?

Standard challenges

Let us look into the two key challenges hindering the success of a self-serve digital channel for effective customer collections of overdrafts.

  1. The complexity of the charges, how can those be expressed, and the relevance of the APR

    Even though these have been addressed by the actions of the FCA and their new policy, however, improving the clarity of the charging structure does not describe how the engagement should look.  

    Bolting on a collection-specific journey to your current digital banking service won’t create the desired effect. In fact, this might create further confusion for the customer making the situation even worse

  2. The FCA policy statement does not address that the overdrafts are typically on the customer’s main current account facility. And, if there is no money in their account then they won’t have any means to pay the debt off in the first place.

Modern solution

The FCA specifically calls out for firms to provide online calculators among other tools that can access the eligibility of the customers and help them figure out the costs of overdrafts.

The solution lies in the implementation of the above.

Although the customer has no means to pay off the debt in the immediate future, they can still be provided with the right tools to help them work out the best way forward for them. For example, using interactive tools for the right digital channel can allow customers to find a suitable plan. Meanwhile, the banks can be kept informed about the status of the customer and they can work together to settle the debt and avoid any such recurrence in the future.

The last step is to recognise who has the expertise of digital collections in the market. Banks need the digital banking solutions leader with the knowledge of the challenges at play and a history of resolving issues of customers with overdrafts.

ieDigital’s Interact Collect software supports your transformation journey and helps improve customer satisfaction. While ensuring compliance, we help reduce cost and boost debt collection performance. Our Interact digital engagement platform will help you transform your business to meet customer expectations.

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