Collections functions in the water and energy sectors are facing a dilemma. On the one hand, a regulatory environment that once looked very different from that of the financial services sector is evolving rapidly to reach parity with it, presenting many new demands. On the other hand, the idiosyncrasies of utilities collections, such as a high level of vulnerable customers, limited enforcement options, and the importance of customer retention, remain as pronounced as ever.
In this uniquely challenging situation, characterized by the ever-increasing agency of the consumer, the strategies employed by creditors to communicate with customers are pivotal to success. And, just as in the wider world, an effort to build engagement through digital channels is seen as essential. But what comprises a true digital collections strategy, and how can utilities providers avoid simply using new technology to conduct yesterday’s business?
The regulators are converging
Power and water sector regulators Ofgem and Ofwat have been working with the Financial Conduct Authority (FCA) for some time to improve consistency between regimes, and collections standards are a major item on the agenda.
Debt collection agencies (DCAs) and debt purchasers working with utilities and financial services clients have long seen this coming. Even though water and energy providers don’t fall under the FCA’s remit, any DCA with different conduct standards for customers in different sectors would be seen in a dim light indeed by the FCA, so best practices have been adopted across the board.
Utility companies some have catching up to do
For utilities creditors themselves, it now seems inevitable that the same standards of conduct, compliance and governance expected from the consumer credit industry will be expected from them in due course.
There is no question that water and energy companies are fully committed to best practice in dealing with customers in financial difficulty, and it would be misleading to suggest the sector hasn’t been closely regulated in the past. Nevertheless, there’s no denying that utilities providers have work to do in adopting the systems and processes that have become commonplace in the FCA-regulated world.
Collections = customer service
In essence, consumer credit providers have taken the view that a customer in financial difficulty remains a customer, and that principles of good customer service must therefore apply to the collections process. This means early engagement, a compassionate approach, and building a rapport with the consumer based on trust and convenience – all outcomes that depend on the decisions a creditor makes in developing contact strategy. The age-old approach of deploying repeated telephone contact to prompt a settlement is becoming rapidly obsolete.
The modern collections function understands that every customer has contact preferences, and that fair outcomes for individuals depend on identifying and recognizing these preferences. Consumers now have the agency to choose through which channel they want to speak to a business, and which conversations will happen at which point in the process.
While the new model in collections may involve a higher level of investment than traditional outbound contact strategies, it also has the potential to offer greater and more sustainable returns. A rapport developed over time (and based on customer circumstances and preferences) will have a much longer and predictable tail of payments than one based on securing payments as quickly as possible. But to make all of this work, engagement with customers must start with true interactivity.
Old problems haven’t gone away
Of course, in addition to the challenge of building a customer-centric collections model, water and energy creditors face their own set of sector-specific collections challenges, none of which (unfortunately) are going away anytime soon. Some key concerns in utilities include:
- Vulnerable customers. Utility companies provide services that nobody can live without. In addition, water customers in particular are taken on a result of geography rather than a planned origination strategy. As a result, the incidence of vulnerable customers is likely to be much higher in a utilities portfolio than in the books of a consumer lender, and service for vulnerable customers requires even more resource when it comes to assessment of circumstances, communications oversight and evidencing of outcomes.
- Retention and competition. Another major difference between utilities and financial creditors is that, in almost all circumstances, utilities providers will want or need to retain a customer following a period of financial difficulty. While financial rehabilitation is a key concern for consumer credit collectors, it’s vital that utilities providers maintain a positive relationship with a customer following collections activity. With switching encouraged in the energy sector, and the water market soon to be opened to competition, the pressure to make collections activity a positive customer experience is only being exacerbated.
- Competition with priority creditors. In part because of these limited enforcement options, and in part because utilities debts tend to be lower-balance than financial services debts such as those on credit cards, water and energy, suppliers often find themselves at the bottom of the pecking order, with customers prioritizing payments on financial products.
- Limited enforcement options. Again, as utility companies provide vital services, they are much more limited than financial services providers in terms of enforcement options. Disconnection of electricity or gas is a last resort, with the instalment of a prepayment meter more realistic, while disconnection of water supply isn’t possible by law.
… and things are only getting tougher
Of course, the situation for collections in general is only likely to become more challenging as an interest rate rise looms, welfare reforms continue, and the prospect of another recession becomes more imminent. Citizens Advice has warned that households will face a lot of pain as 2016 progresses, particularly those already in debt and struggling with bills.
Needless to say, utility companies – already low on the list when it comes to customer priorities – will feel the brunt first. As such, it makes sense for creditors to get their debt collection platform systems in order now, before the unpaid bills begin to really stack up.
Digital: does it mean what you think it means?
It’s clear that traditional collections methods based on direct mail and outbound calling are unlikely to be sufficient for utilities firms looking to match the progress of the financial services sector. As already stated, digital channels and interactivity are the key. Of course, many businesses may argue they have already built a digital collections strategy, but is this truly the case?
For example, one-way SMS or email reminders to prompt traditional phone contact are often posited as multi-channel communications strategies by some businesses, but they are largely a means to a familiar end, and a long way from a truly customer-centric strategy.
Communication across all channels should be two-way, and customers should have a choice when it comes to how (and when) they communicate with their creditors. Once again, the issue comes back to recognizing the primacy of the consumer.
Putting the customer in control
By offering an online space in which consumers can interact with their accounts, utility firms can create a starting point for collection conversations, in a way that gives their customers influence over how they’re handled.
By having the option to initiate the collection process from the same place, where a customer manages their account, a creditor not only has the ability to detect and engage with financial difficulties at an earlier stage, but can truly make collections part of the customer service process.
Open all hours
Giving customers the option to engage online circumvents the need to extend operating hours for contact centers, and lets customers choose exactly when to handle payment issues without any element of intrusion. Particularly for energy consumers used to smart metering, mobile and tablet are familiar channels for account management.
Beginning the collection process online with self-service also avoids inbound contact bottlenecks (typically early on weekdays), as customers can discreetly arrange payments all week, around the clock. And of course, the efficiency gains made through offering self-service are self-explanatory, particularly in the area of affordability: if customers have the ability to complete budgeting exercises online, not only do they get to avoid a half-hour call with an agent, the agent can use the time elsewhere too!
Built for power
Building a digital debt collection platform isn’t just a good idea for collections in general, it’s perfectly suited to the utilities sector.
As well as providing options for non-intrusive contact once a relationship is established, digital engagement can help creditors identify vulnerable customers in the first place via increased depth of customer insight. It can also help in producing appropriate and well-evidenced outcomes. After all, the more a business knows about its customers, the more it knows about the services they require.
Limited enforcement options and competition with priority creditors
A fully omni-channel digital debt collection solution builds a level of rapport with the consumer that mitigates utilities creditors’ lack of enforcement options. If there was ever a time when customers prioritized creditors based on their ability to threaten enforcement, it’s over now. In the age of customer-centricity, it’s more the creditor with the most capacity to earn trust through compassion that guarantees a return. With the right digital strategy, water and energy providers have the potential to secure a stronger place among other creditors.
Retention and competition
Considerate communications and customer insight don’t just mean reduced losses. They mean better service and happier customers. For utilities businesses, which need to maintain long-lasting, positive relationships with the recipients of their services, getting this right couldn’t be more vital.
Regulatory and technological change has completely transformed the role of the consumer in the collections process. While water and energy companies are having to work fast to match the capabilities of banks in working to new conduct requirements, the scale of the changes taking place have somewhat levelled the playing field.
By offering a complete digital customer journey, utilities providers not only solve some of their unique sectoral challenges, they also accelerate their evolution, and stand in line with those at the leading edge of financial services.
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