While we can all see the value that digital transformation can bring to customer engagements across acquisition and servicing activities, there is one area of a bank’s operations that still seems to elude the case for digitalisation. Collections departments, most often seen as little more than a necessary evil for any credit and lending operation, are for the most part a people-driven activity that relies primarily on the skills of the staff, and their prevalence, to keep up with the tide of customer arrears.
Before you exclaim that you’ve already digitalised this, two-way SMS and a simple ‘pay bill’ web page isn’t digital transformation. Sure, it may lighten the load, but you’re not going to get anything like the benefits that you could if you were to set your aspirations just a little higher. Before you can create a case for bringing real digital engagement into your collections and recoveries operation, you need to understand the principles behind the solution you’re trying to deliver.
Reimagine the digital experience
To start with, forget all you know (or think you know) about digital banking. An unusual place to start, perhaps, but in reality, and when you think about it, it’s the only place to begin. Digital banking, as it stands today, is essentially a channel for customers to self-serve their banking needs without having to think about it. Ideally for the bank, this includes never needing to get in touch, visit a branch, make an appointment or even make a call and speak to someone. Why? Because the digital banking channel is considerably cheaper than armies of call centre staff and, inevitably, expensive branch networks. It’s a win-win scenario, as the tech-savvy and lifestyle-busy customer often has as much aversion to speaking to a bank, or in making the effort to visit a branch.
When it comes to collections, however, everything changes. Customers who have fallen into arrears, for whatever reason, are not on a happy path; they no longer feel in control and it needs to be sorted out. The first thing that quite often happens is that the customer doesn’t know what to do. Sure, some simply forgot to make their latest payment, or changed their bank account without updating their Direct Debit mandate details. Other times, it’s a lot worse: they have overspent, their income has become erratic, or their circumstances have changed and become more complicated. In these cases, the digital banking platforms of today are simply of no use whatsoever. They’re not designed to handle the unhappy path. At best, they will just scream at the customer with bold, red lettering saying that they are in arrears and need to make a payment quick. This is hardly a helpful experience, and certainly one that the regulator will be very interested in examining further.
The answer seems to be, then, to simply forget the digital channel and direct the customer into the dedicated collections operation, where agents are well trained and experienced with handling the complexities of individual customer needs. Maybe it’s a case that digital channel engagements can only be successful in making an already happy customer even happier, so those who are in difficulty and a negative place in their bank’s relationship simply can’t benefit from a digital channel at all. But what if they could? What if it were possible to reimagine the digital experience for customers who are in arrears, while satisfying the regulatory requirements for treating customers fairly?
Digital collections banking solution
At ieDigital, we have reimagined the digital experience for customers with our digital banking engagement platform, Interact Collect. We’ve brought our expertise in customer-centric digital banking engagement and designed a collections-specific experience that works in collaboration with financial services providers’ collections strategies, operations and regulatory requirements, to deliver a real digital collections banking solution.
So, how do you make the case to bring digital transformation to your collections operation? Building the right digital experience platform is only part of the solution to bringing digital transformation to your collections operation. Making a business case that stacks up is equally important. Collections is all about resolving customer debt and recovering the money owed as effectively and efficiently as possible. This means maximising the amount that is collected while minimising the amount of cost spent in doing so (known as the cost-to-collect). There are other factors, such as reducing the impairment on the business that carrying a debt book will incur. Spending more money on a digital experience is really hard to do unless you can prove that it will pay for itself in a short period of time, and start delivering the benefits of lowering these costs as quickly as possible.
Start by analysing the call activity of your contact centre agents. Typically, among all of the discussions, explanations and negotiations with customers, here are the likely outcome resolutions for repaying the debt:
- Making a payment to settle some or all of the amount in arrears.
- Arranging for a payment to be made in the near future – eg following the date that a customer is next paid a salary.
- An affordability assessment, or Income and Expenditure review (I&E) to see how much the customer can afford to repay on a weekly or monthly basis.
- Making an arrangement to repay in several instalments by setting up a regular repayment plan.
Work out the time spent, calculate the average cost of each call by working back from a call centre agent annual cost, and then count the number of calls made.
Not every customer will switch to using a digital engagement service to self-cure their arrears, but some will. Segmenting this down is dependent on a number of factors, including the average age of the debt, the demographic of your customer base, their propensity for digital services, and the contract strategy that you put in place to signpost and direct customers to use the platform. You’ll also need to account for designated vulnerable customers and ensure they are properly accounted for.
Uptake for early stage arrears – those in ‘bucket one’ 1-30 days – should average around 20-25%. This could increase dramatically for certain types of debt and for smaller amounts, etc.
Working out how much more quickly debt can be recovered through a digital channel isn’t an exact science, but there are plenty of sector-based statistics that can be used to assess the improvement that a well-designed, customer-centric digital collections channel can deliver. This typically ranges from 5-20%, which is a big spread. A review of the current collections performance, the importance of the product or service to the customer, and the relationship that the customer had had to date with the organisation, will help to determine where in this spectrum this should sit.
Then there are those customers who, for whatever reason, just don’t respond well to the current methods of contact. They shun outbound telephony and refuse to call you too, and they don’t respond well to immediate SMS demands. Some work hours that don’t align with those of the contact centre, while others find it hard to discuss their financial difficulties with strangers; and some need more time to visualise their situation before being able to determine a suitable way forward. These customers do respond well to existing digital self-servicing channels, and it is shown that they are likely to access a convenient and empathic collections digital experience.
What might be achieved?
We recently conducted a compelling business case study with a retail bank looking to reap the benefits that a digital engagement channel will bring to their collections operation. The results speak for themselves:
- ROI within nine months
- a 75% reduction in cost per engagement
- 20% reduction in call centre FTE
- 1.5% reduced impairment
- £2.2m ROI after three years
- 20% improved resilience to an economic downturn.
The case study for delivering digital solutions is a compelling one that has many benefits. With Interact Collect, our clients can streamline their digital collections operation in just a few months, and we can show you how this will work for you, too.