News & Views Detail

Collections used to be the ‘forgotten’ area of banking – under-resourced, underfunded and with low status. Things have changed with the credit crunch – as one bank MD put it recently –‘We all have to be collections experts now’.  A very laudable thought but will it be translated into action or forgotten once the immediate danger is past?  The key is whether the collections department is seen as an expense area or as contributing to the bottom line, as a place to cut costs or to improve income. If the double dip recession does occur, or even if we only have a prolonged period of little growth and tough economic conditions, will our lending organisations be prepared to invest in the additional people, training and technology to meet an increased workload in the collections department?  With net losses on some UK card portfolios reaching 10%, the focus on collections and recovery has never been sharper.  The market is responding in a number of different ways to these and other challenges.

Self service – in the same way that the government is trying to persuade people to do more online, doing more on-line or by text is increasingly popular. If nothing else, this option can be designed to address the forgetful, ‘casual’ arrears and who knows how many other customers would be more willing to deal with faceless, on-line processes rather than explain their circumstances and mistakes to another human being. The caveat is that self service may be only a filtering mechanism – the first step in the overall collections process.

Earlier intervention with pre-delinquency strategies – again very dependent on the technology, and on the availability of good bureau data.  Customers identified as having a higher than average risk of delinquency need very careful treatment  - some organisations have found that making contact with these customers can actually lead to delinquency (they had been trying to keep the problem to themselves, but once the lender knows about it, they ‘give up’).  Early intervention can also lead to a reduced share of the customer wallet – they had been paying all that was due each month, but after contact with the lender they may ask for and get reduced payment terms.  What is more likely to be successful with pre-delinquent customers is using the opportunity to make sure you have good, working contact details (usually phone numbers), to control or reduce limits so that the lenders exposure does not increase and to flag these customers in some way so that if they do miss a payment or pay late, they are escalated to immediate action, rather than being given grace days or a period of letters only. 

Expanding the range of contact mechanisms – if collections is a contact sport, the more methods of contact available will increase the chances of success.  In the past this meant making a phone call as well as sending a letter or putting out a statement message.  Now this might mean using SMS messages to drive up inbound call volumes, specific emails or use of secure messaging on internet banking sites.  The key point here is to make all of these messages consistent with each other and to introduce new, firmer messages as the delinquency becomes more severe.

Extending the range of payment options – many credit cards still only offer the options of minimum payment or payment in full each month. A full range of options including fixed payment amount, 25% or 50% of balance outstanding give the willing but over indebted  a chance to make inroads into their debts. The practice of reducing the direct debit amount if additional payments are made could also be working against the interests of both borrower and lender in the current economic environment.