For all the talk in the UK about disruptors and fintechs and new entrants to the credit market, and about how banks and card issuers need to manage customers in arrears, there’s one group that seems strangely absent from this focus: retailers. It is estimated over £200 billion of UK household debt is in unsecured retail credit. Much of this is covered by credit and debit cards, and we have seen upwards of 86% of car sales funded through finance schemes and upwards of 40% of online shopping being done through credit instruments.
Paying at your local “on tick” (putting your drinks on a tab, in the American parlance) was part of the fabric of our communities in years gone by. That tick still exists, but today the customer is faceless to many retailers and the means by which the tick gets settled is multi-faceted.
Now there is plenty of evidence that consumers are pulling in their belts as real wage levels have fallen but inflation rises. Whilst retail sales in many areas fell, online ecommerce continued its upward trend and through 2018 is expected to cater for more than 25% of all retail spending in the UK. Most ecommerce is in some form of credit for a large number of the online shoppers.
Those providing or facilitating retail credit have a worrying enough back drop, as the FCA focuses on the 3.3 million borrowers in persistent debt, falling consumer confidence affects retail sales, and banks and financial institutions brace themselves for the result of both their IFRS 9 compliance and the potential impacts of Brexit.
In this uncertain environment, are retailers doing enough to manage the vast amount of “tick” consumers have amounted?
I suspect the answer is no, at least at the industry level. There are world-class collections operations in the retail space, of course. Are you one of them?
Here are five questions for retailer collections, risk management and credit operations professionals managing retail credit:
- How prepared are you for a PSD2, IFRS 9, GDPR, NPLG world? Even if you don’t believe you need to be, these requirements are pushing your banking, fintechs and disruptor competitors to be far more efficient and effective than they were previously in how they manage their collections and recovery portfolios. They may turn compliance to their advantage — and your disadvantage.
- Have you moved from descriptive analytics (BI, clustering) to predictive analytics? If not, then you are likely to be over-working some accounts and not working others when and how you should.
- Have you moved from predictive to prescriptive analytics? If you are not among the growing group of UK risk teams deploying true mathematical, solver-based optimization across your collections and recovery capabilities, then you are likely to be missing opportunities to reduce losses, cost and unnecessary customer attrition.
- Can your team make changes to your strategies without a heavy reliance on IT? If not, then you are unlikely to have the agility and flexibility you need to compete against your peers.
- Do you rely on collections staff for all your customer contact? If so, then you are probably not maximizing the use of omnichannel customer engagement.
Even if you are one of the very few organizations that have all of the above covered, you may just want to find out what else the lead organizations in your and other global markets are doing to ensure their collections capability is seen as a business profit determinant, generating significant value whilst also meeting the many demands of customer satisfaction, seasonal and economic change, and regulator and accounting standards.
We at FICO work with leading providers of retail credit, and every other kind of credit. We welcome the opportunity to share our experience, solutions and services that more than 8,000 clients in 100+ countries have selected to manage their credit risk. Give us a call.