11 Credit Trends That Raise Questions for Debt Collectors

Changes in the credit industry are playing havoc with traditional collections strategies and tactics. However efficient and advanced an operation is, it’s being stress-tested by a multitude of factors in ways not seen since the last global recession.

Here are some of those factors, and the questions they raise for debt collectors:

1. Consumer demand for credit – if our customers become used to invisible money then do they realise when they can’t afford any more credit?.
2. Consumers’ purchasing ‘rights’ – is “I want it and I want it now” an acceptable expectation for credit grantors to facilitate?
3. Financial morality – are you understanding the changing payment hierarchy of your consumers, and can you shift their thinking to put your debt first?
4. Data privacy – how can you achieve your objectives using less data?
5. Regulation – how can you make sure you’re reaching the right outcome for borrowers?
6. Consumer protection – are you treating consumers fairly and extending appropriate tolerance in forbearance?
7. Accounting rules (IFRS 9) – while being tolerant, fair and focused on right outcomes, can you keep borrowers from crossing the 31-day mark and becoming Stage 2 risks with higher provisioning? And if they do cross that line, how can you get them back into Stage 1?
8. Analytics – how can AI and machine learning help with these challenges, and do we have the know-how to make the most of them?
9. Cloud - will collections operations be first or last to realize the costs savings of virtual operating models?
10. Margin erosion – will the focus on lowering cost deprive you of the investments you need to stay competitive?
11. 3^rd party becoming 1^st party – given all of the above, is collection a core competency lenders want to maintain? And if the answer is “no”, will the third-party market be able to absorb that increased volume, given the need many DCAs have to reduce their leverage?

All of these factors play in the region where I work, EMEA, even though the balance will be different from country to country. This is why my focus as I speak with lenders, debt collectors and third-party debt servicers across the region is on managing trade-offs. Dealing with these issues in isolation is a costly mistake — you have to take a holistic view, as complicated as that sounds.

In my next post, I’ll discuss the five views that should be shaping your collections approach, and how they influence each other.