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:
- Consumer demand for credit – if our customers become used to invisible money then do they realise when they can’t afford any more credit?.
- Consumers’ purchasing ‘rights’ – is “I want it and I want it now” an acceptable expectation for credit grantors to facilitate?
- Financial morality – are you understanding the changing payment hierarchy of your consumers, and can you shift their thinking to put your debt first?
- Data privacy – how can you achieve your objectives using less data?
- Regulation – how can you make sure you’re reaching the right outcome for borrowers?
- Consumer protection – are you treating consumers fairly and extending appropriate tolerance in forbearance?
- 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?
- Analytics – how can AI and machine learning help with these challenges, and do we have the know-how to make the most of them?
- Cloud – will collections operations be first or last to realize the costs savings of virtual operating models?
- Margin erosion – will the focus on lowering cost deprive you of the investments you need to stay competitive?
- 3rd party becoming 1st 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.