To preface this post, my work focuses on digital financial services. I mention this as I’m not a doctor or scientist of any sort. I can’t cure COVID-19 (unless whiskey and wine are the cure). I’m immensely grateful for the scientists who have developed a vaccine and the healthcare professionals that are currently administering it. I’m optimistic that 2021 will go significantly better for all of us than 2020 did.
That said, I do think it’s worth looking back on 2020 and identifying some important trends in financial services and thinking through how we might address them differently if we had a do-over. After all, hindsight is 2020.
1. Get the payment deferral reasons.
Most institutions across the globe very quickly responded with programs to defer payments, either on their own or with regulatory directions. What most didn’t do was get the various reasons for that deferral such as total job loss, bankrupt business, reduction of pay, or temporary layoff. These are important as the approach to handling the medium and long-term implications are different. GET THE DATA!
2. Build New to Bank Digital onboarding for new accounts or credit.
For the last four years, the number one priority for banks was building an outstanding digital account opening process. Organic growth was difficult last year when visiting a branch was required; branches either had reduce hours or were closed outright and digitally savvy customers weren’t going into the branch anyway. Forward-looking banks spent 2020 building dynamic processes for identity authentication in the digital account opening process that include physical ID verification, alternative data sources, and (in some jurisdictions) even live video.
3. Ensure the strong use of digital communications in all customer communication.
Many FIs use SMS or texts somewhere in the customer lifecycle (credit card authorizations, for example), but fail to use it across all customer communications. This was a problem when most institutions worldwide found themselves without collections and customer service channels once work from home was ordered. The best in class in the days preceding lockdown modified their mix of SMS versus phone and utilized their business continuity plans to enable collectors, fraud staff, underwriters, and customer service to work at home.
4. Ensure that there’s a true customer level view and act on that information.
Many FIs have multiple products with a customer, but do not take full advantage of the story that the data tells. Let me illustrate through an example – if a customer is on deferral program and you don’t know the reason and they have a credit card and checking account, you can look to the checking account to see if payroll is coming into it. Has it changed? Look at the types of transactions in the credit card. Look at the utilization. Look at velocity of spend. The data you need to make a better decision for your organization and your customer may already be inside your walls.
5. Think before you act and anticipate customer needs.
Get back to basics in analytics. Well-built credit scores will continue to risk rank but may lose some predicative power and some risk ranking ability (shift downward and flatten). We’ve observed this in the past with economic events. As mentioned in #4, a customer-level view is needed. With this data, you can be in front of challenges – reach out to customers before payment challenges occur. We often refer to this as pre-delinquency intervention. If you see deposits into accounts that are smaller or have stopped – reach out to the customer to discuss. This can be done digitally, virtually (where customer wants), through the call center, or even using branch staff who are underutilized. Often in collections, it’s the first groups that contact that have better results – why not contact before?
6. Review all digital experiences and ensure they delight customers.
This is a bold ask, but many institutions have been in catch up mode and have cobbled together process that resemble the digital version of form filling. These processes are ripe for change – your conversion rates are suffering, and you may inadvertently cause adverse selection – good customers won’t go through bad process (but bad ones will).
7. Ensure you’ve got a learning environment (and I don’t just mean systems).
I’ll steal the Google mantra here – if you’re going to fail, fail fast (and cheaply). If you’re not testing all the time you’re not learning. You need infrastructure and culture together to be in constant learning mode. Does my platform allow A/B testing during acquisition, during collections, during marketing? Customers’ wants and needs are constantly changing (particularly in a turbulent year like we just had) and so you should relentlessly be figuring out what they are and never resting on old assumptions.
Something above strike a chord? Reach out (DKnopp@FICO.com); FICO Advisors wants to help.