How Was Your Digital Collections Experience in 2020?

Five collections curveballs we saw the pandemic throw at the industry.

by Jaime Guzman

February 2, 2021

At the risk of stating the obvious, we can likely all agree that the pandemic has significantly accelerated the adoption of online and mobile banking. However, that doesn’t mean that this acceleration has been evenly distributed across every company in the financial services industry, nor across every part of an individual financial institution. One area that is often left behind in digital transformation initiatives, but that has also been a focus over the last year due to uncertain economic conditions is collections.

Without such investments, organizations continue with their favored channels for contacting delinquent customers, phone, letter, and voice mail. Conversely, the channels that lenders use less often, email, text messaging, and chat are the most favored by customers today and yield the best results.

How would you rate yourself when it comes to your collections transformation? What investments in your platform, data orchestration, analytics, human capital, UX design, etc., etc., were made in 2020 in order to create a robust digital collections experience?

Did the economic uncertainties at the early stages of the pandemic cause you go out and internally hire teams of collection agents or give the green light to your 1st or 3rd parties to do the same? Are you now trying to figure out where to redeploy these resources now that you have excess capacity or mistiming of resource build up and operationally your metrics don’t support your current staffing levels?

If you’re wondering if you’re alone in this predicament, the answer is “NO.”

So, now what? We learn, adapt, and make the needed investments to better position ourselves for the next event that we can be assured are to come. Regardless of what stage you’re at in your digital capabilities journey (if you even have started), here were a few collections curveballs we saw the pandemic throw at the industry.

1. Capturing RFD - “Reason for Deferral”

Call it forbearance, deferral, skip-a-pay, payment holiday, etc., there was a material increase in the number of customers that took advantage of these programs; some out of convenience, while others were directly or indirectly impacted by Covid-19. With the speed at which banks and financial institutions made these programs available, many failed to capture the “WHY”. Capturing this information and applying risk analytics would allow you to assess the overall customer risk, track transactional behaviors, and better identify the customers who will be in need of continued assistance in the months to come.

2. Keeping an Active Dialogue

For those customers who took advantage of a deferral, how well did you communicate the terms of the transaction and more importantly, was there an open and continuous line of communication? Did you send them reminders of when their next payment was due, the amount that was coming due or invite them to have a discussion if there were changes to their financial situation that would cause them to be unable to make that next payment.

3. Look at the Data

Did you access your customers primary checking account data or their external accounts through a financial data aggregator (Plaid, Yodlee, Decision Logic, etc.)? Did you become obsessed with looking at the stories this data was telling? The answer should be a resounding “YES”. Within weeks of the pandemic you would have observed changes to the source of income (salary vs. unemployment), size of deposit, average balance, transactional behavior, whether or not someone received a stimulus check and what they did with it – all of this was at your fingertips. This data was critical to tracking your customers ability to pay and real time affordability that traditional credit scores are unable to capture.

4. Creating New Solutions

There will remain a segment of consumers who will continue to be financially challenged and in need of new types of workout plans. Do you have new tools in your toolbox? Automating the data collection through your digital channel(s) and selection criteria that will improve customer engagement can increase customer satisfaction and provide auditable consistent decision making.

5. Eliminate Outbound Calling

With the stay-at-home mandates did you see a material shift in your right party contacts? Consumers are busier then even balancing work from home, remote schooling, lack of daycare, keeping the family entertained, etc. If you are committed to having a robust digital collections strategy then be brave and set the vision of eliminating outbound calling. Will you be able to eliminate outbound calling all together? “No”, but its effectiveness will be surpassed by customer self-service, chat and other digital capabilities. For customers who prefer live agents, allowing them the flexibility to schedule call backs will improve account resolution and customer experience

Does anything above strike a chord? Do you feel you’re on the right track? If not, it’s never too late to course correct. FICO Advisors are always here to help, reach out to JaimeGuzman@FICO.com.

Jaime Guzman

Jaime Guzman is a Senior Principal Business Consultant of FICO Advisors Digital Practice at FICO. Before joining FICO, Jaime held many key roles at financial institutions throughout North America and Middle East, including Senior Credit Officer of Elevate, a US Fintech specializing in online lending and free financial training. Jaime previously spent 8 years leading credit risk lending and collections for a digital bank and Fintech. Jaime was responsible for creating underwriting strategies that controlled for fraud and credit losses while allowing each individual portfolio to maintain future growth.

Jaime also held various executive roles at USAA, having responsibility for all aspects of collections to include strategy, planning, operations, recoveries, bankruptcy, repossession, and remarketing. He was also responsible for providing leadership for the Banks FCRA Program & Credit Bureau Disputes, Process Excellence, and Agile work in support of Member Debt Solutions. Prior to USAA, Jaime worked at HSBC for 17 years where he worked in 22 countries supporting global risk initiatives and program management.

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I further broke this down by looking at the characteristics of the youngest 15% in each group, which occurs at age 29 for the 750-799 group and 43 for the 800-850. We used FICO® Score 9 for our analysis, and examined typical variables of the categories that go into the make-up of the score. <a href="http://www.fico.com/en/blogs/wp-content/uploads/2016/10/FICO-Score-High-Achiever-table.png"><img class="alignnone size-full wp-image-29367" src="http://www.fico.com/en/blogs/wp-content/uploads/2016/10/FICO-Score-High-Achiever-table.png" alt="fico-score-high-achiever-table" width="715" height="747" /></a> Since there’s a lot to dissect in this chart, I’ll highlight a few findings that struck me: <ul> <li>Credit history. Higher scores are undoubtedly associated with a longer time on file. What’s striking is the higher average time on file for the 800+ group, both overall and for revolving accounts (the most common trade line). Clearly, it helps to start credit use early in life – but that’s not the sole determining factor for high scoring. The younger cohorts in both the 800+ and 750-799 groups have time on file medians significantly less than their older counterparts.</li> <li>New credit. High credit scorers do, in fact, pursue new credit. We see little variation in months since last trade line opening and last inquiry among all groups observed.</li> <li>Pay on time. As you might expect, the further in the past the delinquency, the higher the score – and that’s if a delinquency ever happened. 95% of the 800+ people and 72% of the 750-799 group have never been delinquent, which is a striking contrast to the 57% for the total population. The percentages for the younger groups are even higher, especially so for the 750-799ers. Collection items are also scarce for these high scorers. 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The 800+ group is roughly 1/4 of the national median, both in total and on their highest utilized card; they also have lower balances and more cards. The 750-799 group is more active and higher utilized, but still only at 2/3 of the national figures. The young 750-799 group compensate with lower revolving balances and, as a result, lower utilization, which is in line with what we see for the 800+ group.</li> <li>Benchmarks. I’d like to point out that while this study provides good benchmarks of the typical credit traits of the FICO® Score high achiever, individual credit profiles will vary widely. And keep in mind that when we sort groups of consumers as a whole by different behaviours, some results may look superficially odd. For example, the 800+ band has a longer median average open account time (128 months) than average revolving months on file (140 months).</li> </ul> So, what do we conclude? A huge takeaway is that high scorers don’t have too much in the way of serious delinquencies and negative public record data. In most respects, the young 800+ people are like their peer group. They really only differ markedly in their shorter credit history and higher non-mortgage balance, both of which are a function of life stage. Our results show that you don’t have to be a credit product hermit; these high scorers have more credit cards. The takeaway is to start credit activity early and maintain well-managed and moderate usage. In many ways, the young 750-799 people are more interesting because their age profile is much younger. Their credit characteristics differ more from their peer group, particularly in terms of length of credit history. They compensate by having almost pristine credit records and lower balances. Ultimately, 39% of US consumers are FICO® Score high achievers, which they accomplish by following common-sense credit practices. It ain’t rocket science!

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