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Operational Resilience in Collections – Will You Meet the FCA’s Standards?

Two months ago, I posted about why it is important for collections operations to adopt a forward-looking approach to debt management – basically the importance of having a clear and compelling vision. New guidelines from the FCA that call for operational resilience in collections reinforce this point.

Amongst the many valuable articles that have been published during the pandemic was a posting by the Financial Conduct Authority (FCA). This posting was a transcript of a speech delivered by Megan Butler, the Executive Director of Supervision – Investment, Wholesale and Specialists, at PIMFA’s Virtual Festival on the 4th June 2020, titled “The FCA’s response to Covid-19 and expectations for 2020”.

In the speech, which I encourage you to read, Butler points out that the perspectives of the FCA supervision regime have changed, in response to the challenges posed by COVID19, and that there are now 5 key drivers identified by the FCA for the next one to three years. Of these 5 key drivers the initial focus, detailed in the speech, is on operational resilience and financial resilience.

The Expectation for Resilience

I was surprised to learn that the FCA had started a discussion process on the subject of “Building operational resilience: impact tolerances for important business services” on the 5th July 2018, moving into a formal consultation phase on 5th December 2019. While not quite anticipating the outbreak of COVID19, the FCA deserves credit for identifying operational resilience as a risk and key business challenge, and for proactively progressing into a consultation.

What does this mean for collectors? From a regulatory perspective, being “resilient”  and prepared for future significant events will be expected and is no longer a “nice to have”.  Specifically, a couple of challenges have been set out by the FCA:

  1. Firms taking decisive and effective actions, for example by replacing outdated or weak infrastructure, increasing systems’ capacity, or addressing key person dependencies
  2. Firms being able to supply their most important business services even during severe operational disruption

Both of these points resonated immediately.

On the first point, having worked on both sides of the client/vendor fence, I have witnessed first-hand the struggles collections operations have in securing the necessary investment to enable the delivery of 21st century digital collections for their customers. For too long. collections operations have been at the back of the line when it comes to investing for the future, leaving them with a technology stack that:

  1. Has significant gaps when it comes to automation and customer self-serve
  2. Is outdated or more commonly is run on applications that have unsupported components
  3. Is difficult/costly to change
  4. At worst is unstable/unreliable

With the FCA’s expectation of “Firms taking decisive and effective actions, for example by replacing outdated or weak infrastructure”, the onus is on collections operations to be proactive and to take the initiative to ensure that these expectations are met, if not exceeded.

On the second point, while the FCA acknowledges that businesses responded well to the onset of the pandemic crisis, it was quite clear that, in the UK at least, once the lockdown was announced, along with the associated financial support packages being offered, businesses were presented with a number of significant challenges. This included a level of customer demand never before experienced and the fact that the ability to meet this demand was constrained by physical lockdown requirements, both of which resulted in a detrimental effect on customer experience.

Given this, I believe that most businesses would have struggled to meet the future expectations of the FCA in relation to “Firms being able to supply their most important business services even during severe operational disruption”.

How Should Collections Operations Respond?

So how will businesses react to this? For me, the main question that needs to be answered now is “What can collections operations do to meet these expectations in the future?” Below are my thoughts on this:

1. Identify your clear and compelling vision for collections. This will demonstrate a clarity of thought and a strategic approach that will give the investment decision makers in your business the confidence that you know where you are going, how you are going to get there, why you should go there and the value of achieving the vision. A clear roadmap of deliverables and an underpinning plan will help to demonstrate that you, and your operation, are worth investing in.

2. Commission an independent assessment of your collections operation. An assessment of this nature can provide you with an objective appraisal of your collections operation. By assessing your people, policies, processes, performance, data, analytics, strategy, organisation, tools and technology, you can develop the gap analysis and recommendations for delivering your vision.

3. Identify areas for automation and customer self-service. In my experience these are still the biggest areas of opportunity to improve collections performance, deliver much needed efficiencies to the business, and, at the same time, improve customer experience and outcomes. Both outbound and inbound activity are equally primed for automation, using combinations of SMS/iSMS, iVoice, push notifications, RCS, WhatsApp, web portals, payment gateways and email, and the empowerment of customers through the delivery of rich self-service options via these channels. 

4. Hone your business case development skills. Developing and refining a compelling business case can be tricky. It is critical to understand what the potential ROI will be for any investment made in your operation. Having worked with clients on many business cases, I recommend that you focus on the following:

  • Calculate the impact that improved effectiveness metrics will have on roll rates
  • Calculate the impact of these reduced roll rates on Stage 1 provisions.
  • Calculate potential efficiency gains, with the caveat that this can be re-invested in the deployment of re-deployed headcount to more valuable work.
  • Calculate the improvement in cash collected. Although this is driven by improved effectiveness, it is still a valid element in the ROI calculation.
  • Highlight the impact on customer experience and satisfaction through the delivery of  improved customer journeys and outcomes.
  • Include the benefits that are realised well downstream of the digitally enabled strategies

5. Partner with technology vendors who can help meet and shape your strategic vision. All too often I meet with clients who have invested in multiple point solutions, across a multitude of different vendors, usually to solve a specific challenge at a particular moment in time. Whilst this may have provided some short-term benefits, and seemed like a cost-effective approach, it quite often creates headaches further down the line when trying to bring these solutions together to form a seamless digital experience. This can result in very costly and sometimes impossible technology estates to manage and maintain, which might not meet the longer-term strategic vision. Take the opportunity, as part of your vision and plan, to leverage your RFP process to assess the market. This will enable you to understand your vendor’s full technology roadmap/ecosystem and to validate how you can achieve your full strategic vision whilst consolidating your vendor and technology landscape.

In summary, the FCA are clearly taking a longer-term view when it comes to delivering operational resilience, and it is unlikely that they will expect businesses to deliver overnight. However, the goals are clear. During the next three years, collections operations will be expected to deliver improved resiliency, by:

  1. Ensuring that their technology infrastructure is fit for purpose and
  2. Ensuring that they are able to supply their most important business services even during severe operational disruption.

The challenge will be to meet these expectations during what is likely to be a continued period of uncertainty.

If you have any questions regarding the contents of this post or would like to discuss ways that FICO might be able to support you in meeting your current business challenges, please email me at huwvaughan@fico.com.

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