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May 22, 2019
SAN JOSE, Calif. — May 22, 2019 —
FICO, a leading analytics company, today announced results of a research report with Aite Group, a global research and advisory firm delivering comprehensive, actionable advice on business, technology and regulatory issues within the financial services industry. While lenders have invested in creating frictionless account opening and customer management processes, the report found that collections is one area along the credit lifecycle that is lagging behind in moving to a digital-first, customer-centric approach. The report shows the need to transform the debt collections process by investing in more analytics and technology to drive efficiencies and improve customer engagement.
“Consumer expectations have been raised due to the personalized digital experiences offered by non-bank providers like Amazon and Apple. Delivering a customer-centric approach across the entire credit lifecycle – including collections – is table stakes for all lenders,” said Mary Dupont, Senior Director and Principal Consultant at FICO. “By applying advanced analytics, offering self-service communication capabilities, and using real-time data streaming for decisioning, lenders can preserve profitable relationships, improve overall customer relationships, and significantly increase the likelihood of collecting on delinquent debt.”
The report surveyed senior leaders from large U.S. banks, credit unions, and nonbank lenders to assess their roadmap to a more customer-centric approach to debt collection and its associated challenges. The report noted that while delinquencies remain relatively low, many believe that a downturn of some magnitude is on the horizon. This expected change in the credit cycle – coupled with the need to continue to expand the borrower base – raises the importance of monitoring external and internal risk indicators. Solving for increased delinquency volumes and rates after the signs have been spotted is too late.
Lenders recognize the need to further investment across the entire credit lifecycle. Nearly two-thirds of consumer lenders (63%) report increases in technology investments for originations and compliance. Marketing-related investments follow with just over half (53%) and 42% of consumer lenders note increased IT budgets for collections in 2018.
Of the new resources being allocated to collection-related activities, half the respondents report that these investments are for data and analytics to inform their collections practice. More than 40% report investments in operational or business processes and technology.
However, in the next two years, debt collection professionals expect a shift in spending to focus on building or acquiring collection software platforms that integrate with analytics tools broaden the communication channels options for their customers, and digitally transform the collection process. As a result, collection departments can realize greater efficiencies by taking a digital first, customer-centric approach.
A large majority (86%) of consumer lenders believe that machine learning and AI technologies may be useful at many stages of the credit lifecycle. Some specific applications of machine learning and AI mentioned by collection executives include:
Improving collectors’ understanding of optimal times and channels to contact delinquent borrowers
Assigning the right type of agent for the right type of activity or contact
Identifying early warning signs of distress in not-yet-delinquent accounts
AI enabled chatbots to engage lower-risk customers
According to the report, debt collectors increasingly want to understand how to better engage with their customers by delivering personalized communications. By leveraging data-driven communications platforms, lenders can improve customer communication by better understanding customer preferences and use this within the context of their broader relationship with the financial institution. By having the insights into what messages resonate with which customers over certain channels, lenders can vastly improve customer relationships which leads to improved collection rates on delinquent accounts.
For institutions that have traditionally managed collections at the branch level, part of this transformation has included centralizing some collection functions, particularly for those accounts that are high-risk, highly, or burdensome from a compliance perspective.
“Regardless of where they are in the process, debt collection executives know it’s vital for future success that their processes undergo a digital transformation in the coming years,” said Leslie Parrish, senior analyst covering consumer lending at the Aite Group. “Digital transformation has successfully been implemented across the majority of the credit lifecycle. It’s now time for collections to embrace a more data-driven, customer centric approach.”
FICO (NYSE: FICO) powers decisions that help people and businesses around the world prosper. Founded in 1956 and based in Silicon Valley, the company is a pioneer in the use of predictive analytics and data science to improve operational decisions. FICO holds more than 190 US and foreign patents on technologies that increase profitability, customer satisfaction and growth for businesses in financial services, telecommunications, health care, retail and many other industries. Using FICO solutions, businesses in more than 100 countries do everything from protecting 2.6 billion payment cards from fraud, to helping people get credit, to ensuring that millions of airplanes and rental cars are in the right place at the right time. Learn more at http://www.fico.com
Aite Group conducted two types of interviews to understand current and planned initiatives underway at large U.S. banks, credit unions, and nonbank lenders. First, Aite Group surveyed 22 lending executives with significant responsibility for their institutions’ retail credit portfolios in Fall 2018. This survey included questions related to current and planned investments in debt collection- related technology, and the extent to which the level and types of debt collection investments are expected to change over time. As a follow-up to this survey, Aite Group conducted in-depth discussions with 10 debt collection and default management executives focused on consumer debt at leading U.S. banks, credit unions, and nonbank lenders in January and February 2019. These discussions delved more deeply into the degree to which these institutions have evolved or are planning to evolve their collection processes with the adoption of new analytical approaches or technology.
Greg Jawski for FICO
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