Pandemic and inflationary pressure threaten an increase in delinquencies

Eight out of every ten Americans have debt, and yet a new record was set at $15 trillion household debt in September 2021, according to the Federal Reserve Bank of New York. The recent Covid pandemic and looming 30-year high inflation rates threaten to increase the number of debtors at risk or in delinquency, many for the first time. For example, McKinsey consulting firm forecasts an increase in credit card losses in the United States between 2020 and 2022 and predicts a substantial increase in delinquency—”potentially more than three times the current levels.”

They also expect a significant increase in mortgage losses, especially as temporary financial assistance; active Covid-related forbearance loans; and extended unemployment benefits expire. A 2021 report by the Federal Reserve Bank of Philadelphia sounds a similar warning, estimating families owe about $11 billion in back rent. A study by the University of California put that figure at $20 billion.

Why customer experience should be the heart of your debt collection strategy

Among the 80% of Americans carrying debt, there is always a segment of that population in a constant state of at-risk or delinquency. However, the pandemic and high inflation increase the odds that any customer of yours could fall into the at-risk or delinquent status during their customer lifecycle with your organization.

How you treat customers and their experience with you during debt delinquency can have a significant impact not only on collection rates but on your success during the retention and loyalty/advocacy stages.

The customer experience of debt delinquency

All too often, organizations perform collection activities at the expense of retention and loyalty. Organizations tend to write off delinquent customers rather than treat collections as another stage in customer lifecycle activity, and the negative customer experience with debt collection reflects this.

Negative emotions about debt—anger, fear, stress—only intensify when you ask customers about their experience with debt collection. Top complaints from consumers regarding debt collection are:

  • Mistaken identity
  • Frequent or repeated calls
  • Lack of information about the debts owed
  • Attempts to collect paid debt

Debt collection challenges for organizations

Debt collectors have their own challenges with debt recovery operations. Here are just a few:

  • Delinquencies on the rise, even for those rarely at risk or delinquent
  • Long economic boom translated into underinvestment, lack of focus on debt collection
  • Debt is a four-letter word; no one ever wants to engage with debt collection
  • Increased regulation puts constraints on debt collection activity
  • Despite an accelerated shift to digital channels, many revert to outdated collection strategies
  • No way to differentiate approaches for first time vs chronic delinquency
  • How to balance support and empathy with action rates?
  • Limited agent resources and skill set for debt collection
  • Poor connection rates lead to poor collection rates

9 Ways to Improve Debt Collections

Giving customers digital channel choice increases payment action

The accelerated move to digital channels is transforming the way banks and lenders can collect debt and those leveraging these customer engagement options enjoy success. In a 2019 research, McKinsey cited that 12-35% of delinquent consumers take payment action after being contacted on digital channels. Despite this proof point, customer experience with debt collectors indicates far too many eventually stuck with the one-size-fits-all, outdated collection strategy of more calling.

As with any customer engagement during the stages in the customer lifecycle, handling channel preference is an important driver of successful debt collection outcomes. A 2018 McKinsey study of credit card delinquency of 12 major North American issuers confirmed this fact when it reported that “… customers’ preferred channels were the most effective in debt repayment. The data we received strongly confirmed this.”  They concluded that contact preferences and responses are “guided by personal considerations that bear little relationship to the risk categories and contact protocols worked out by lenders.”

Capitalize on the move to digital channels; leverage omnichannel for Right Party Contact

The ability to create omnichannel flows using multichannel, multi-touch sequences replaces outdated mail, email, and voice-only campaigns. Omnichannel debt collection campaigns include knowing which channel to use when for specific customers, depending on where they are in the debt cycle.

Collections can design personalized, sensitive omnichannel strategies to address customers’ diverse preferences. Organizations can optimize channel mix, including voice, 2-way SMS, and email to improve connection rates and refine contact approaches based on responses and behavior.

Personalize, increase debt collection rates with built-in Customer Data Platform

Customer experience with debt collection is dismal. As mentioned, top complaints are they are contacted in error, too many times with too little or inaccurate information. A Customer Data Platform (CDP), a database that connects all your data sources and gives agents an aggregated global view of demographic, behavioral, and transactional and engagement customer data-is critical to successful debt collection management—just as it is with engagement at any point in the customer lifecycle.

Access to this real-time view enables debt collection reps to have up-to-date information on action rates and accurate information. They know exactly where customers are in their payment lifecycle and can support and provide payment solutions to customers at risk or in delinquency. The following sample capabilities demonstrate the power of a built-in CDP:

  • Real-time check of the latest payment information before triggering a contact
  • Context, payment history, and customer sentiment is pushed to the agent
  • Collector is guided through recovery/assistance steps
  • Customer promises to pay captured
  • Next best action is chained for follow up

Engage with empathy; cultivate relationships with customer context, agent guidance

Outreach to prevent or mitigate debt and increase recovery includes assistance to customers facing financial hardship. Armed with the latest customer information at hand, collection agents can provide customers with correct, detailed information about the debt owed. They become personalized advisors and can treat at-risk and delinquent customers with empathy and compassion during this sensitive phase of the customer journey with your brand.

A dialog designer lets you create, test, and rework automated outbound IVR and email messaging and use live call guide scripts tailored to convey empathy and concern while increasing debt collection rates.

A solution that empowers debt collectors with rich customer context, emotion signals, and guidance for extended payment terms and options offers the best possible experience. And after-call work automation and smart workflows through campaign chaining improve agent efficiency.

Increase efficiency and effectiveness with analytics and AI-guided intelligent collection

Limited resources, especially during Covid-19 induced labor shortages, only increase the importance of meeting efficiency and efficacy goals. The ability to prioritize outreach and maximize your agent pool is critical to successful debt collection.

Engagement solutions driven by analytics and artificial intelligence (AI)-guided debt collection can target with precision and maximize contact and recovery rates. AI models deliver next-best-action intelligence, generate powerful predictions, and uncover the drivers of performance and connection rates. AI-guided debt recovery campaigns combined with a rich, up-to-date CDP, enable you to make predictions such as:

  • Payment probability
  • Expected proportion/amount
  • Probability to pay target date
  • Recommended reminders

Look for a rich data model that can feed statistical and predictive models, including best time to call (BTTC), best channel to use, propensity-to-pay, and likely response to reminders. You can leverage these analytics to optimize your resource allocation and right-party contacts.

Manage debt risk, develop customer-specific collection strategies with segmentation

With a built-in Customer Data Platform (CDP), you can assemble comprehensive customer profiles, including transaction history, payment records, and past interactions with rich dispositions. There are soft and aggressive collection contact methods and everything in between. Which methods to use, when, and for whom can be determined with segmentation and predictive modeling capabilities. A rich CDP coupled with AI and analytics provides the foundation for segmentation and predictive models.

Look for the ability to segment debtors based on their propensity to pay, communication preferences, and responsiveness to payment reminders to tailor engagement workflows and increase debt collection rates. The combination of a rich CDP and AI and analytics delivers the ability to develop customer-specific collection strategies and campaigns using segmentation such as:

  • Auto-detect customers in need of care regarding payment
  • Soft and aggressive debt collection methods
  • Segmentation into days-past-due buckets
  • Performing accounts placed in reminder campaigns based on behavior/ channel preference
  • Agents are allocated to delinquent accounts based on the value recovery opportunity

Maximize resources, improve connect and collection rates with a full-featured dialer

Having a live call with customers to offer support and discuss payment options as part of your engagement mix is still one of the best options to improve successful debt collection outcomes. Full-featured auto dialers are integral to a successful outreach of customers at risk for delinquency and for improving connect and collection rates.

Predictive dialing increases your reach of at risk or in debt customers by four times. Agents can spend more time assisting customers in distress, discussing payment options, and cultivating relationships.

Ensure your dialer supports all dialing modes–preview, progressive/power, predictive, and agentless–letting you choose the best for each “at-risk” or debt collection campaign. Look for the ability to manage both personal and campaign-level callbacks. Your dialer, in combination with powerful contact strategies, provides detailed control over the phone number to use and retries based on the outcome of previous attempts.

A best-in-class auto dialer maximizes agents’ occupancy and connect rates and will include controls to stay compliant with the various collection and privacy regulations.

Ensure compliance given increasing privacy and collection regulations

Outbound cold calling of customers for debt collection or any other business reason opens organizations up to the risk of shutdowns and heavy fines given regulatory actions to safeguard consumer privacy and information. Regulation is to reduce fraudulent robocalls and unwanted solicitation and restore trust in voice communications. Fair Debt Collection Practices Act (FDCPA), Telephone Consumer Protection Act (TCPA), and Fair Credit Reporting Act (FCRA) are key regulations for debt collection.

Avoid the blocking of calls and economic and regulatory enforcement consequences with compliant dialers. Look for outbound engagement solutions integrated within core conversational engagement platforms and designed to comply automatically with the TCPA, Do Not Call (DNC), General Data Protection Regulation (GDPR) guidelines and scripted to comply with the other debt collection regulations mentioned.

The ability to configure rules and policies in real-time based on compliance checks and run them on autopilot enables laser focus on proactive debt collection engagement and payment action rather than worrying about statutory regulations and regional-specific regulatory adherence or soft compliance issues.

Overlay, integrate debt collection solutions with existing data sources, infrastructure

Campaign management software used for at-risk and debt collection is truly omnichannel when it lets you define your engagement workflows across the various channels. Look for a solution that can easily overlay and integrate with your existing Contact Center as a Service (CCaaS), Conversational AI, and Communication Platform as a Service (CPaaS) to provide that orchestration ability.

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