Use digital solutions to engage consumers with past-due payments

Indexes and Exchange-traded funds tracking the performance of banking stocks have reached a three-month high. However, the market is seeing some warning signs that lenders shouldn’t ignore. Auto loan and credit card delinquency is rising, student loan borrowers are defaulting at unprecedented rates, and mortgage servicing costs are increasing. To improve collections, companies need to adopt a ‘digital first’ approach to reach consumers via channels like SMS texting, email and chat.
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Capture the attention of delinquent consumers with digital solutions like proactive engagement.

It’s earnings season. We’re squarely in the time when companies are announcing their performance left and right. Indexes and exchange-traded funds (ETFs) tracking the performance of banking stocks are up 20% or more since November 2016. But that doesn’t necessarily mean lenders shouldn’t be concerned or wary of performance.

Some key indicators there may be impending trouble:

Auto: Auto loan delinquency has been climbing, especially in subprime portfolios. The American Bankers Association said late payment rates rose during the third quarter of 2016 to their highest levels in more than two years.

Education: Student loan borrowers are defaulting at unprecedented rates and the CFPB is on the warpath over servicer failure to adequately communicate alternatives to default

Credit Card: After years of decline, credit card delinquencies are climbing again.

Mortgage: Mortgage lenders may be dealing with fewer delinquent customers than at any time in the past 10 years, but the cost of servicing is now three times higher than it was before the crisis.

If these trends continue, lenders will be forced to use some of their earnings to increase their bad debt reserves and increase spending in their collections operations.

But what sort of investment should they make?

The commonality in all these portfolios is a borrower base that is increasingly younger, hipper and dedicated to the digital lifestyle. They eschew the use of their phone for anything as mundane and old fashioned as a voice call, opting instead to communicate through digital channels like SMS text messaging, email and online or in-app chat.

Unfortunately, the predictive dialer, which connects outbound phone calls to past due customers with account representatives, is still the primary tool most collections operations rely on.

There is one problem with that – dialers don’t do digital.

Some forward-thinking lenders are waking up to this fact.

A major provider of private label retail credit cards recently added interactive voice messaging, SMS text and email to their outbound treatments for delinquent accounts. By offloading significant volumes of outbound contact attempts from the dialer to these lower cost channels, they were able to nearly double their agent’s productivity, measured in accounts assigned per collector.

And the collection results?

They improved, with 19% more customers making their payments through self-service options than when all contacts were made by collectors.

Adding these capabilities didn’t mean the card servicer abandoned their dialer; they just decreased reliance on it by incorporating these alternative digital treatments, increasing their efficiency and no doubt pleasing those younger customers who hated the dialer phone calls that started with a pause, and were slowly followed by an uncomfortable conversation with a collector.

Delinquency may be on the rise, but by incorporating these modern treatments, lenders can stem the tide without breaking the bank…and the bank’s stockholders will appreciate that.

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Improving collections in the age of the ‘digital-first’ consumer

Build loyalty (yes loyalty!) and better long-term relationships with today’s ‘Digital First’ customers—and maximize collections at the same time.

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Brian Moore

About Brian Moore

Brian Moore, senior principal, industry solutions of Nuance’s Enterprise division, brings more than 30 years of experience in financial services, mortgage and collections operations and technology to the company. He is also our resident compliance expert, advising companies on the TCPA, FDCPA, TSR and other regulations impacting customer engagement.