Necessity is the mother of risk-based collections innovation

I started How to Lend Money to Strangers, in part, as a way to refresh a series of credit risk strategy articles I'd written when I first got into consulting, a decade ago. And when I look at the stats on those old articles, my pieces on risk-based collections have been consistently popular. Now, I've done a bit of collections strategy work myself, but it was a while ago, and so I knew I wanted to get an actual collections expert in and I knew I wanted to get them in early.

First among those collections experts was Terry Franklin of Qualco. First, in the literal sense of course, but in the metaphorical sense he can't be far off either 🤩

In episode seven, Terry and I spoke about risk-based collections in general, but there was no avoiding the topic of COVID-19 and its fallout. On that front, I was pleased to hear that it wasn't all doom and gloom. In fact, the widespread and inclusive nature of COVID's impact means that lenders were often pushed to re-think and re-invest in their collections processes.

I think at the moment there's a lot of understanding of financial hardship, being compassionate, being empathetic with customers, spending the time to understand their personal circumstances as best you possibly can... the smart companies are using data and analytics to help

Suddenly, we were seeing headlines about financial accommodations, about why it was worth speaking to your lender about your options, about restructuring your debt - all topics that fall under the early collections umbrella. In the past, these discussions were tinged with a touch of stigma and were often avoided for the awkward conversation that had to arise.

But this wasn't a financial crisis in the same as the subprime housing crisis that preceded it, it was underpinned by a pandemic that forced us all online. Lenders were suddenly forced to find the budget needed to bring about modern customer experiences in collections, budgets that their collections teams had often been screaming shouting about for years!

And so, not only was the stigma of financial difficulty being eroded by the near-universal impact of the lockdown, but the difficult conversations were being pushed to more neutral channels. Hopefully, this will encourage borrowers to take action sooner than in the past, turning around difficult situations before it is too late.

Avoiding difficult conversations can take two forms: this sort of all-out avoidance until their calls become unavoidable, but also a desire to end the conversation before all options have been considered. So again, there are clear benefits to providing consumers with an interactive platform to help them map their own route to recovery.

... as long as they can use a tool that allows them to set up a plan that is affordable and maintainable, and that's all accepted within the digital platform, it's a lot easier for those customers to use digital tools

This also heralds an interesting new stage in the evolution of collections. Gone are the days when a collections team would try to influence the delinquent customer's willingness to repay with subtle, or even overt threats, replaced by a world where the best customer service wins the scarce resource.

All of which are positive changes the industry can take into the recovery years.

Listen to that episode on Spotify by clicking here

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