In the current financial climate, more than ever, it's important to tackle potential payment problems early.
This isn’t just about the cost-of-living crisis, or post Covid problems, but it’s also about the change in accounting regulations. This means we must put a lifetime provision value on all accounts reaching two payments in arrears. Now, the overwhelming KPI in early financial service collections is minimising the roll from one payment down to two, and we need all the tools and time to manage this.
Time is important here. The longer you have to work an account the better the chances of resolution. So, does it just start at one payment down or can we work before delinquency occurs to try and forecast likely problem accounts and have a resolution in place to minimise exposure and balances?
Don’t confuse pre-delinquency with pre-collections. Pre-collections is simply working accounts earlier in the process whereas pre-delinquency management occurs before the problem occurs. A pre-delinquency strategy minimises exposure, helps the customer manage their commitments, and reduces delinquency and provisions.
An effective strategy works well when you:
At the heart of this strategy is the customer’s current account - the customer’s life goes through it, and it is in fact his P&L. This account will feed the card account, mortgage account and loan account that the customer has with the Bank.
To create a pre-delinquency strategy, we firstly need to know every current account customer who has another live debit product in the Bank. We also need to know the instalment/payment dates, amounts, and available credit on the current accounts in question.
Next, about seven days before each payment date, we must evaluate the pre-collections potential population, and have a pre-delinquency batch selection process occurring on every processing night.
Here are some examples of data filters to use when building a campaign
To be digitally focused, you should ideally select only those with mobile numbers and email addresses.
Ultimately, no-one knows your book and customers better than you do, and how you build a pre-delinquency campaign will vary depending on your needs.
AI software can be taught to spot patterns in user behaviour to raise red flags and make predictions regarding a customer’s financial health. Additionally, banks that use conversational messaging to engage with their customer gain further insight into a person’s specific situation. Natural Language Processing has reached the point where AI chatbots can recognise a person’s sentiment from a conversation and make conclusions based on the text analysis.
The Bank then proactively contacts the customers identified in the campaign strategy, along with those tagged by the conversational AI software, regarding payments, renewals, outstanding balances, etc. before their debt slips beyond control.
The whole process can be automated with AI-driven debt collection technology.
In a recent survey by conversational AI specialists, Webio, that explores the ‘new rules for credit, collections and payments’, it was found that:
“Being proactive with messaging is an effective way to engage customers. However, this proactive engagement needs to be personalised and deeply relevant to the customer — the right message, tone and timing are key to improving customer responses. This is especially relevant for customers who are nearing delinquency.”
The end goal of connecting with a customer is to identify potential collection problems and to “nip them in the bud”. How you approach this conversation is central to getting the customer to engage and seek help if needed.
In essence, an empathetic message is far more likely to get a positive response than a curt, one-way message. Within a two-way dialogue, you can review instalment dates, overdraft limits, credit card limits, etc. and come to an agreement.
The survey also found that when it comes to talking to institutions about their debt, 37% of customers prefer SMS as they feel more in control, and 22% choose WhatsApp (which is relatively new to business conversational texting) as they don't feel pressured or embarrassed like they would on the phone. Using the right communication channels, those that your customers feel comfortable using, is therefore an effective way to pre-emptively address delinquency.
Once the campaign has been set in motion, you need to continually review what is working and what needs refining. Look at what you predicted and how it panned out and look at the accounts you predicted to be delinquent and weren’t. Then revisit your campaign criteria based on these findings and launch again.
Going through this process, you will get closer and closer to building a productive pre-delinquency digital debt collection model.
To gain full value from a campaign, you need to measure its performance. Look at metrics such as:
And, most importantly, the reduction in provisions.
Whilst increases in promises and plans are welcomed, this is how you get to impact provisions, not the measure of success itself. These outcomes are essentially enablers to the ultimate goal.
If you need to improve your customer engagement, talk to us and we'll show you how AI and automation via digital messaging channels work.
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