Balancing Risk, Effectiveness, and Customer experience in debt collection

“I wish the collectors would understand me better. Being a customer for over 15 years should mean something. Money is tight just now but it’s not like I’ll never pay them back. I wish they could respect my schedule and send me an email instead of the incessant calls when I’m at work. Is that too much to ask?”

“I wish the business understood that my primary responsibility is to collect on the portfolio. There are roll rates and charge offs to manage. Yes, customer experience is important, of course, it is! But, I manage a portfolio with millions of customers and don’t have the tools to personalize my approach. My team needs help.”

If this sounds familiar, you’re not alone. Creating a great customer experience in lender-debtor engagements, especially delinquency, can be difficult. On the one hand, the traditional approach to collection results in inefficient outreach since it doesn’t take into consideration the customer’s channel preference. On the other, this lack of focus means the costs of staffing and account management are through the roof. For a customer, the absence of nuance in the debt recovery process can be distressing. In the case of collections, specifically delinquency, the focus on risk over customer experience can also cost companies valuable relationships.

In order to address the problem, we first had to develop an intrinsic understanding of the context. Financial institutions have to balance a number of often conflicting priorities such as capitalizing on credit appetite, mitigating risk, and minimizing bad debt all while ensuring a quality customer experience. Legacy systems continue to inform collection strategy, applying a one-size-fits-all approach devoid of insights into an individual customer’s often unique payment situation. Also, risk segmentation remains rudimentary, based on a myopic view of the debtor generated by a limited selection of variables such as payment history, DTI, and credit scores. As a result, every year, sub-optimally prioritized collection efforts informed by a limited view of the borrower cause companies to spend hundreds of thousands of dollars on call investments covering even low-risk profiles. These well-intentioned but misdirected efforts can cause significant customer distress, damage the reputation of the business, and, in some cases, result in lawsuits.

That’s why we built CollectEdge – a thin layer of AI-powered intelligence designed to help banks and other lending institutions make faster, smarter, and more effective business decisions. CollectEdge is an intelligent bolt-on that sits on top of existing collection systems, instantly transforming their performance by adding efficiency, perspective, and explainability. Currently, the time-intensive nature of manual model creation means that they are only updated once or twice a year, resulting in dated information that may not be reflective of a borrower’s circumstances. Up to 40% faster than traditional manual segmentation efforts, CollectEdge enables organizations to frequently create risk profiles in line with a customer’s actual financial ability and propensity to pay. Companies can now automate the effort of data cleaning, feature engineering, and model creation, saving millions of dollars in resource and process time. If you think those efficiency gains are substantial, the application’s intelligence is truly transformative.

The intelligent insights from CollectEdge are derived from a holistic customer understanding generated by a wide variety of data sources – credit history, customer behavior across channels, both internal and external, and macroeconomic factors like GDP and employment rates. The product is able to deeply analyze a wide variety of structured and unstructured data including customer calls, emails, texts, public posts, blogs, tweets, and comments, enabling it to segment delinquent portfolios by relative risk based on intelligence at an individual level. Furthermore, this mechanism allows the segmentation to be based on a unified view of the customer across products and channels, as opposed to a product-specific view of the customer that never offers the whole picture. In addition to unearthing new influencing factors through this comprehensive approach, the product also discovers complex linkages between these factors, empowering companies to extract actionable business insights for process improvement and customer excellence.

CollectEdge then offers account-level treatment plans and collection strategies with each recommendation substantiated by a list of influencing factors, augmenting business processes with human-level intelligence at scale. With a deep view of the customer and their preferences including the frequency of contact, mode of outreach, time to reach out, and the tone of communication, the outreach team on the floor can now personalize collection strategies with unprecedented specificity. The result – genuine business impact. CollectEdge’s implementation model includes a commitment to demonstrate business results such as a 25-50 basis point improvement in reducing charge-offs, better CSAT scores, and even a 10% increase in call savings.

While the industry has started to explore best-in-class technology products and AI-enabled tools, most of these still remain in the PoC phase. And since core systems are procured and implemented at significant capital investment, a rip-and-replace approach isn’t just expensive, but also fraught with risk given the absence of demonstrable results in production. The ease of implementation and configuration means CollectEdge helps businesses develop a competitive advantage by shifting their thinking from a reduction of cost and effort to an increase in better decision making and customer satisfaction. The application’s vertical-specific offerings easily feed intelligence to existing systems generating updated segmentation for users within weeks of implementation. This makes CollectEdge a sizable opportunity for financial institutions to test the impact of AI in production before committing to larger digital transformation efforts.

In a highly competitive landscape where each basis point counts, the seismic shift from reactive damage control to predictive analytics and segmentation allows organizations to balance retention and customer experience efforts with risk management. Click here to discover how CollectEdge can help you create a better experience for your collections teams and customers.

References:

https://www.nclc.org/images/pdf/pr-reports/report-analysis-debt-coll-ftc-data.pdf

https://libertystreeteconomics.newyorkfed.org/2019/02/just-released-auto-loans-in-high-gear.html

https://www.kansascityfed.org/en/publications/research/mb/articles/2018/auto-loan-delinquency-rates-rising

https://www.cnbc.com/2019/03/16/robocalls-about-your-bills-can-pour-in-every-day-all-day.html

https://www.experian.com/blogs/ask-experian/what-do-americans-hate-most-about-debt-collectors/

https://www.consumerreports.org/consumerist/new-rules-would-require-debt-collectors-have-proof-you-actually-owe-money/

https://www.pymnts.com/news/artificial-intelligence/2018/ai-debt-collection-consumer-behavior-brighterion/

https://www.insidearm.com/news/00043910-artificial-intelligence-can-it-help-colle/

https://www.mirror.co.uk/money/debt-collection-firms-creating-more-13951289

https://www.nclc.org/issues/consumer-debt-collection-facts.html