Digital communication is part and parcel of 21st-century life. You might receive an email reminding you of your upcoming hospital appointment, chat with customer support on Twitter when the water supply has gone off in your area, or receive an SMS telling you that your pizza will arrive in 10 minutes.
However, this trend towards digital communications still has some way to go when it comes to collections. Dunning processes have long relied upon two classic forms of communication: telephone and direct mail/post. While these still exist (and are by no means obsolete), they’ve fallen down the pecking order when it comes to effectively reaching customers. roughly 90% of all cold calls are ignored. and 8 million people move house each year in Germany alone. As such, it’s becoming increasingly difficult to enter into a dialogue with past-due customers using these traditional channels.
By adopting a multi-channel digital communications strategy, you’ll revolutionise your collections process. You’ll be more successful—increasing your repayment rate, time to repay, and revenue—while decreasing the time and effort involved with ineffective approaches.
Let’s explore why digital communication is on the rise, why it’s so important for financial institutions to take note, and the role of segmentation when it comes to effective digital communication.
Digital communication has changed the world. Corresponding with friends, family, or business partners who lived in a different country used to take weeks. You’d write a letter, post it off (paying a potentially hefty amount for stamps), and hope it arrived at its destination at some point in the future. Then, you’d have to wait for their response.
Nowadays, however, you can simply shoot off a text, Facebook message, WhatsApp, or email to anyone around the world. They’ll receive it almost instantly and will be able to reply within seconds.
Companies, too, need to embrace digital communication. Not only will it help them create an effective ongoing dialogue with 21st-century consumers, but they’ll also build strong relationships in the process. And when it comes to collections, effective communication is paramount.
Letters through the door take days to arrive, the recipient might be away when they arrive, or they might even simply be ignored. However, given that most people have smartphones on them at all times, a text, email, or push notification has a far greater chance of attracting the recipient’s attention—it literally flashes up on their screen.
Studies show that the average European spends 2 – 3 hours on their phone (and that’s only counting when they’re not at work). Moreover, research suggests that 90% of text messages are read within 3 minutes of delivery. It’s clear that mobile should therefore be a top priority when devising a digital communication strategy.
Plus, you also have to factor in cost—or the lack thereof—into the equation. Sending an email or a social media message is entirely free, while text messages only cost around €0.10. Contrast this to telephone calls, which each cost a reported €5 – 7. Envelopes and stamps are a further expense, while you’re also likely to pay astronomical electricity bills if your customer service team spends all day, every day on the phone.
With digital communication, the only thing that you’re paying for is the employee’s time spent creating the messages. However, you’ll likely develop templates for different segments—and once these are created, they can essentially be automated going forward.
Segmentation—the process of dividing up your customers according to shared characteristics, behaviour, context, or values—has a key part to play in successful digital communication. For example, you might split your past-due customers into Group A and Group B. Group A primarily uses email and tends to respond well to loss-aversion style messaging. Group B, on the other hand, mainly prefers regular text messages and responds well to a friendly, helpful tone.
Now that they’re defined, you can then begin to craft appropriate digital communications for each of those segments. You may well have to A/B test different strategies going forward. However, you can begin by matching up what you already know about each segment with corresponding communication that speaks to them in the right tone, on the right channel, and with the right frequency.
Finances are an awkward topic of conversation. As such, it’s crucial that lenders get their communication spot on when speaking to past-due customers. Some past-due customers might feel embarrassed that they’re unable to repay in full and so bury their head in the sand. Others may take more of a backseat approach in the belief that since you’re the one chasing them, they must therefore be in control. This fallacy, while incorrect, just goes to show that different past-due customers will be in completely different mindsets—and so will require different messaging strategies.
Digital communication in general is great, but carefully crafted outreach according to different user segments is even better.
Banks—and other financial services providers—are quickly transitioning to digital-first communication practices. It used to be commonplace to receive a monthly bank account statement through the post. Nowadays, however, most customers prefer to use digital channels: apps, online portals, or email alerts.
Adopting digital-first communication practices helps you meet consumers where they are, not where you’d like them to be—and it’s a great way to provide a first-rate customer experience (CX). Indeed, according to Smart Communications, 63% of customers surveyed would strongly consider switching their banking providers if existing customer communications practices didn’t meet their needs/expectations.
But how can you be sure to meet your customers’ needs and expectations? Well, it appears that using digital channels might play a crucial role. McKinsey research on the habits of delinquent past-due customers customers highlights this further, stating: “When contacted digitally, they are more likely to make a payment or to pay in full, and this likelihood increases for customers with accounts that are more than 30 days past due (30+ DPD).”
You ultimately want the repayment process to be as smooth and frictionless as possible. Meeting your customers where they are—using the right message, at the right time, on the right channels—goes a long way to achieving this.
Collections should be a dialogue, not an imposition of terms. This means that you have to pay particular attention to the way that you communicate with past-due customers. By embracing digital communication strategies, you’ll be far more likely to reach your past-due customers, far more likely to catch their attention, and far more likely to lead them along the journey to repaying in full.
Want to learn more about leveraging digital communication strategies to transform your collections strategy? Keep an eye out for our upcoming best practices webinar series. Alternatively, sign up to our newsletter for ongoing industry news, analysis, and announcements.
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