Collections has never been more important. In the wake of COVID-19, the number of non-performing loans looks set to skyrocket across Europe. Indeed, it’s predicted that the total number of NPLs will reach an astronomical €400 billion, with fears that this could rise to a value of €800 billion.
Financial institutions need to identify ways of recouping what they’re owed in a scalable, flexible, and cost-effective manner.
However, this is easier said than done. They need to balance conflicting interests. First, they need to cut costs and find a way to make it through the impending recession as unscathed as possible. On the other hand, they need to invest in tools that’ll not only improve their customer experience, but will also make them more operationally efficient. In short, their business models have to change significantly to work under a new reality while also surviving in the short term.
The answer – Software. As McKinsey states, automation-based software carries the dual benefits of flexibility and scalability. The access request bots at JP Morgan, for example, work 24/7 allegedly carrying out the work of 140 people.
But it’s not all about unlocking increased productivity. The right kind of software can also be incredibly cost-effective, translating into tremendous ROI. According to Accenture, banks that integrate AI-based software solutions can “expect potential savings of between 20 and 25 percent across IT operations, including infrastructure, maintenance and development costs”.
2021 will bring innumerable challenges for all businesses. Banking and financial services, in particular, will have no choice but to embrace the latest developments in technology to push forward. Experts who have been watching the industry know this well. Chris Warburton of ROStrategy Ltd. recently discussed current trends and how data and machine learning are transforming collections with our CEO Paul Jozefak. Manual collections management is already outdated.
Having studied the market, we understand that the collections needs to reshape and reinvent itself in significant ways to cater to the “new normal.” Collections has to adapt itself to fit new consumer preferences and rising volumes. How do you go about doing this?
Don’t make things harder for yourself and your team by trying to do everything yourselves. When it comes to processes like collections, leverage software providers who can provide the right set-up, in this case digital collections, to scale in a timely and cost-effective manner – this is the way forward.
Two of the greatest values that digital collections provides are scalability and cost-effectiveness – which are, given the current market reality, the needs of the hour.
Scalability is hard to achieve without software. Imagine you wish to increase your team’s output by 200% to match the increased claim volumes. How would you go about this process?
There are a few potential options. First, you could always ask your team to work twice as long as they do currently—but not only does this contravene most labour laws, it would also be highly ineffective. People’s productivity dips after a while, meaning 16-hour days are in nobody’s best interest.
Alternatively, you could just double the size of your team. True. However, this process would require spending a significant amount of time, effort, and money on posting job descriptions to job boards, working your way through applications, inviting people in for interviews, onboarding successful candidates, and making sure that they get up and running as quickly as possible.
By the time you’ve managed to go through this whole process, demand might have slowed down again—meaning you don’t actually need these new recruits anymore.
Relying on call agents and manual touch points is not possible in 2021, given the massive rise in claim volumes and changing consumer preferences. Fortunately, software is so much more eminently scalable than people will ever be, especially when it leverages the power of automation to instantly work through mundane, data-heavy tasks.
For example, JP Morgan Chase introduced a Contract Intelligence (COiN) chatbot for the purposes of analysing detailed legal documentation. Within a matter of seconds, the software was able to work its way through roughly 12,000 commercial credit agreements—a process that usually took around 360,000 man-hours.
Indeed, according to McKinsey’s detailed scenario modeling, automation—a key feature in collections management software like receeve—could improve global productivity growth by 0.8 – 1.4% annually.
When it comes to collections, automation-based software will keep on top of your ever-increasing list of past-due customers, their own personal preferences, payment history, requirements, and more. It’ll allow you to access on-the-go, data-driven insights, helping you fine-tune your strategy as and when necessary. It’ll automatically crunch all available customer data before segmenting past-due customers accordingly. You’ll be able to devise tailored outreach strategies based on a wide range of templates, A/B test different strategies with ease and see the results instantly, in real-time.
What’s more, it will remain stable at all times: seamlessly handling all changes, upgrades, and overhauls without you having to lift a finger.
Try to imagine doing all of this without automation and computers, but manually, especially with varying volumes of claims. You will just not be able to. Let software take the pain out of the collections process.
Banks often resort to selling debt portfolios to debt collection agencies. While this solves one problem, helping banks recoup at least some of what they’re owed, it means that they’re often left shortchanged. After all, why would debt-servicing agents pay to acquire a debt portfolio if they didn’t think they’d make more money than what they spent?
If you’re relying on manpower alone to handle your increasing NPLs and collections demand, no wonder it’s a tiresome and lengthy process. But that doesn’t mean you have to sell your entire portfolio. Instead, handle your collections in-house with a cost-effective collections management software, and receive a far larger chunk of what you’re owed.
The right kind of software can have a profound impact on companies’ bottom line, with IBM citing ‘lower costs’ as the second most important benefit of SaaS.
But what about developing these systems in-house? While this is certainly an option, these projects tend to be long, expensive, and ultimately, incredibly error-prone. Vikas Srivastava, chief revenue officer at FX cloud solution provider Integral, estimates that using external solutions (as opposed to in-house alternatives) can reduce an organisation’s tech spend by up to 80%.
This is backed up by The World Economic Forum. They suggest that by adopting software solutions, not only can banks move away from large initial capital expenditure (Cap Ex), but they can also avoid the ongoing costs associated with maintaining their infrastructure and data centres in-house.
And that’s not all. It’s worth reiterating that software, particularly SaaS, is incredibly flexible. Identify a payment plan and length of contract that suits your business. Pick and choose from different features, designing an end-to-end solution capable of meeting every one of your business’ needs. With enterprise SaaS, only the core functions of what your provider offers is likely to be a compulsory part of the purchase, anything else you need, and do not need, can be developed or removed with little effort and cost to you.
If the worst comes to the worst, simply terminate your contract and pick another software provider. You’re not locked into a costly, long-term project with no end in sight. Instead, benefit from a cost-effective, flexible solution that’s built with your business in mind.
What are you waiting for?
The time to act is now. If banks are going to bounce back from 2020, recovering what they’re owed as easily and cost-effectively as possible, they need to shift to a digital first approach in claiming the dues. This is not possible without the right software.
Manpower alone cannot meet this unprecedented demand. 2021 will see collections volumes go through the roof—so it’s imperative that financial institutions leverage the best technology out there on the market, namely, enterprise SaaS.
Working hard just won’t cut it. It’s time to work smart. Scale your collections operation with ease, leading to an uplift in recovery rates, and money in the bank. What’s more, you’ll reduce hassle and cut costs.
So what are you waiting for?
Get in touch today to speak with one of our experts and find out more about receeve’s revolutionary collections management software.
Jan is one of the first members of the receeve team, and has become an expert on the fintech industry, particularly digitising collections and accounts receivable processes. He is a talented multi-disciplinary professional with immense drive to bring modern technologies and processes into financial services.