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How Customer-Centric Collections Strategies help You tackle the upcoming NPL Peak

By Chan Hsuan
jueves, noviembre 11 2021

#Finance

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Recent data shows that “the aggregate non-performing loans (NPL) ratio decreased further to 2.32% in the second quarter of 2021, the lowest level recorded since supervisory banking statistics were first published in the second quarter of 2015.”

Nevertheless, according to the European Central Bank (ECB), there might be a dramatic increase of NPLs due to the economic hardship caused by COVID-19—which “could reach levels as high as €1.4 trillion by the end of 2022.”

We might be over the worst of the COVID-19 pandemic, but for many consumers, the full economic impact is yet to come. Widespread loan moratoria might have helped people get by—but once these moratoria end, consumers will have to pay back what they owe.

This blog will examine how banks can tackle the impending NPL peak that will soon hit Europe. More specifically, it will outline why banks must use customer-centric collections strategies when dealing with this set of past-due customers. These strategies will ensure they receive what they’re owed efficiently and effectively, as well as safeguarding their long-term relationship with each individual customer.

Expired moratoria leave banks in default

This wave of NPLs has already begun in certain European countries. 87% of loan moratoria have expired in Spain, leaving banks €8 BN in default. In addition, 92% of Santander’s moratoria have expired, with the bank currently owed around €5.6BN, while Caixabank is €1.8 BN in default despite only 65% of its moritaria having now expired.

Image inspired by eleconomista.es – Source: Link

But financial institutions must be careful when collecting these loans. A large portion of consumers who borrowed money did so due to circumstances that weren’t under their control. It’s not that they were irresponsible—they were simply facing a once-in-a-lifetime economic crisis. Many of them have had clean payment records throughout their entire life. Therefore, applying a one-size-fits-all strategy that treats them like they have a history of late payments will have a negative impact on your business (and on your customer relationships).

A different customer base from usual

Financial institutions need to understand that this time around, they’re dealing with very different customers from usual.

The pandemic hit everybody’s wallets hard, from governments, to businesses, and to individuals. This means that many past-due customers aren’t facing financial difficulties due to their own mismanagement. Instead, they’ve simply required a little financial support to get through the pandemic and they’re likely to pay back all that they owe as soon as they can.

Financial institutions must therefore adopt customer-centric collections strategies. This will increase the likelihood that they’re paid back in full, while it will also effectively strengthen their long-term customer relationship. For financial institutions, there is no point in adopting aggressive dunning strategies if they lose a customer for life in the process.

4 customer-centric debt collection strategies

By implementing the four customer-centric debt recovery strategies outlined below, financial institutions can increase their chances of recovery success while also safeguarding their customer relationships.

1. Self-service

These days, consumers want to be able to sort things out for themselves. They don’t want to wait in a call queue to speak to an agent or to have to visit an employee in a branch. In fact, the pandemic has further increased consumers’ preference for using self-service options.

By offering self-service payment landing pages, for example, you give past-due customers full control over their own debt. They can access the landing page at any time on their preferred channel. If they have a spare ten minutes during their commute to work, they can pay back their loan on their mobile. Or, if they would prefer to do it over the weekend on their desktop, they can do that instead.

Offering self-service payment functionality also goes a long way to building trust. It shows that you trust consumers to pay you back when they can. You don’t force them to pay up at a time that suits you—rather, they can pick a time that works for them. This will also help you avoid reactance, a phenomenon where a consumer refuses to engage in the dunning process so that they can assert control over the situation.

2. Flexible online payment

In the digital era, customers use a variety of different payment methods (debit cards/credit cards or mobile payments) and various payment service providers (PSPs). To collect repayment from a wide range of customers, your business should allow customers to pay back from their preferred PSP such as Apple Pay, Klarna, Paypal, Paysafe, Wirecard, etc.

By implementing a debt collection system that is equipped with flexible payment options, financial institutions can create a seamless customer experience, maintain a long-term relationship with their customers, and rapidly increase their recovery rates.

3. Tailored messaging

When tackling the impending NPL peak, financial institutions must remember one thing: every consumer is an individual. It’s easy to fall into the trap of communicating with all past-due customers in the same way—especially when there are so many of them. However, if you send out generic dunning messages that aren’t tailored to their individual preferences, they will be far less likely to engage in the dunning process.

Leverage collections management systems that boast drag-and-drop content builders. This will give agents 100% control over the messages that they send out, allowing them to customise the messaging, layout, and design according to individual past-due customers’ preferences.

4. Data-driven

You can only provide tailored collections strategies if you know what works (and what doesn’t work) for each individual past-due customer. In other words, you need to be data-driven. Work with a collections management system that collects, analyses, and presents your key customer data in one easy-to-view place. Agents will be able to see how effective each of their strategies has been and can even drill down into each individual past-due customers’ behaviour, context, and preferences.

Knowledge is power. By adopting a data-driven approach, agents will gain the knowledge they need to create powerful collections strategies.

Protect your institution’s future and your key customer relationships

We’re about to enter a tricky period, with loan moratoria coming to an end across Europe. Millions of people owe money—and many of them usually have clean payment histories. Financial institutions must balance the need to quickly recoup what they’re owed while doing so in a way that strengthens their long-term relationship with these valuable customers.

Financial players must therefore adopt considered, customer-centric collections strategies. Self-service landing pages and flexible online payment options give consumers agency and control over the dunning process. Tailored messaging speaks to each consumer as an individual—but this is only possible by being data-driven at all times.

Work with tools that allow you to put customer-centricity at the heart of everything you do. To find out more about how receeve does this, book a demo and have a chat with a member of our team.