News of successful vaccines means there’s now a light at the end of COVID-19’s dark tunnel. But even as the virus is gradually defeated, it certainly won’t be forgotten in a flash. Its impact on public health is well documented. Still largely to come, however, are its long-term impacts on the economy.
Governments (and banks themselves) have rolled out a wide array of initiatives to stave off the initial economic downturn: furloughs, payment holidays, and one-off cash payments, to name a few. These have been instrumental in ensuring those worst affected have been able to make it through this year. But, as 2020 draws to an end, we must begin to plan for 2021.
This is no easy feat. How can banks and collections agencies begin the long, complex process of recouping what they’re owed? How can individuals cope with the sudden end of payment holidays?
In this piece, we explore the current COVID-19 crisis here in Europe, the challenges faced by banks and collections agencies, and how debts can be collected as successfully and efficiently as possible—while causing minimal upset to those individuals making payments.
It’s only just the beginning
For many, the collective sigh of relief upon hearing news of a vaccine is only a temporary breath of fresh air—one that’s quickly replaced by the realisation that things are about to get even harder.
The European Commission had predicted a 7.6% contraction in GDP across the EU for 2020 as a result of COVID-19. Unsurprisingly, millions of people across Europe now find themselves “experiencing financial insecurity for the first time (or the first time in decades)” according to Deloitte. And the lingering general uncertainty—both economically and socially—will only add to their financial worries.
Banks and collections agencies are also beginning to sweat. The end of COVID-19 arguably brings more questions than answers. For instance, what happens once a client’s three-month payment holiday expires? Do the previous months’ arrears go into their four-month arrears cycle? Logic would suggest not, but is there a better alternative?
There’s a tricky balancing act here. Move too quickly, and banks and collections agencies could cripple societies around them, forcing people to pay up despite the pandemic continuing to affect people’s personal finances. However, the longer these loan repayments are “kept on ice”, the bigger the potential problem. As debts stack up, they inevitably become more and more difficult to tackle—jeopardising the long-term future of some of Europe’s most prominent banks. The figures below highlight the potential scale of the issue.
The bottom line is the top priority
Pandemic-related economic support cannot indefinitely continue, with senior European financial figures suggesting that we should expect a sharp rise in the number of non-performing loans (NPLs) to affect Europe. Indeed, some have even estimated that the total number of unpaid loans could reach an astronomical €1.4 trillion.
If banks are to combat the sharp rise in NPLs and survive beyond 2021, they need to do everything they can to protect their bottom line. This requires adopting cost-effective and scalable collections strategies that will see them recoup what they’re owed as easily as possible.
Banks and collections agencies need to adopt collections strategies that take into account each past-due customer’s individual context, use the wealth of data at their disposal to tailor their approach accordingly, and offer customers a degree of flexibility over how much they pay, how they pay it, and when.
That’s where software comes in.
Software: the pandemic-proof collections tool
Past-due customers have shown time and time again that you can’t simply apply generic one-size-fits-all “X+Y=Z” approaches and expect great results. Instead, you need to make sure that you approach each individual with the right strategy, that you execute this strategy as efficiently as possible, and be ready to scale it as needed.
The right software provider should enable you to track and analyse your collections strategy and improve or modify it with minimal effort. Such a software will let you:
- Put data analysis at the forefront of your collections strategy, helping you segment your customers with ease;
- Contact customers on a variety of their preferred channels;
- Seamlessly handle the increased workload/volume of collections throughout 2021.
4 must-have features
However, not all collections software providers are equal. If you want to ensure that you gain maximum return on investment (ROI) from your collections efforts, then you need to pick a provider that meets these 4 crucial must-have features.
Next-level data analysis capabilities
In order to determine the correct collections strategy, you need to first analyse each individual past-due customer’s context and previous behaviour.
For example, you might look at:
- Age
- Employment status
- Job title
- Salary
- Their balance history (i.e. recent collections history)
Segmentation for more effective communication
By segmenting your past-due customers into similar groups, you can tailor your outreach accordingly—choosing methods that are most likely to work best with each segment. High-risk customers who owe a lot of money, work in an unstable industry, and have had previous difficulties with repayments will require a different approach than low-risk customers.
Speak to your customers the way they want to be spoken to. If you do, you’ll have a good chance of opening a constructive dialogue—and of ultimately being repaid in full. Remember, these customers are your assets once the wave of NPLs is dealt with. You need to consider your long-term interests too.
Flexibility when needed
Flexibility is key during such uncertain economic times. You need to remind past-due customers that they owe you, but you should also help them with this process in any way that you can. Perhaps you allow customers to schedule payments so that they align with their pay schedule. Or if they’re a seasonal worker, then consider granting a short extension until business picks up again.
Built-in self-service functionality
An estimated 88% of consumers worldwide expect organisations to have an online self-service support portal. Therefore, it’s clear that having self-service functionality plays a crucial role in ensuring that you meet customers where they are—instead of where you’d like them to be.
Self-service functionality also allows you to use your internal resources where they really matter. Call centre agents shouldn’t have to spend their days walking customers through the repayment process—instead, just provide a link to a self-service landing page and allow customers to complete the process all by themselves.
Fail to prepare, prepare to fail
The time is now to start preparing for 2021. With government initiatives ending and NPLs rising, banks and consumers will only begin to feel the full knock-on effects of the pandemic as of next year.
If banks are to protect their bottom line, successfully recouping what they’re owed despite rising NPL volumes, then they need to find the right software provider—one that will help them get in touch with the right customers, at the right time, with the right approach.
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