Loan Servicing Not Just Processing Payments

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The loan servicing industry is due for a shake up; starting with truly understanding the business in which they operate. The widely held myth by such entities is that they are payment processors.

Not true at all. They're in the people business, and help individuals fund their dreams, pay off their obligations, and work towards a responsible financial future. As member-facing entities, loan servicing companies and credit unions must view the borrowers as valued patrons and treat them accordingly.

In doing so, they'll find their response rates rise and delinquency rates drop. The right approach for loan servicing firms should be to understand that the term "service" means something.

Here's a case in point. A recent survey we conducted with our customers showed that two-thirds of participants desire to be contacted via e-mail and text by such firms. This stat dovetails nicely with a September 2011 Pew Research Center study that indicated text messaging usage is up; with individuals sending an average of 41.5 messages a day.

Despite this trend, most loan servicing companies do the exact opposite and attempt to reach borrowers almost exclusively by phone or postal mail. It's no wonder, then, that a lot of firms are struggling with high delinquency and default rates within the portfolios they service.


High-Touch Engagement Is Vital

Effective, hands-on, high-touch personal engagement with the borrower is at the heart of what loan servicing companies should focus on. That requires a well-tuned and updated platform that holds accurate information on the account holders. It also means leveraging multiple methods to convey and receive information such as SMS messaging and e-mail; not just the standard voice or snail mail. Above all else, loan servicing firms must reach out and connect with borrowers early, often and well before the payment due date.

Additionally, being nice to borrowers can make all the difference. There's not a person who doesn't recall a scenario when they felt invalidated by a rude customer service representative, an insincere e-mail or form letter. That's a sure-fire way to turn people off and have them do the exact opposite of what you intended. The old adage is still true; you get more flies with honey than you do with vinegar.

It's not an old wives tale either. In 2009 alone, the financial services sector lost $44=billion due to bad customer service, according to a multinational study commissioned by Genesys Telecommunications Laboratories. This sizable figure is not attributed to market dynamics, but instead, because many organizations lack adequate care and concern for their customers.

In this day and age, where kindness is in short supply and communication platforms are available to efficiently offer customized and genuine conversations with clients, it's important for loan servicing companies to follow suit. Such firms must do a better job to recognize the numerous and changing consumer preferences and incorporate them into operations that drive enhanced performance for lenders and superior customer experiences for borrowers. It's not only the right thing to do by individuals, but the more lucrative approach for the portfolios they manage.

David Johnson is president of First Associates Loan Servicing, LLC. For info:

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