With consumer delinquencies on the rise across-the-board—from credit cards to home mortgages—smart financial institutions are employing innovative collection techniques to decrease charge-offs and have a significant impact on their income statements.

One of the more advanced methods is a Web-based solution that holds the promise of enabling financial institutions to improve collections while reducing the cost to collect. A relatively new tool, virtual collections technology is available with varying levels of functionality from a number of companies.

On company’s experience with six of the top 10 credit card issuers shows that through the use of virtual collections technology charge-offs can be reduced by over 10 percent. With charge-offs in the credit card industry totaling $40 billion per year, this represents a huge opportunity for lenders to improve their income statements.  To date, credit cards have been the primary area where virtual collections have been used, and the industry is beginning to see similar results in auto loans, mortgages and other consumer loan categories. 

Lenders’ success is driven by several factors, outlined below, but the simple fact is that consumers prefer the Web channel over other collection methods. In a survey conducted by Online Resources earlier this year, 28 percent of respondents said the ability to go to a website to pay an overdue bill would make them more likely to resolve their delinquency. This compares to only 16 percent who said a call from a collector would motivate them to act. Similarly, 39 percent of respondents said they would rather make an overdue payment via a website versus 30 percent by mail and only 13 percent by phone. 

Consumers have consistently shown their preference to engage the Web channel to deal with their past due accounts. But despite these findings, only 2 percent of financial institutions currently provide consumers the ability to cure their delinquent accounts online. Scheduling convenience and conflict avoidance are paramount to the consumer and you must work to create a satisfactory brand experience and position your institution in a financial advisory capacity when the borrower is delinquent.

From our experience with a variety of creditors, here is what we have found to be the best practices for successful virtual collections.

Don’t wait to deploy. Virtual collections benefits can be had in as soon as 30 days if the first deployment is elegant but simple. The evidence shows that performance improves over time, as analytics mature and adoption grows. The most important thing is to get the channel up and running with a simple structure and begin the process of continuous improvement.

Control the channel. Rapid deployment does not mean ceding control. Make sure your virtual collection solution provides the ability to quickly adjust offers, track consumer actions and integrate accounts across the enterprise.
 
Promote, promote, promote. As with most new technologies, promotion drives acceptance. Make sure statement inserts note the availability of the web tool, along with traditional automated and live agent options. Encourage your agents to direct borrowers who have a preference to the web channel for settlement and payment options. Integrated promotional campaigns have been shown to yield penetration rates approaching 20 percent.

Plug-in the agents. Your agents must have the Web interface on their desktops. They must be able to co-browse with callers and take payments. Importantly, the dialogue they have with the customer must be consistent with what the customer experiences on the Web.

Integrate seamlessly with a payment mechanism. Research shows that 95 percent of delinquent accounts making a “promise to pay” through the online “agent” keep their promise. As such, once the consumer has accepted the payment or settlement terms, online payment should be only a click away and several payment options should be available, including the current preferred method of PIN-less debit. The payment experience must be seamless, low-effort, immediate, compliant and documented. Choosing virtual collections and payment technologies from the same provider can ensure a streamlined process.

In the current economic environment, virtual collections represent an enormous opportunity for financial institutions to reduce charge-offs while, at the same time, improving client relations. In the past year, we have seen accounts receivable management companies embrace the new collections techniques and technologies with considerably more enthusiasm than the banking industry. Perhaps this is an area where financial institutions would be wise to take direction from the companies whose sole business is collections.

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