Collecting debts doesn’t have to mean alienating customers

For most banks, the customer experience is rightfully at the forefront of every business strategy.

Many would-be customers are at pivotal stages in their lives — purchasing a home, building retirement savings or investing in insurance policies — and they have numerous financing options available to them. That is why so many financial institutions carefully analyze every customer communication: They want to ensure the message helps to nurture and grow the relationship.

Unfortunately, the operative word is “almost.” When it comes to customer communications, the same care and attention isn’t always given after someone becomes a customer — particularly if he or she falls behind on payments. Too often, lenders lump these customers into a generic, collections approach where they make aggressive phone calls and send numerous letters in the mail — often leading to a fractured customer perception of the company.

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Lenders always need to make their customers the priority, even when they are past due.

The trade-off between getting the money or saving the customer experience has long been a debate within the financial industry. For obvious reasons, the collections discussion is driven by delinquencies and card losses — banks often lose sight of the broader customer conversation. But getting money owed should be just one element of a collection strategy.

Based on a recent analysis of the traditional collections process, 3% of 30-day delinquencies in card portfolios closed their accounts after paying their balance in full. And of those closures, 75% happened shortly after they paid off their account. Moreover, our analysis showed the propensity to close accounts was four times higher in the young, urban, affluent population than in any others.

While the traditional collection approach may result in companies getting their payments, it could cost them customers if the collections process is frustrating, particularly with a segment of the population that will continue to grow.

It sounds counterintuitive, but the reality is the collections process is a relationship-building opportunity.

For starters, lenders ought to do more than send letters and make phone calls in an era when people might want to take care of their task online. BBVA Compass, for instance, lets people pay off their arrears on a self-service website that delinquent borrowers and cardholders can use to ask for help, schedule a payment or make a promise to pay. While paying arrears online won’t appeal to everyone, it will appeal to some. Businesses should let customers choose their preferred communication channel, while, of course, following the rules.

Personalization also matters. What’s the most effective communication channel to reach a customer? When should you contact them? How often? These are all questions that can help banks minimize a customer’s displeasure. If answered appropriately, banks can make better decisions and adjust their collection strategies based on whether a customer is more likely to pay on their own or may need help establishing a payment plan.

Sure, there are some customers who have no intention of ever repaying a debt. However, that shouldn’t cause a bank to alienate other, more reliable customers in their portfolio or those that want to get back on good terms with a bank.

The collections process symbolizes a somewhat pivotal point in the customer relationship — especially if he or she uses multiple services from an institution. By taking the same measures used to attract new customers, financial organizations can better position themselves for a lasting business relationship with the customer, even in times of difficulty.