Collections management is the forgotten technology in good times. Today the financial sector is faced with higher than normal delinquency rates, and those rates are still climbing.
As a result, building more effective collections technology and using it to keep up with a changing economy has moved into the spotlight for lenders.
Many lenders are recognizing that gathering more information when originating loans and a holistic view of customers across all lines of business within the bank are imperative to successful collection efforts.
At the 2010 National Collections & Credit Risk Conference last week, financial experts shared their perspectives on managing collections in a presentation titled, “Decrease Defaults with Untapped Customer Information.”
Bobbie Britting research director of consumer lending at TowerGroup says, “The majority of your losses come from a minority of customers. At the crux of this discussion is how lenders can implement more data, statistics and analysis to make better decisions and determine the best actions to take for different types of delinquent loan customers.”
When asked to speak to the greatest challenge institutions are trying to overcome in their collection efforts John Pannell, vice president credit risk and finance at First Interstate Bank says, “…Getting a unified view of our customers across our lines of business in the bank. When looking at a customer’s credit card account, it is difficult to know how that customer is performing on their mortgage or another consumer line. It is not impossible to find that information, but it is not immediately available on a screen in front of me.”
Tom Johnson, vice president of product development at Zoot Enterprises agreed, “The lines of business within banks often operate almost as separate corporations. The manner [in which] they acquire and store data about customers makes it very difficult to get a global view without a lot of manual steps.”
Sue Saathoff, senior vice president of operations at World’s Foremost Bank and recently appointed first female vice president of Cabela’s faces a unique challenge.
“We are a credit card-only bank owned by a retailer. Our customers are loyal to the retail shop and often their Cabela’s reward card is the last thing they will default on. Therefore, it is a balancing act regarding how aggressive we can get with collections. When we see a cardholder’s credit score dropping proactive steps are taken to keep the customer experience a positive one.
“Pre-collection calls are never easy, especially if you are lowering a credit line on someone who has been a great customer but their credit score has suddenly taken a nosedive for other reasons.”
It isn’t easy to access all of the information gathered during the origination of loans. Some lenders have data in dozens of systems across all of their lines of business. Even if all of that data was tapped to make more informed decisions, it needs to be aggregated in a consistent way.
“Many lenders currently lack a common picture of their customer base and that affects daily operations. It doesn’t work to spend time toggling between different screens to get a complete picture of the customer to decide how to approach them from a collections perspective,” says Britting. “Banks need to have that complete picture including enterprise data and to “normalize” that data so it means the same thing across all product lines.”
The biggest challenge, adds Pannell, is hooking the collection centers for mortgage, indirect auto lending, credit cards and other lines together.
“We’re looking for the canary in the coal mine when trying to figure out if a customer is going to default on one of the relationships they have with the bank. Historically that canary was the credit card relationship. Now customers are hanging onto their cards to conduct normal life but letting go in another area - mortgages in many cases,” Pannell says. “Whatever relationship is showing that first hint of trouble is who we want to be in touch with and then start addressing it within other lines of business.”
Saathoff says that one thing we are not doing is reaching out to the retailer to see if they have additional information about the customer that could be helpful. We might be missing an opportunity to get updated phone numbers or recent purchase history that could help us make more informed collections decisions,” says Saathoff. “Monitoring our customers’ score migrations is currently a manual process. Everyone from marketing to collections needs something from the folks in the data warehouse and they have limited resources to work with. It would be extremely helpful to have those indicators more readily available.”
Given all of the challenges that come with streamlining collections to be more effective, the panelists shared strategies that are working.
“Our collections shop used to operate in a vacuum. Once an account went delinquent it became collections responsibility and no other departments got involved. That process worked just fine when times were good,” says Saathoff. “As the market changed and losses started to go up we knew a change was needed. Adding more staff to manage collections was not the answer.”
Karen Gordon is a public relations strategist at Zoot Enterprises.
