As challenger banks continue to increase their market share and with economic uncertainty looming, many will be making plans to develop the debt management function of their businesses. Having concentrated heavily on the development of apps and service expansion, the expected downturn and rising household debt will divert attention towards meeting the needs of customers in arrears.
Challengers start with a distinct advantage, not being held back by incumbent debt management systems from the pre-digital age or by ingrained notions of how indebted customers should journey through the collections process. When looking externally for a supplier, technologically and ethically there couldn’t be a better cultural fit between new banking and fintech companies. The latest digital collections applications use the same API, cloud-based technology stack that challenger banks are built on. Both entities start with the needs of the customer as the basis for everything they do. The question arises, to use in-house development teams or collections specialists to build collections software?
Considerations- resources, knowledge and time
Development resources are likely to be fully engaged with expansion into new areas of banking and providing new products (including credit) as well as scaling up to accommodate new customers and territories. As this is the clear priority, it may not be feasible to redirect part of the development team to build an enterprise-wide collection solution, diverting these resources from core business needs.
Considering the time and expertise required to create a state of the art debt collection system, the option to use a ready-to-go, fully compatible microservices based solution could be the most advantageous option. With modular, cloud-based digital-first systems that can be up and running and showing benefits within weeks and have the capacity to scale up seamlessly as business grows, there is a strong case for partnership. Benefiting from the knowledge and experience of collections specialists has several advantages, particularly when time is of the essence. Most obviously, the work is already done and ready to deploy without experiencing a development lag which leaves indebted customers under-served. Secondly, although the technology is familiar, the wealth of experience embedded in dedicated collections suppliers may not yet be available within a young bank. Collaboration with like-minded providers could make a valuable contribution to this particular area.
“The winners in this field are likely to be nimble specialists capable of creating plug-in-and-play APIs to allow anything to be processed anywhere, rather than the large – slow – generalists of the past.” Anne Boden, Starling Bank
The digital-first approach- one size doesn’t fit all
One concern about an ‘off the shelf’ debt management platform is that agile business methodology will be hampered by a one-size-fits-all application that lacks configuration and is of limited scope. If the aim of a self-service digital debt management solution, for example, is to help customers resolve their arrears online, but a simplistic portal keeps driving them back to the telephone, the return on investment will not be impressive and neither will customer ratings.
With digitally-savvy customers who are used to personalised and intuitive experiences, any collections solution will have to be representative of core business values and exceed customer expectations. Customers used to navigating banking services online will find some existing debt management provision frustratingly limited and inflexible. Coming from a call centre-focused culture, the tendency to bounce non-average customers back to the phone are still ingrained in some systems, leaving too many customers hanging on the telephone. This is an unpopular strategy, not least with those experiencing difficulties.
“It’s purely about accessibility. It’s the mental-health equivalent of a ramp into a branch, it’s making sure that the only route into your service isn’t fundamentally inaccessible.” Helen Undy, Money and Mental Health
The three R’s- reputation, ratings and regulation
FCA regulation ensuring customers in vulnerable circumstances are identified and treated fairly has caused a stir in the collections space but these concerns have been growing for many years. It is imperative to learn from trusted sources and to be open to advice and direction from front line agencies so that a mature understanding of vulnerability in all its forms is arrived at.
Prominent among these lessons is the issue of disclosure and of developing technology that can help pinpoint the likelihood of a customer experiencing vulnerable circumstances. It also means revisiting usability in light of what we know about how human perception is affected by stress and anxiety and bringing this to bear on interface design.
Understanding vulnerability and building this insight into a digital system is a significant research and development undertaking but one that cannot be overlooked. By embracing the benefits of machine learning to help segment and direct customers to the appropriate and best treatment, and by ensuring the customer journey minimises ‘admin anxiety’ and meets the highest criteria for accessibility, more customers can make tailored and sustainable repayment arrangements, without recourse to an agent.
Getting this right is crucial for maintaining the enviable customer satisfaction ratings that new banks enjoy. This gets incrementally more challenging as customers come into contact with collections operations and as financial uncertainty begins to bite. Transparency and clarity in debt collection procedure and practice can protect against damage to reputation and against tragic outcomes when difficult individual cases meet an inadequate process.
An alternative..” that’s totally transparent, treats people fairly, and caters to the way we all actually live our lives.” Tom Blomfield, Monzo
Challengers and fintech organisations have always shared core values – the desire to bring experience to bear on outdated processes for the benefit of the customer; the practical and pragmatic approach to decision making and problem-solving, and the industry knowledge and experience with which to make it all happen.
Debt management is a specialised, highly regulated and sensitive area of the business where challengers can significantly differentiate their approach from competitors saddled with limited and archaic legacy systems. Balancing the desire to stay in control of software development against the immediacy and experience-based functionality of a third party solution will be a major consideration in the coming months.