As the layoffs mount in the tech and fintech sector and public financial institutions continue to report upticks in both delinquency and charge-off rates, large and small creditors alike are expecting a bumpy ride to finish out 2022.
Bearing both facts above in mind, creditors should take these three immediate steps to ensure their brand and customer relationships can withstand the delinquency cycle, potentially a chargeoff event, and emerge stronger from the other side.
1. Identify what made the brand successful and double-down.
Every brand loves to think they have some kind of “secret sauce.” Creditors should identify the particular combination of factors that made their brand successful.
- Quick approvals? (BNPL)
- Customer experience? (AmEx)
- Online experience? (Fintech)
- Self-service options? (hopefully everyone in 2022!)
- Great app? (Chase)
- Swag? (SoFi)
- Brick-and-mortar option (credit unions)?
This “secret sauce” must survive to preserve the brand for future interactions with customers. These key elements should be the focus of preservation efforts throughout the delinquency cycle.
Accordingly, strategies will differ across creditors. A creditor with a reputation for quick approvals should launch an “instant hardship” approval process. Creditors who invest in brick and mortar locations should ensure all branches have access to modification options, rather than relying on a single under-resourced team. Creditors with a reputation for a great app should ensure that delinquent customers receive an in-app experience tailored to their needs - priority phone number, badging and alerts. Ramping up for these efforts, whether in people or in product, will take time and preparations should be happening now.
2. Communicate, communicate, and when in doubt, communicate some more.
Remember, customers in financial distress are all-too-aware of their precarious position. This is especially true of long-tenured customers in their first experience with delinquency. The best customers are now strained, trying to figure out how to make day-to-day ends meet.
Too often creditors revert to a paper “letter series” for their delinquencies when these same customers received flashy advertising and email marketing campaigns during origination and onboarding. A piece of paper is easy to overlook when it is not the expected means of communication. Instead of this “channel switching,” creditors should clearly communicate next steps in whatever channels the customer is expecting to receive communications.
Creditors should clearly communicate what happens in each delinquency bucket and how the account balance is aging. Better yet, deploy a friendly infographic to communicate this information visually alongside the required formal legalese.
Finally, if the customer is unable to cure in-house, creditors should send a handoff communication. If the customer was digitally originated, this should be an email with a direct link to the collection partner. Typically customers are completely locked out of the website or app experience at the point of chargeoff. Rather than abandoning this hard-earned relationship so abruptly, creditors should consider a link directly from the app to any chargeoff collection partners. Regardless of the channel of delivery, handoffs should contain an explanation of what the customer can now expect:
- What will happen to their current tradeline?
- Which actions can the customer still perform on the creditor’s website (if any)?
- Who can the customer contact with questions?
- How can the customer learn more?
- Where should the customer send any payments if their circumstances improve?
Addressing these questions proactively and with authority will provide a better customer experience and reduce brand damage.
3. Select and empower collections partners as an extension of your brand.
Customer experiences through collections partners also reflect your brand. So, make sure to choose collection partners carefully and consider their alignment with your financial needs and your “signature brand attributes.” This is especially critical in first party collections, but third party collectors or debt buyers will also affect brand integrity. These partners are typically required to list original and charge off creditors and the brand name for the customer to easily identify the account.
Creditors should provide necessary information and permission for all trusted collection partners to use whatever contact channels may be effective to engage the customer. Consider how the customer is accustomed to receiving communications. Warm transfers give credibility to the collections partner and reduce the friction in the transition, a best practice for brand management. In third party digital channels this might be a link to a co-branded landing page directly from the app, website, or email. Customers who arrive at the collector’s website from a warm handoff are more than three times as likely to engage than those who find the website from a simple google search.
A strong collections partner can serve as a strategic asset by providing the level of detail required (time to cure, work effort needed to cure, change in circumstance vs. change in payment structure) to assess previously defaulted customers for future underwriting. Depending on the creditors' underwriting algorithms and covenants, there may be an opportunity to extend additional credit and increase the lifetime value of customers when they cure their delinquency or resolve their charged-off debt. Chances are, these customers will have a strong affinity for the financial brands that stood by them while they were in distress, resulting in lower overall cost of customer acquisition. Everyone wins.
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