Borrowers and lenders alike are wondering who has the capacity to pay and how resilient is this capacity? Institutions that make the most of insight, simulated analysis and strategic action delivered via omni-channel functionality will establish disproportionate resilience in these uncertain times. - IMAGE: fernando zhiminaicela via Pixabay 

Borrowers and lenders alike are wondering who has the capacity to pay and how resilient is this capacity? Institutions that make the most of insight, simulated analysis and strategic action delivered via omni-channel functionality will establish disproportionate resilience in these uncertain times.

IMAGE: fernando zhiminaicela via Pixabay 

Looking back at our last Global recession, it took about 18-24 months for continuous consumer sentiment and related activity to present a steady presence, and another 5-7 years for the economy to re-establish exuberance.  At that time thousands of jobs didn't survive the cycle and business as we know it shifted a bit more to a service industry incorporating a lot of part-time works in what is termed the “Gig” industry.  Numerous factors are different today.  The economy seemingly stepped off a cliff in March and millions of people experienced a significant drop in income.  Borrowers and lenders alike are wondering who has the capacity to pay and how resilient is this capacity?  The immediate future is in a word, uncertain.

Institutions that make the most of insight, simulated analysis and strategic action delivered via omnichannel functionality will establish disproportionate resilience in these uncertain times.

Economists are accustomed to reading variables that change slowly, foretelling the pending path.  Today these factors still have value, but they are in a state of flux with government cash infusions, supply chain disruptions, and artificial factors throttling back-to-business behaviors.  So, what do you do in times when you don’t have all the information?  You hypothesize based on what you know, test an idea, watch for signs of success and failure, then adjust based on the outcomes you observe and what you want to happen next.

Over the last decade, auto lenders have been testing digital lending methods and related support requirements.  The time has come to go all in, adding digital buying/lending to your customer experience.  But, ensure you are protected against fraud while complying with regulatory guidelines.  Employ an adaptable flexible approach that delivers a positive customer experience and remember there is approximately 25% of the population that only has online access via their phone.  In addition to investigating how a dealer has authenticated an identity, incorporate your own identity authentication measures to validate the applicant.  These steps may include confirming such an identity exists with DMV and comparing the image you have with the one on file.   There is technology to do this for you, minimizing consumer time demands for protection.  There is some pent-up demand that will drive a spike in recovery, so go and get it because the rest of the road is likely to be long and bumpy.

Until there is a vaccine there is possibility for slow demand, reduced staffing, and remote site work requiring operational change to deliver efficiency and effectiveness at a lower expense.  Pursuing new loans to offset the bad within your portfolio is one means of stabilizing your portfolio.  And tools you have applied in the past such as a FICO Score or like instrument will continue to deliver value.   But, be cognizant that the odds to score experience will be different and likely lower for a period while the economic workforce gets steadily back online.  After the 2008 recession, bureau scores continued to rank order, but the performance slope changed too, lowering the odds to score for many score ranges.  In the auto industry this change was less dramatic than mortgages and even less so for subprime borrowers who have a sense of what they can manage as liability.  While this may occur again, it benefits every lender to augment these measures with data representing current change to segment risk profiles and to define related strategy.  This may be demographic data, debit and credit transaction data, industry data, manufacturing data, and like factors illustrating, growth in disposable income, consumer buying changes and like behaviors exemplifying a sense of stability and capacity to pay. 

One in four of the employable population isn’t working, three in four are working.  Learn what you can to differentiate them for targeted action and use this analysis to define your strategy for originations and collections.  And, it is time for too many lenders to upgrade their collections approach.   Too many risk management organizations allow their collection team to operate as a siloed unit disconnected from marketing and risk teams as though they are not interdependent.  Incrementally they have been slow to adopt analytics designed to balance efficiency and effectiveness.  Delay no more.

Global debt collection is experiencing a tsunami of calls as tens of millions of borrowers are awaiting the opportunity to go back to work.  Unprecedented government action has provided monetary support to buoy the economy, and it is helping.  But what happens when these programs subside before the need expires. 

The time is now, to collect data with higher frequency updates and interact with your client base to learn and keep pace with their changing individual challenges.  This information is critical to planning strategic actions with the best knowledge. The first to get there and work out a plan will experience the greatest success.  To that end, if you are not leveraging all possible interaction channels your BAU operating model needs a quick upgrade to maximize efficiency and effectiveness with an omnichannel communication platform.   An omnichannel platform differs from multi-channel in that it is one source of truth, with one common goal delivered via any channel through which the customer interacts.  Integrate this platform with your models and strategies executing a consistent, informed experience, enabling self-service support and continuous access.  Consumers are opting for digital support via web and mobile self-service channels over person to person contact in ever greater volumes. Accommodate them (within the TCPA guidelines) and generate a much better customer experience contributing to reducing losses.  Providers with omnichannel interaction experience a 5-10% increase in debt payment success. 

The future is uncertain as the virus continues to linger interrupting chain supply and resource availability.  These changing conditions will require adaptive policies and smarter segmentation leveraging high frequency data informing change drivers.    This coupled with strategic adaptability and action flexibility delivering smart interactions will be a key to collection success.  After 2008, there were signs that the conventional wisdom prioritizing mortgage payment above auto loans had changed as autos were needed to get to work and generate income.  But times have changed.  Working from home looks like it will continue to 2021 for many, possibly swinging mortgages back as a priority payment incremental to food and utilities and impacting new auto sales.

A smart complimentary action would be a strategic policy of keeping customers in their cars with optimized collection actions differentiating those with potential to pay, those who simply need time and those that simply are unlikely to recover. Institutions that make the most of insight, simulated analysis and strategic action delivered via omnichannel functionality will establish disproportionate resilience in these uncertain times.

Lynda Woodward is FICO's senior director of Analytic Ventures

Read: The Road to Success: Overcoming the Pandemic at Nutley Auto

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