Fair Isaac Corporation

27/08/2024 | Press release | Distributed by Public on 27/08/2024 10:19

How Advances in Debt Collection Software Can Transform Results

The current economic climate is challenging worldwide, marked by unprecedented global debt levels - $235 trillion - and the compounding challenges of high interest rates, rising unemployment, and inflation. In a presentation at FICO World 24, Shivani Landie of FICO's collections consulting team called this the "combination of all previous recessions," which has resulted in a growing number of customers in financial distress, leading to higher impairments and losses for banks and retailers.

Landie and FICO collections expert Ulrich Wiesner discussed how the digital tools and debt collection software collectors use today can help them cope with the rise in customers facing debt problems. The session provided fascinating insights into "clairvoyant collections" - using today's analytic advances to identify the right treatment path and contact strategies for every customer.

Landie identified four themes that are critical for organizations to address in today's collections environment:

  1. Data: The ability to gather and analyze data has drastically changed over the years. Fifty years ago, a bank manager might have known each customer personally. Today, banks rely on vast amounts of transactional data to assess customer risk and predict distress. As Landie explained, "Transactional data today determines if a customer is potentially going to come into distress by looking at spending patterns."
  2. Technology: The transition to a paperless, digital environment has reduced the need for large collections teams. Instead, data scientists and analysts play a crucial role in understanding customer behavior and determining the best workflow and treatment strategies. The challenge now is to create a "one-stop shop" for collections, where all necessary tools and capabilities are integrated into a single debt collection software platform.
  3. Customer Focus: A customer-centric approach is more important than ever. Landie emphasized that customers will remember how they are treated during difficult times. She noted that after the implementation of IFRS 9, harsher treatment of customers led to a decrease in Net Promoter Scores (NPS), highlighting the importance of understanding the reasons behind a customer's financial difficulties. "Customer-centric decisioning has become a focal point," she said, stressing the need for solutions that are tailored to each customer's unique situation.
    One reason this customer focus is so critical is that customers' return to financial good is changing. For many consumers who fall on hard times but who are new to collections, the return to financial good is 6-9 months, vs the traditional 12-24. As Landie noted, some businesses are potentially writing off customers who will return to good.
  4. Regulation: The increasing complexity of regulations, such as data privacy laws and limits on customer contact attempts, necessitates a more sophisticated approach to collections. Organizations must navigate these regulations while still maintaining effective communication with customers.

As an example, Landie noted, "Years ago we had five big banks in South Africa. Today we have potentially around 20 to 30 banks. Competition is rife within the global banking environment and customers are no longer as loyal to banks. They're more interested in who's going to help them today when they're in distress."

One of the most significant trends in collections is the move towards digital self-service. Customers, especially younger ones, prefer to interact with their banks on their own terms, using channels like WhatsApp or chat services. This shift requires collections strategies that are not only digital but also flexible and responsive to customer preferences. As Landie joked, "I have a 12-year-old son who refuses to answer any phone calls. That's the level of engagement we can expect in the future."

FICO Platform: Driving Digital Transformation in Collections

Wiesner, a 20-year FICO veteran, delved into the technical aspects of how FICO Platform supports digital transformation in collections. He highlighted the importance of having meaningful dialogues with customers, presenting them with options that make sense, and continuously refining strategies based on real-time data.

Wiesner emphasized the need for agile, cross-functional teams that can quickly adapt to changes in customer behavior and regulatory requirements. He described how FICO Platform allows businesses to configure changes without the need for extensive programming, thus enabling rapid adjustments to collections strategies.

FICO Platform, he explained, includes four critical capabilities for collections:

  • Decision management. Here he demonstrated the ability to simulate results. "We can run some sample data through this tree to see how a sample population behaves. This helps in the development process because we don't have to test the entire end-to-end strategy; instead, we can test each component individually. We can observe how many accounts end up in each tree leaf, and you'll see that about 80% of the accounts are forwarded to the standard strategy."
  • Omnichannel communications: "When we say 'omni-channel engagement,' we mean contacting customers through various channels like WhatsApp, SMS, interactive SMS, or automated calls on the same day. We can switch channels within the same conversation with the customer. For example, you can start a conversation with an SMS, transfer the customer to a robo call, and then, depending on the outcome, either confirm the agreement with an email or forward the customer to your call center-all within the same conversation. It's important to be agile and give your business users control over how this process works."
  • Predictive analytics: "We build models using our Analytics Workbench suite, which combines the best of open-source machine learning capabilities with our established scorecard technology. This suite includes a visual scorecard development tool and a visual tree development tool, both of which are powerful for developing segment scorecards for segmentation and decision strategies based on data."
  • Mathematical optimization: "Optimization searches the entire universe of possible strategies to find the one that delivers the best result on a specific criterion. For example, you might seek the strategy that maximizes cash collected or minimizes the bucket roll rate. Based on this, optimization will identify the optimal strategy and then allow you to assess the trade-offs. You can determine how much operational effort you can save by sacrificing some performance, or evaluate how a strategy that applies minimum treatment to everyone would impact overall performance. Understanding these competing targets is what optimization is all about."

Wiesner noted that a test-and-learn approach distinguishes the best performers. "The organizations that are best with this have a very agile approach," he said. "They constantly measure what happens in the customer dialogues and what happens in the strategy - when do customers pay, when do they stop engaging. They use the learnings from this to continuously upgrade their strategies and their dialogues. That works best with a cross-functional team where you have people who have a communication mindset, a marketing mindset, a business mindset and a technical mindset."

Fast Software Implementation and Impressive Results

The presentation included a glimpse of the results debt collectors can experience using FICO Platform. Irina Vasina, senior project manager at the telecommunications firm Telus, shared with FICO's Jaron Murphy her results implementing FICO Customer Communication Services (CCS), an omnichannel solution.

"Typically, a project comparable to FICO CCS takes six months to a year," Vasina said. "However, what made this project unique is that we were able to launch it from start to finish in just five months, which is likely to be a benchmark for future projects. A key factor that set this project apart was the exceptional collaboration with the FICO team. I must commend everyone at FICO for their knowledge, flexibility, and overall great teamwork."

Tathiana Paredes, a principal consultant with FICO, shared best practices for adopting an omnichannel solution: "When implementing projects, I tend to do them in phases. For the first phase, which includes one-way SMS, IVR, and email, many clients prefer to start slowly due to internal resistance to change. Even with a cautious approach, we often see a 14% increase in payments and a 20% reduction in collection costs. As clients become more comfortable with the tool and gain internal stakeholder support, we adopt two-way SMS and a payment portal. This often results in a 29% increase in payments and a 75% reduction in the cost per promise. I'm being conservative with these percentages because I prefer to under-promise and over-deliver!"

She also provided results from an American telecommunications company, which initially saw a 60% self-payment rate in the first year, which rose to 80%. "100% of their portfolio is managed within CCS across all risk levels. It's hard for some people to believe that 100% of a portfolio is handled through digital collections, with only 3% requiring human intervention, but that is indeed the case. The company is now self-sufficient on FICO Platform. In the first year alone, they reduced call center costs by $2 million, achieved a 40% increase in customer self-service payments, and reduced call center transactions by 50%."

Conclusion: Navigating the Future of Collections

The presentation underscored the complexity and dynamism of the modern collections environment. To succeed, organizations must leverage data-driven strategies, embrace digital debt collection software, and maintain a sharp focus on customer experience. As Landie concluded, the goal is to create a "digitally enabled collections consultant" who can provide the best possible outcomes for both the customer and the business.

How FICO Can Help You Improve Debt Collection