Voice of the Industry

Debt and financial vulnerability and the customer experience

Thursday 23 June 2022 08:02 CET | Editor: Alin Popa | Voice of the industry

Rising costs and uncertainty are putting a strain on consumers and organisations. Michael Backes from receeve shows us how to overcome these burdensome moments.

Current market realities and cost of risk (COR)

Pandemic relief is starting to edge back, and credit providers must think about the credit they gave out and the outstanding loan ‘quality’ which ‘is expected to deteriorate as government support schemes are lifted.’

Operational costs of managing risk and incurring loss have also increased during this time with ‘COR of risk jumping 50% in Q12020 vs. Q42019 with no reversal and Stage 2 balances and provisions increased reflecting a perceived decrease in borrower resilience’ - these balances and provisions represent a significant increase in credit risk since their initial recognition.

The Ukrainian conflict in Europe created new pressures on economies struggling to recover. ‘Inflation is also rising, potentially putting pressure on borrowers if it increases rapidly’ and the ‘Euro area annual inflation is expected to be 8.1% in May 2022’ according to Eurostat. These are record highs and in the middle is your customer.


State of the consumer

Rising energy and food costs and restricted supply chains are straining everyone. Consumers hoped for some post-COVID respite but now see more uncertainty and inflationary pressure which is likely to push many back into poverty. At best, many consumers will have to start making spending choices and face real tradeoffs. Some of them may not be able to meet their financial obligations. 

This can easily spark the innate human ‘fight or flight’ tendency when perceiving a threat. Financially vulnerable consumers may go into a state of denial regarding financial obligations which they feel they cannot meet or the stress of the situation may result in aggressive communication with agents. How you address consumers in this challenging state is important from both a human and a recovery perspective.


Organisational approach to recovery

Often, both in personal endeavours and at work, we stick with what we know. For ‘at work’ scenarios, McKinsey puts it best – ‘experienced managers sometimes persist with solutions that worked through the last cycle, despite getting poorer results in the present one.’ When it comes to addressing rising delinquencies and recovery strategies, many may be inclined to just ‘push it out the door’ and make it someone else's problem to deal with, especially if you can take it off the books. 

Many will take this ‘out the door’ approach, and as the collections agencies get more claims to work, collecting all the outstanding claims becomes more difficult in this challenging economic environment. Even though agencies receive fewer Euros per outstanding claim they do have greater volumes to work with, so their bottom line is impacted less than yours. How do you ensure more of every Euro short and long term?


Commitment and resolution

Which consumer profile is going to take the time to settle their outstanding debt? Is it 1.) the person who is chased and hassled by phone calls and threatening letters? Or 2.) the person engaged with in a personal, option-driven way? You will find that the consumer who is handled with care and provided options including online self-service options to self-cure will have a semblance of control and will demonstrate greater commitment to a payment instalment plan or make a promise to pay. The sense of control helps them commit to work with you to resolve the situation when possible. 

Customer lifetime value (CLV)

Organisations who prioritise their CLV understand how easy it is to lose a customer and that the investment in making a difficult situation easier to navigate and resolve will generate exponentially higher customer loyalty and CLV. If you help someone when ‘things go bad’ they will think exponentially more highly of your company and brand. This is known as the ‘Service recovery paradox’. 


Reframing for CLV

You may not have all needed pieces in place, and you cannot solve every case. But you can start to reframe how you approach the problem and build longer term loyalty and CLV with customers in vulnerable financial situations who will eventually bounce back. 

Warren Buffet noted ‘It takes 20 years to build a reputation and five minutes to ruin it. If you think about that, you'll do things differently.’ Don’t let your collections department continue to do more of the same as we enter this next phase of uncertainty. 

Consider looking at solutions that proactively provide consumers options, create a sense of control, and provide your team the insights to create the right engagement strategy. Why? Because as one bank put it ‘we're going to have to hire 3X agents to deal with just the projected volume increase.’ That's not even considering the business process impact or training agents. If you can easily implement tools to frame solutions for vulnerable customers that allow them to address and decrease the stress of delinquencies and outstanding claims, your organisation will improve recovery results and future CLV as well as address COR. Hear more about how we help client teams reframe their approach. 


About Michael Backes

Michael Backes has 20 years in the tech industry as an entrepreneur helping organisations transform their legacy frameworks into digital-first models. In 2019 Michael brought his experience building next-generation financial services to the debt management industry and co-founded and launched receeve GmbH, a cloud-native solution for the collections & recovery industry. receeve is venture capital funded and growing the team aggressively in the EU & LatAm markets. receeve transforms debt management with a comprehensive data layer and ML/AI helping internal teams recover more by optimising processes, strategies, engagement and asset management. 


About receeve

receeve is a fully customisable all-in-one platform for collections & recovery. We simplify the growing complexity of data and systems and empower in-house teams to easily automate processes, engage customers and apply 360° insights to maximise recovery and minimise risk across every stage of credit management – from pre-delinquency to portfolio assignment or sale. A perfect balance of ease-of-use and power, receeve’s cloud-native, no-code platform is fast to deploy, simple to manage and easy to customise and expand.

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Keywords: customer experience, financial inclusion, payment methods, risk management
Categories: Banking & Fintech
Companies: receeve
Countries: Europe
This article is part of category

Banking & Fintech


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