The latest market data illustrates the heavy toll of COVID-19 for the automotive sector, with the Finance & Leasing Association reporting new business volumes in the consumer car finance market falling in May 2020 by 78 per cent compared with the same month in 2019. But this data only tells half the story.
The other big challenge for the automotive finance sector is how to address late payments and bad debt. Bruce Curry, vice president for collections and recovery consulting and sales at global analytics software provider FICO, examines the challenges those responsible for collections currently face – and some of the long-term game-changers the current crisis could potentially deliver.
Go deeper with GlobalData
Payment freezes were introduced to provide immediate relief for those furloughed or losing income in the short-term and we are now awaiting the outcome of the FCA’s proposals for customers continuing to struggle with their finances. It has been suggested that customers who are coming to the end of a payment freeze, as well as those who are yet to request one, should be given more time. However, there is also a very clear message that for those individuals who can afford to start making payments, even partially, it is in their best interest to do so. And that means finance companies need to focus on everything from digital communication and systems agility to data quality. Focusing on the immediate and pressing need is inevitable but, as much as possible, there should be a look to the future to ensure that any data collected now will enhance long-term strategies too.
Data is key … what is the key to unlock the data?
The truth is, this period will create a lot of data and organisations need to capture the right data, understand it and where it will be needed further down the line. Across many EMEA markets – even before COVID-19 became part of our daily vocabulary – debt collection has been focussed on driving the right outcome for the customer at the outset, rather than how soon and how quickly late payments can be recovered. Having access to the right data and the insight it can deliver has been a key driver in influencing that strategy. Treating the customers who are now facing financial stress as a direct consequence of COVID-19 with the right outcomes will generate a lifetime of loyalty.
Notwithstanding immediate pressures, it is important that somewhere in the business, a team is asking:
How well do you really know your competitors?
Access the most comprehensive Company Profiles on the market, powered by GlobalData. Save hours of research. Gain competitive edge.
Thank you!
Your download email will arrive shortly
Not ready to buy yet? Download a free sample
We are confident about the unique quality of our Company Profiles. However, we want you to make the most beneficial decision for your business, so we offer a free sample that you can download by submitting the below form
By GlobalData- What do I need to do today to make sure, in the not too distant future, we are well-positioned to manage what will be a far larger collections portfolio than we planned to have?
- And how do we do this without haemorrhaging future good customers, or creating bad customer sentiment?
In particular, there should be a focus on digital customer engagement to ensure scalability and a frictionless, secure journey for the customer, as well as releasing pressure on the classic call centre workforce. The attitude towards information capture also needs to change.
Capture important information today that you would not have chosen to capture in the past.
- Understand the differences between COVID-19 related debt and non-COVID related debt.
- Identify the customers that classic collections risk analytics apply to and those for whom it is redundant.
- Determine the likely return to financial good profile by customer cohort data, including:
- Were they in a protected industry?
- What circumstances drove their reduction of income? E.g. was it:
- Furlough and if so with what degree of protection?
- Redundancy?
- Sickness?
- What has been the true level of impact on disposable income – can open banking support and validate the impact?
- What is their likely return to good curve given their household dynamics and industry sector?
Using the Data
When things do start to normalise, those that have captured the information so that they can prioritise who to contact, with what expectation, can take the lead. Good data will also help shape the creation of specialist teams that will be vital in the coming months and years.
Organisations might also consider how today’s imperatives are driving a greater interest in well proven capabilities such as contact and restructure mathematical optimisation. Organisations in both Retail and F&L have benefitted from such capabilities that previously might have been considered a sophistication step too far but for the next couple of years will, for some, determine competitive advantage.
It’s natural when facing a large wave to start swimming fast, but sometimes it’s best just to slow a little and ride with it. Customers will be expecting tolerance from the lender and the lender should ask for the same in return. It’s better to take a bit of time and ensure the right outcome for both parties. Strengthen that upfront IVR message and let them know there will be time to resolve their concerns. Those that have never been in collections will be the first to want to get out of it!
