Analysis

How Mobile Technology is Transforming

Collections
Daniel Melo

Biography
Daniel Melo is a principal consultant in FICO EMEA, based in Madrid. He has more
than 20 years of experience in credit, collections and risk management for large
financial institutions in Europe and the Americas. His expertise spans all aspects of
the credit lifecycle, working on analytics and scorecard development, strategy and
change management, and direct operational management. Daniel has worked
extensively solving client problems during volatile economic periods, particularly in
credit risk management and debt collection, and in emerging markets.
Daniel Melo
Principal Consultant
FICO EMEA

Daniel blogs on the FICO Banking Analytics Blog http://bankinganalyticsblog.fico.com

Keywords Collections, Delinquent payments, Mobile technology

Paper type Opinion, Case study

Abstract
In this article, the author discusses how technological, social and economic
changes have had a profound impact on collection and recovery operations, and
why all organizations need to adapt. Many collectors still scoff at the idea that
collections is becoming a customer service centre, focused on building
relationships rather than collecting overdue payments. In fact, the two can go
hand-in-hand, and mobile communications technology is the key to success.
The ubiquity of mobile phones offers opportunities for more effective collections:
many people have their phones with them nearly round-the-clock, increasing the
likelihood of contact, and, because mobile phones are personal rather than
household communications devices, the odds of a right-party contact are also
increased. Most importantly, recipients of well-targeted mobile communications
are more inclined to take a payment action in the moment. Thus, as the
collections landscape changes, collections organizations must change how they
operate.

Introduction
Over the past decade, technological, social and economic changes have had a
profound impact on collection and recovery operations. While the effects vary
across countries and regions, all organizations need to adapt to one or more of
these developments:

Ubiquity of mobile phones;

Increasing competition in the race for payment share;

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Complex, changing regulations;

Impact of social media;

Evolution of consumer attitudes toward debt; and

Rising consumer use of the internet for financial transactions.

These changes arent necessarily positive or negative often they are both.
Take the growth of mobile and prepaid phones, and the disappearance of
residential landlines. It is a trend that poses many challenges for collectors.
Mobile phone users can easily evade contact by diverting calls to voicemail or
swapping out their phones SIM card to get a new number. Telecom companies
regularly recycle numbers to new customers. Creditors must, therefore, be more
careful to verify right-party contact and maintain accurate contact information.
On the other hand, the ubiquity of mobile phones also offers opportunities for
more effective collections. Many people have their phones with them nearly
round-the-clock, increasing the likelihood of contact. Since mobile phones are
personal, rather than household, communication devices, the odds of getting
through to the correct person are also heavily increased. Recipients of welltargeted mobile communications are more inclined to take a payment action in
the moment rather than sitting down later to mull over a stack of bills and
figuring out which to pay.
As the collections landscape changes, collections organizations must change
how they operate. But even while the technology gets more advanced, the basic
advice remains startlingly simple.
Contact customers in the way most likely to succeed
The spread of mobile devices and advance of internet technologies have
opened up new avenues for collections organizations to quickly and efficiently
contact delinquent customers, which is important, as competition for payment
share intensifies. In India, Poland, Sweden, Brazil and South Africa, for
instance, household debt levels have climbed in recent years as credit has
become more widely available.
Creditors must get the customers attention before other creditors, who are also
vying for a piece of what may be a monthly paycheck. In countries shaken by
financial crisis, even where consumer indebtedness and delinquency levels are
declining, many customers are still struggling to pay all their bills. Changing
payment priorities have pushed some creditors down in the stack. US
consumers, for instance, are now paying auto loans before credit cards and
mortgages. Creditors must develop smarter strategies to move toward the top.
Those with multiple product lines need to coordinate customer-level collections
that take changing payment priorities into account.

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The quickest method (and most scalable for high volumes) is usually an
automated call, text or email to a mobile phone. Recognizing these advantages,
collections organizations in the US, UK and Western Europe are rushing to
catch up with their Asia-Pacific counterparts, which have long used mobile
communications as a primary channel for collections contacts. Yet the
undifferentiated SMS blasts some creditors send every few days to all
delinquent customers are not very effective. In most cases, the creditor has no
visibility into whether these one-way outbound messages were even delivered to
a valid number.
To fully leverage the potential of automated contacts to mobile devices,
collections organizations need finely targeted, even customer-specific
communications strategies. Analytics, business rules and workflows should be
used not only to segment delinquent populations based on credit risk, but also to
determine which channels and sequence of actions are most likely to be
effective based on the customer risk profile, customer preference and results of
past contacts.
Automated, intelligent communications solutions use scores and data from
numerous sources to determine the best contact strategy for each customer at
the current point in time. They coordinate strategy execution across all
channels, capture results and manage follow-up.
Well-targeted automated messages are generally positively received. In fact,
when one of the worlds largest electric utility companies surveyed its customers,
61% said they preferred an automated contact (voice, email or SMS) over
dealing with collection agents. Customers prefer automated contacts because
they are less embarrassing than talking with an agent. Automated contacts
enable personal, secure and convenient self-service options for making a
payment or even negotiating a payment plan. Couple this with the growth in
worldwide sales of smartphones, and opportunities are increasing for selfservice applications.
An automobile credit company is having considerable success with such
methods. Implementing a FICO solution for both outbound and inbound
contacts, the company found that 79% of customers contacted successfully
used self-service options, resulting in payments made on 44% of the assigned
portfolio (see Figure 1). A UK banking group achieved a 75% self-service rate
for inbound contacts. This embrace of self-service reflects one of the ways
consumer attitudes toward debt are changing in many parts of the world
toward the desire to have a greater sense of control.
For collections organizations, the benefits of targeted automated
communications are not only higher contact rates and faster payments, but also
improved customer satisfaction and fewer complaints. With the ability to work
large volumes of cases in a short time, they can also identify accounts with
issues early and focus agent time on these more complicated delinquencies.

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Moreover, since the intelligence in these solutions comes largely from editable
business rules, collections managers are able to change account segmentation
and treatment strategies without the need for IT assistance, as well as quickly
adjust processes to regulatory changes. In the UK, recent regulations include a
rule that says within 24 hours of leaving a voicemail, collectors may contact the
consumer only in the presence of a live operator. Such regulatory changes add
complexity to collections processes, but they are readily folded into intelligent
contact and treatment strategies and automatically executed with 100%
accuracy and 100% documentation of compliance.
Automated collections processes are also far more cost-effective than any other
method. The UK division of a global bank achieved an 18% reduction in roll rate
from cycle 1 to 2, along with a 45% reduction in closing balances over its current
call centre and a 30% reduction over an offshore call centre.

Figure 1: Auto lender success with mobile collections

Cultivate relationships when customers arent delinquent

Increasingly, consumers go to social networks for advice on choosing service
providers, and to air complaints when dissatisfied or feeling harassed by
collectors. Shared experiences and opinions exert a growing influence on
others. Its a situation that makes getting collections processes right more
important than ever before.
Fortunately, social media also points the way to better collections, by
demonstrating the power of relationships.
If consumers liberally share
information with social network contacts while holding it back from companies
they do business with, its because a relationship exists with the former that may
not exist with the latter.
Lack of current contact information, a key cause of delay in reaching delinquent
customers, is evidence of the lack of a relationship. During the financial crisis,
as large numbers of good customers appeared for the first time in delinquency

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queues, creditors were unable to contact many of them. These customers, who
previously kept their accounts current, had required so little attention that the
organization hadnt kept in touch enough to keep contact information up-to-date.
Companies that cultivate relationships with customers when they arent
delinquent are in a better position to collect if they become delinquent. There
are opportunities in every industry to stay in touch and be helpful in ways that
encourage dialogue while leveraging these interactions to keep contact
records up-to-date. Even in societies experiencing rapid credit growth, where
the predominance of prepaid mobile phones and inadequate account origination
processes may create additional challenges, companies can find incentives
(information, contests, discounts, etc.) to make it advantageous for consumers
to engage in a closer relationship.
By building and sustaining relationships, creditors also create more opportunity
to prevent serious delinquencies from developing. When analytics spot behavior
patterns in payments and other transactions indicative of increasing financial
stress or of probable impending strategic default, collections organizations can
intervene with pre-delinquent treatments. Customers who have already been
engaged in dialogue are more likely to be receptive to educational information
and offers of assistance, and may be predisposed to cooperate.
The efficacy of this approach is demonstrated by the experience of a
multinational retail banking group, whose Eurozone operations are under
increasing margin and cost pressure, and subject to the constant overhead of
managing regulatory change. To meet these challenges and raise performance,
the banking group is implementing a three-pronged collections process
improvement. Intelligent FICO automation is now being used to:

1.

Provide agent replacement services for both outbound and inbound

collections contacts.

2.

Handle inbound payments.

3.

Engage in proactive communications with customers.

In all interactions, customers that need to speak with a human being are routed
to the right person (collections agent, skilled negotiator, loan officer, etc.) in
priority order.
Early results for agent replacement and payment handling are already
impressive. They include reductions in average provision per account by 60
and average cost per account worked by 2.50. The company has also
improved its ability to handle variable incoming volume without adding staff. An

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impressive 98% of inbound payment calls are picked up within ten seconds, and
there has been a peak-day savings equal to 22 full-time collectors.
However, it is in the area of proactive communications where this company is
truly a leader. One of its key requirements for FICO was to provide the means
to rapidly implement new initiatives without IT involvement. So while the solution
performs basic relationship maintenance functions, such as telephone number
capture and validation during automated interactions, it also supports the
companys efforts at stronger customer engagement.
Preemptive
communications reach out to returned-mail customers through other channels so
they can be contacted in the event of a future delinquency. The number of lost
customers found has risen from 10% to 25%. Another initiative will proactively
contact customers with interest-only mortgages to encourage them to consider
options for repayment earlier, and thereby reduce the number reaching loan
maturity in a negative equity position.
While these communications have different objectives, they are all coordinated.
The automated solution not only orchestrates all touch points, it also maintains a
history of contacts to inform the next step in engagement and messaging, as
well as for escalation of any issues requiring customer attention or agent
intervention.
Many collectors still scoff at the idea that collections is becoming a customer
service center, focused on building relationships rather than collecting overdue
payments. In fact, the two can go hand-in-hand, and mobile communications
technology is the key to success.

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