Many UK consumers are in the grips of the cost-of-living crisis. For those carrying debt, there seems to be no way out, and data shows it is taking a significant toll on personal financial and mental health.
In 2020 at the pandemic’s height, UK households sharply reduced their expenditures as recreation, dining out, and travel halted. Average income dipped but then rose as the Coronavirus Furlough Scheme kicked in to aid the 25% of British citizens furloughed during the pandemic. However, income did not rise to pre-COVID levels with those furloughed experiencing on average 17% income reduction.
For households with low income or savings, this was a difficult situation as they did not have enough cash on hand to cover housing and other required expenditures. According to the Economics Observatory, “a furloughed individual has been 30% more likely to be late on housing payments and 9% more likely to be late on bill payments, relative to a non-furloughed individual.”
Enter double-digit inflation and the situation went from bad to worse, particularly for those households drawing from savings or who were not able to return to pre-COVID shutdown income levels. Energy costs — one of the contributors to record inflation — have put the squeeze on Britons even more especially as the assistance promised by the UK government has been partially withdrawn as the energy relief plans have been modified to end after the winter months, as the government is struggling with its own record debt burdens.
In June of this year, the FT reported the UK consumer confidence index had dropped to its lowest point since tracking began in 1974. The widely reported “cost of living crisis” may end in 2023. But in its wake will be greater consumer debt arising from borrowing and depleting savings just to put food on the table and keep the lights on.
The personal debt quagmire for consumers and lenders
This environment puts the task of debt collection in a precarious spot for businesses. On one hand, they need to attract and retain wary and weary consumers. On the other hand, they need to collect money owed them by those same customers to pay their employees and keep the lights on themselves.
A November 2022 survey by UK’s Mental Health Foundation found that “one in ten (10%) of UK adults feeling hopeless about financial circumstances, more than one-third (34%) feeling anxious, and almost three in ten (29%) feeling stressed in the past month.” Clearly, the situation is taking its toll. Invasive harassment to pay their bills is not going to help improve their financial or mental health.
Digital debt collections is a proven approach that treat consumers respectfully by giving them control to determine a realistic and achievable payment plan for them — without the need for a difficult or embarrassing conversation. Digital omnichannel repayment solutions use behavioural data to present customized payment plans to consumers across digital channels like email, text, and SMS.
“In our experience, personalization and not having a one size that fits all is critical to customer engagement and fulfilment. On average, we see 92% of our digital customers opting to self-serve from these tailor-made solutions.” — Largest Global Credit Card Issuer
Two factors drive the burning need for a digital collections platform. :
- High cost to collect
Person-to-person collections is costly. Smartphones allow customers to quickly ignore incoming collections calls. This necessitates multiple calls from contact center employees and becomes increasingly irritating to customers. As well, customers can block future calls, making the process ineffective and inefficient. - Poor customer satisfaction
Customer dissatisfaction arises when collectors demonstrate a lack of empathy or flexibility in helping resolve their debt. In the case of third-party collections, customers are even more loathe to aggressive collection tactics.
These challenges translate to one big question on the minds of executives: In today’s climate, what is the right response I should take to realize effective collections?
These are the four principles of data collections that shape that response.
- Making good business decisions begins with using accurate data, so it’s important to have current reports, backed by historical data, that are available at a moment’s notice to support the decision-making process and tailor next steps to get the best contact and recovery rates.
- Many organizations are now looking to shift toward a more proactive approach to prevent delinquencies. It’s important to focus on up-front delinquency prevention. Automated roll-rate management calculates the amount of time left until payment due dates and proactively sends reminder emails and SMS with helpful links for customers to pay minimum balances or current due amounts to prevent further delinquencies.
- Organizations need a digital-forward solution—one rooted in analytics and multi-touchpoint data aggregation—to determine the right outreach message, timing, and channel that would best suit each customer and provide them with self-serve customized options while allowing real-time reporting of metrics to learn and course correct.
- Business process management done through a third-party is the fastest and easiest way to cost-effectively resolve outstanding debt digitally. Crucial to success is white labelling, as it is known to amp up the effectiveness of contact, response, and ultimately the post-collection customer experience.
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The right response for your organization depends on the industry you are in, your customers’ demographics and behaviours, your existing collection methods, and your business priorities. That said, here are some considerations to get you going.
- Given the fast pace of change, real-time reporting is important to monitor what’s working and what’s not. Do you have a clear view of your collection success metrics and how they move over time?
- Traditional methods of collecting debt may pose a serious threat if not proactively thought through and managed. Digital- forward solutions leverage aggregated data for both adapting to effective strategies and providing customized user solutions. Have you carefully considered all the implications of continuing with legacy collection methods?
- Taking a wait-and-see approach in most cases is a mistake, but especially if that window has closed. Are you actively adjusting to shifting customer expectations, or are you hoping you’ll catch up at a later stage?
One thing is true for all companies with consumer debt on their books. A digital-forward lens puts you in the driver’s seat for building a collections system that works.
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