Keeping credit card rates and fees low is a priority for most card-issuing credit unions. To do this, however, card teams have to have a rock-solid and highly effective collections and recovery process. While it’s true charge-off rates are the lowest we’ve seen since 1985, this may soon change. That’s because consumers continue to rack up credit card debt, to the tune of nearly $16 billion in the third quarter of 2014 alone, a 35-percent increase as compared to the same time period in 2013.
Fortunately, the increased accessibility of data analytics is propelling more credit unions forward in the pursuit of sustainable collection strategies that produce real results. What follows are three areas of the collection and recovery process credit unions can improve through the use of analytics.
Analytics can be used to help a credit union set triggers to aid in the collections process. By monitoring accounts in a specialized, scientific manner, card teams can more easily – and in some ways, automatically – identify early indicators of accounts likely to default. Usage and payment patterns, when analyzed properly, allow the credit union to execute hardship plans that are much more meaningful for the struggling member. After all, it’s much easier for people to take steps to improve their financial situations before they are in full crisis mode.
Hardship plans allow credit unions to reach out to account holders with action ideas. In many cases, the result is a win-win, as the credit union recovers the remaining balance on delinquent accounts and the cardholder avoids the often staggering fees and interest charges normally associated with an account going into collections. (Lest we forget, there is also a sizable cost to the credit union for using a collections agency.)
Of course, hardship plans are most effective when tailored to the cardholder in question. For instance, whereas one cardholder may respond best to a traditional repayment plan, another may require the account to be closed to new purchases to avoid temptation and additional debt. Another may require the account closed only to certain purchases. Conversations are one way to determine this; data analytics and predictive modeling are another, arguably more effective, way to get to the same customized set of plans for a group of delinquent accounts.
Another way to further improve the collection and recovery process is to begin with an overhaul of the current methods that are used to contact delinquent account holders. Credit unions should first assess the contact rate of all strategies to create a “map” of the entire process. A successful assessment will include analysis of the total number of different ways contact is attempted, the rate of success for each of these methods and the total staff requirement necessary for each one. Optimum staff requirement for each contact strategy is a metric that will be based on the average amount of time team members need to, for example, initiate an email, make a follow up call, etc.
The largest benefit to data analytics is the ability to get to the “Now what?” Credit unions who apply analytics to their collections process should keep an open mind, as alternate strategies may provide cost-savings while delivering more results.
Credit unions, with the help of an outside analytics expert if necessary, should first build analytical models to help prioritize accounts with the highest chances of curing. Metrics gathered over even a small window of time can be used to predict which accounts will self-cure. Right here you have potentially huge savings, as these accounts will no longer require staff attention. The second part of the process becomes studying accounts to identify the point at which certain collection strategies are no longer profitable. Strategies are then altered based on that information.
For those accounts that need attention, analyzing the data to determine the right contact strategy is a critical step to overhauling any credit union’s collections and recovery plans. The idea, of course, is to determine when a more cost-effective contact method will yield the same (or even better) result as a more expensive channel. If an email will eventually serve the same purpose as a phone call, there is no need to initiate that pricey call strategy. The same methods can be applied to settlement offers and the specifics inside custom hardship plans, as well as to the timing of both. Why spend more if less is more effective, and when is the right time to contact the cardholder?
Recovery and collections is painful for both parties. But with the right set of analytical and predictive modeling tools, your members can experience less embarrassment and a much faster turn-around. The skies are sunny now, but as Americans continue to add to their credit card balances, that rainy day is just around the corner. Nothing inspires loyalty quite like helping someone recover from a financial crisis. Establishing a dignified, personalized recovery and collections process is the first step toward helping more members manage their way out of trouble.