Top 3 collections industry trends impacting credit unions in 2023

Following three years of pandemic-related disruptions, it’s likely no surprise that the collections industry is poised for even more change in 2023.

  • Historically low levels of delinquency since Q2 2020 have been artificially supported by unprecedented government stimulus. With this coming to an end and inflation wearing down savings and wage increases, delinquencies are beginning their return to normal.
  • Credit card and auto loan past-dues have been up for the past several months approaching their pre-pandemic levels.
  • Mortgage delinquencies remain quite low and have only started to show signs of deterioration since Q3 2022.
  • As consumer balance sheets tighten and the economy slows, expect delinquency rates to continue their trend back to the more normal and sustainable levels we experienced prior to the pandemic.

Adopting digital-first strategies to reach account holders on their preferred channels, optimizing internal resources in a labor market that is still reeling from the “Great Resignation,” and navigating a looming recession will take top priority for collectors in the year to come.

In this article, we’ll discuss the key trends that will factor into the evolving collections landscape for 2023. Credit unions will want to focus on these emerging industry themes to strengthen their operations, optimize internal resources, improve member sentiment, and reduce costs.

Trend #1: Digital-First Communication

In 2021, a record 41% of U.S. retail bank customers were classified as “digital-only.” To keep up with this consumer trend, credit unions that haven’t already done so will need to take a sharp turn toward digitalization to meet member expectations.

As technology creates more communication options between you and your members, it’s important to keep pace with their preferences. Leveraging automated calls, text messages, and emails has become standard practice for reaching out to delinquent borrowers.

In many cases, this technology enables members to fully resolve late payments independently through self-service options. These options may include paying with a debit card or checking account, setting up future-dated payments, or requesting an extension to avoid late payment. If your credit union does not currently have access to this kind of technology, consider partnering with a collections provider who does.

Offering digital communication options is a big value-add for credit unions, but it’s not just your members who benefit from this approach. Implementing a digital communication plan can improve your institution’s performance, deepen connections with members, and enable them to make more informed decisions. This can ultimately lead to increased growth and improved service.

Trend #2: Optimizing Internal Resources by Outsourcing Collections Activity

The Great Resignation has not been kind to credit unions’ internal resource capacity. In fact, over 60% of collections companies recently reported that finding and retaining talent is “very challenging.”

Delinquencies are increasing during a time when the U.S. labor market is historically tight. This means many credit unions are struggling to staff their collections teams and operating at a reduced capacity.

In many cases, team members who are left to pick up the slack of vacant positions are feeling overworked. When your collections team is stretched too thin, your institution risks making mistakes and having team members burn out.

Employee burnout levels are high across all industries in 2023, and credit unions are no exception. According to Workplace, “The hard organizational cost of burnout is substantial: Burned-out employees are 63% more likely to take a sick day and 2.6 times as likely to be actively seeking a different job. And even if they stay, they typically have 13% lower confidence in their performance and are half as likely to discuss how to approach performance goals with their manager.”

In other words, overworking your internal collections staff has the potential to provoke a downward spiral in individual and operational performance.

To ensure your credit union has a successful staff of collectors, you will need to invest in both the hiring process—to ensure you’ve hired the right people for the job—and the training process to ensure those individuals are properly and thoroughly trained.

Of course, this is happening in the middle of an economic slowdown, and with recession looming in 2023, credit unions are focused on reducing costs wherever they can.

Opting instead to outsource your collection efforts can save the HR-related expenses of hiring and training in-house collectors. Partnering with reliable vendors to help manage operational and labor costs is one way to keep the expense side of the ledger well maintained.

Trend #3: Navigating Collections during an Economic Downturn and Possible Recession

Most economists are projecting that the looming recession will be shorter and shallower than average downturns.

While this is the current expectation given the strength of the labor market and relative health of the financial system, the possibility of a harsher economic decline remains. If inflation remains high and the Federal Reserve continues to aggressively raise interest rates and keep them elevated, the chances of a longer and deeper recession increase.

As we kick off 2023, credit unions will need to seek ways to drive efficiencies (cost savings) and productivity (doing more with less).

Utilizing technology, process improvements, and third-party partnerships to drive greater productivity are critical priorities for businesses in times of economic slowdown.

Doing more with fewer employees is a hallmark of operating through recessions. Because the current economic downturn has been characterized by a tight labor market, this best practice could be even more important in the coming year.

Outsourcing certain labor-intensive functions—like collections—to those with access to greater economies of scale will not only help manage costs in a recession but can also help credit unions better contend with slower workforce growth and tight labor markets.

To learn more about driving efficiency and productivity for your collections staff, download our free white paper, Modernizing Your Collections Operation.

Blake Hastings

Blake Hastings

Blake Hastings joined SWBC as Senior Vice President of Corporate Strategy and Chief Economist in July 2021. In this role, he provides leadership in the areas of corporate development and ... Web: www.swbc.com Details