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Collections is dead, long live collections

For decades, the collections and recoveries functions have delivered exactly the outcome they’ve been set out to do: collect and recover bad debts and protect shareholders from financial loss. Most banks have adjusted to cope with the increased expectations that now come with managing customers who are experiencing financial hardship. But, as the last 18 months have clearly shown, this is no longer enough.

While the vocabulary around this critical and strategic banking capability has changed – from ‘collections’ to ‘assistance’, ‘recoveries’ to ‘solutions’, and ‘hardship’ to ‘supporting many forms of vulnerability’ – it’s simply not enough. The mission, people, processes and technology within the collections and recovery functions all need to evolve and scale to be fit for the future.

Against the Australian backdrop of uninterrupted economic growth, the once sleepy back-office collections function – chasing contacts and promises-to-pay – has been rudely awakened by the Royal Commission into Misconduct in the Banking, Superannuation and Services Industry. Among other focuses, the Royal Commission probed into the treatment of those in hardship by the banking sector. The bushfire crisis posed further questions on new categories of vulnerability and the community expectation for banks to support rather than simply seek to collect. Finally, COVID-19 shattered old-style predictive models and segmentation rules, as banks abandoned collecting and instead sought to focus solely on assisting customers and the wider economy with mass loan deferrals.

Recent years have proved incredibly challenging for management and agents working in collections. They have found themselves at the forefront of their bank’s operational responses to each of these significant challenges—made even more difficult by long-term underinvestment. This has been a consequence of collections’ position at the end of the value chain; perceived as a cost centre that is distanced from the customer.

But the recent spate of crises has highlighted the importance of collections and the need to elevate and invest in this critical capability. The collections function sits at the crucial banking epicentre of customer experience, product, credit risk, compliance, operations and technology. It has also become abundantly clear that it can provide invaluable insights on customers, acting almost as the bank’s second marketing function and a profit centre.

With credit risk increasing across the industry, bad debt still requires management. This will need to be balanced alongside opportunities for improved efficiency via digital channels and the continued rebuilding of trust by offering a range of support to customers where it is needed. So, what are some of the factors to consider when assessing if a bank’s collections function is sitting in the past or is fit for today and tomorrow?

Key questions

To make this a reality, there are key questions executives should be asking when it comes to their collections and recoveries functions:

  1. Is the mission of your function aligned with your enterprise strategy, ensuring that help is provided to as many customers as possible while also protecting the bank?
  2. Does the governance and oversight of your function allow for the management of tension between brand, customer, conduct and compliance, and operational and financial outcomes?
  3. Is there an appropriate enterprise response to multiple dimensions of vulnerability (e.g., financial, short-term and long-term health, and domestic violence)? Is this either orchestrated or consistently delivered through your function?
  4. Do you have the necessary suite of forbearance tools, both financial and non-financial? Are these well understood by both agents and the broader bank network to enable flexible support to customers through the channel of their choice? 
  5. Do you have appropriate customer outcomes testing to drive fairer and consistent outcomes? Are you able to use this – at pace – to identify and address emerging issues or hotspots, and inform training and continuous improvement?
  6. Have you allocated investment to this critical strategic capability?

The collections and recoveries functions are likely to continue increasing in importance. By ensuring this capability is geared to the future, banks can better meet their own needs – and their customer’s expectations too.

This article is an edited extract from Deloitte’s commentary on the FY20 results of Australia’s major banks.