Decoding the Art of Recovery: Data-driven Collection for Banks and NBFCs

In the banking sector, ‘collections’ refers to the critical process of recovering past-due payments from borrowers — a task as old as banking itself, yet ever-evolving. Dealing with ever-increasing NPAs and razor-thin operation margins, the axiom “time is money” resonates with undeniable truth. Though the banks are pioneering the wave of technological advancements, the collection department often remains a bastion of manual processes. So, streamlining collections is not merely about improving the bottom line; it’s a vital aspect of a bank’s health, efficiency, and adaptability in the ever-evolving financial ecosystem. Effective collections mitigate credit risk, maintain cash flow, and ensure that capital is available for lending. Imagine a bank, where collection agents follow a standard script, reaching out to customers when the payments are past due. This process though straightforward has multiple issues, for e.g.,

• Agents spend equal time on all delinquent account regardless of the likelihood of payment
• The approach increases operational costs as the agent might engage more with low-risk accounts
• Without prioritization, high-risk accounts may not receive the attention needed, resulting in lower recovery rates
• Indiscriminate contact strategy might frustrate customers who have missed payments due to an oversight or technical issue

Now, let’s re-imagine a scenario where the same bank has incorporated sophisticated analytics solutions and making data-driven decisions. Post this, the bank’s collection department

• Uses predictive model to identify accounts which are most likely to default and proactively engage with them
• Builds customer engagement strategy based on their risk profile, payment history and behavioural patterns
• Assigns higher-risk accounts to most skilled agents and low-risk accounts are managed through digital channels
• Optimizes contact times, frequency, and messaging tone, leading to better customer experience

The ability to collect efficiently is not just about persistence, it is also about good customer intelligence. With the adoption of analytics in the collection process, the bank can effectively transform the collection department from a cost centre to a value driver.Some of the fascinating real-world use cases that are leading the next frontier in collection management are:

• Predictive Bounce Analytics: Utilizing AI to payment bounces before they occur. This allows for pre-emptive action, such as, contacting customer to arrange alternative payment methods
• Roll Rate Modelling: Implementing machine learning to project the flow of delinquent accounts across different stages of delinquency (e.g., from 30 to 60 days past due). This helps in understanding the progression of risk and strategizing interventions
• Segmentation for Tailored Collection: Segmenting customers not just by risk, but also by their preferred communication channels and payment methods. This results in a more customer-centric collection approach, increasing the chances of repayment
• Collection Channel Optimization:Using analytics to determine the most effective collection channels (calls, emails, text messages, etc.) and the optimal frequency of communication to enhance customer response rates
• Resource Optimization: Aligning collection efforts with agent expertise and availability, thereby maximizing operational efficiency and effectiveness
• Recovery Scoring: Developing models that score accounts based on the probability of recovery, helping prioritize efforts on accounts with a higher likelihood of payment
• Settlement Analytics: Using data to build settlement offers based on customer profiles and past payment behavior, ensuring that offers are competitive but also within the recovery expectations of the bank or NBFC
• Agent Performance Analytics: Monitoring and analyzing agent performance to identify best practices and areas for improvement

LUMIQ is not just riding the wave of the future; we’re pioneering it. With our cutting-edge solutions, we are transforming the way how companies use their existing data and improve the existing collection processes. Dive into this transformative journey with us, and let’s shape the marketing narratives of tomorrow, together.

Contact us at sales@lumiq.ai to know more details about the use cases that will be beneficial for you.

This blog was originally published here.