COSTA MESA, Calif.–Is it possible to collect debt and improve the member relationship?
That question is at the center of a new white paper published by Experian that suggests there is an opportunity to be had from improved segment-level treatment to improve cost efficiencies and profitability.
“The collections process is driven by the measurement of delinquency and loss, without considering the broader consumer profile,” the white paper posits. “Too often, this narrow view leads to one-size-fits-all collections strategies and overly aggressive processes. But getting debt collection right is about more than money. It’s about knowing the difference between a customer who has simply forgotten to make a payment and someone dealing with a financial hardship. Unless we start changing how we go about collections, keeping those customer relationships during the collections process will still be a challenge.”
With that in mind Experian said it examined how the collections experience has been impacting consumer relationships. The company said it performed a series of analyses to provide high-level insights to confirm the opportunity of improved segment-level treatments for improved cost efficiency and profitability.
Among its findings:
- 3% of 30-day delinquencies in card portfolios closed their accounts after paying their balances in full
- 75% of those closures came with the payment to bring the account current
- The remaining 25% closed the account within the following 60 days
- People with the lowest balances and the lowest amount past-due had the highest incidence of paying off their debt and losing their accounts
- The young, urban, affluent population was 4x more likely to close their accounts
What Analysis Showed
“Using credit attributes initially, our analysis showed what we would expect to see: People with the lowest balances and the lowest amount past due had the highest incidence of paying off their debt and closing their accounts,” the white paper states. “The short-term impact of closing a low-balance credit card is minimal. From strictly a risk perspective, it seems like the best outcome.
“We then enhanced these segment-level risk insights with our Mosaic lifestyle segmentation systems, yielding further behavior and value prospective,” the white paper continues. “Here, we found that the propensity to close was four times higher in the young, urban, affluent population than it was in others. These tend to be the customers with the greatest potential for lifetime value and the hardest for you to attract. They are also the easiest to lose.”
The effect of all that is “staggering when you look at the potential of these relationships,” according to the Experian analysis. “They are the customers you are at the highest risk of losing if your collections process is overly aggressive.”
Collections departments have traditionally tended to look at only the risk profiles of consumers, and even where segmentation is used, it’s all too often very linear, considering only credit risk attributes, according to the paper.
“The goal is to control credit losses, so even the customers mentioned above fall into treatment strategies designed to efficiently bring the account current,” the white paper states. “By not building a wider view of the customer, the undesired result is irreversible erosion of potential customer lifetime value in the very segments that are the most difficult to acquire.”
A better approach is to consider a cost/benefit insight into the account-level treatment strategy, the paper suggests.
“By fully understanding both the likelihood of repayment and the likelihood of attrition if treated inappropriately, a more profit-oriented view can be built into the treatment design. And you get a more complete picture of what’s driving customer experience —and subsequent profitability—by including the timing, manner and cost of the treatment in the calculation.”
A copy of the Experian White Paper, “Is it Possible to Collect Debt and Improve the Customer Relationship?” can be found in the white papers section of kb-studio.ru’s The Vault here.