A fresh perspective Collections strategies for the digital … their early arrears management, collections and recoveries teams ... Collections strategies for the digital age 8 Strategy,

A fresh perspectiveCollections strategies for the digital age

Contents

Introduction 5

Strategy, appetite and policy 8

Risk governance and organisation 10

Dataanddefinitions 11

Process management 13

Information technology 14

Analytics 16

Communicationandmanagementinformation 18

Skillsandresources 19

Validationandassurance 21

Contacts 26

Collections strategies for the digital age 5

Consumer indebtednessConsumerindebtednesswithintheSouthAfricanmarketposesaseriouschallengeforlenders

tryingtogrowtheirportfoliosorganically.WiththeunbankedpopulationofadultsinSouthAfricacurrentlyat13%,firmsmaystruggletoidentifythosepocketsofthemarketinwhichtheycouldsafelyexpand.WithconsumersbattlingpetrolpricesandfoodinflationfuelledbyaweakeningRandtheflexibilitytoincreasespendinghasbeenstrained.Tighterunderwritingcriteriahavebeeninstitutedoverthepastfewyearsasfirmshaveclosedoffthetaps,butasaresult,thosecustomerswhonowfallintoarrearsmaywellbethetoughestandmostidiosyncraticcases,whicharesignificantlyhardertorecover.

Macroeconomic concernsWith impending fears of a credit ratingdowngradecoupledwithincreasinginterestrates,

theSouthAfricaneconomicoutlookgrowthcurrentlyatitslowestsincethe2008/2009recession.Unsurprisingly,theunemploymentrateisatitshighestintenyearsandinvestorconfidenceissignificantlylagging.Policymakersnowhavefewertoolsandmuchlessscopetohelpusoutshouldanotherbigshockhittheglobaleconomy.ThepreviousenginesofeconomicgrowthhavebeguntofalterasChinesegrowthslowsdown,worldGDPforecastsarebeingtrimmedandproductivitygainsfromnewtechnologybegintopeterout.TheGDPgrowthoutlookplacestheeconomyontheedgeofarecessionwhilemanybelievewearealreadythere.

Changing attitudes towards debtTherewasatimewhendebthadastigmaandbankmanagerswerefiguresofauthority.

Bankruptcywasreservedforthedesperate.Customersnowadaysmay

associatebankswithrecklesslendingorForexmanipulationratherthantheirfriendlylocalbankmanager.Andresearchsuggeststhatwhatsomepeopleprioritisewhenthecashflowrunslowaretheircellphoneandtheircreditcard.Tobedisconnectedistobedisenfranchised.Meanwhile,sinceowningyourownhomehasbecomea distant dream for more and more people, there is less motivation to maintainaperfectcreditscore.

Reinforcing these trends, social media haverevolutionisedtherangeofinformationavailabletopeopleindebt.Aswiftonlinesearchreturnsdetailsofdebtforumswherepeoplesharehints,tipsand–sometimes–debtavoidancestrategies.Customerscaneasilyresearchthedifferentprocessesusedbydebtcollectionagencies,includingwhattypeoflettertoexpect,inwhatorder,andhowbesttorespond.Whilemuchoftheadvicemaybebogusormisleading,itstillcreatesworkforacollectionsteam.

Changing attitudes towards debtorsGiventhechoice,lendersgenerallyprefertheircustomersnottohavebeenincollections

elsewhere.Afterall,aspellinarrearsdoesnothingforone’screditscore.However,banksareincreasinglyrealisingthatmanypeoplenowadayshaveexperienceofbeingincollections,andthattheycan’taffordtoturnawayallsuchclients.Asaresult,theynolongerseecustomersincollectionsasirredeemablybadcreditsandtheyhavegreaterincentivestomaintainbrandloyaltysothatwhenthecustomerisinbetterfinancialhealth,theywillconsiderreturningtothatlender.

Introduction

The signs are that nowcouldbeagoodtime to invest in collections–whichis also an admission thatthingscouldbeabouttogetworse.

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The regulator’s focus on conduct and consumer protectionWith the impending creation of theFinancialServiceConduct

AuthorityundertheTwinPeaksBill,recentfocuswithintheindustryhasbeentoprioritiseprotectingconsumersandmanagingconductrisk.Marketconductregulationwillrequirehigherstandardsthangeneralconsumerprotectionlaws.Thepreviouslight-touchapproachtoregulationhasbeenreplacedwithamorehands-onattitudethatfocusesonculture,strategyandremuneration–andhowtheyleadtogoodorbadoutcomesforcustomers.Developments in the recent past fromregulatorsinclude:regulationwhichprohibitsthere-collectionorre-activationofdebtthathasbeenextinguishedbyprescription;regulationwhichrequiredallcreditbureaustoremove adverse credit information onallcustomersheldwithintheirdatabasesasat1April2014(creditinformation amnesty) and increased scrutinysurroundingtheissuanceofunsecuredlendingduetotherecent‘recklesslending’debacleexperiencedbytheindustry.Thisregulatoryfocusisexpectedtocontinueandpossiblyevenintensifygoingforward.

TechnologyCanyourdiallersendanSMStoacustomerthemomentitrecognises an engaged tone?

Wouldyourcollectionsplatformallowthatsamecustomertogofromyouremailremindertoadirectdebitinstructiononyourwebsitewithinacoupleofclicks?Doallyourcallcentrestaffhaveaccesstointuitivedashboardswithasinglecustomerviewwithalltherelevantinformation?Isyourcollectionsplatformflexibleenoughtoenableyouranalyticsteamtotestandadaptstrategieswithinafewhours?Anddoesyourtechnologyingeneralautomate

themundane,low-valueactivitieswhileimprovingtransparencyandauditability?Ifnot,thensomebodysomewhere–mostlikelyatarival–willhaveasatisfiedsmileontheirface.

Integrated analyticsWeliveinaknowledgeeconomy.Admittedlythat’sacliché.Butnoteveryfirmintheindustryseems

torealisethatclichésarebasedontruth.Acollectionsfunctionthatcangetthebetterofitsrivalsintermsofmodellingthe cost to collect, likelihood of recovery andmostefficientstrategywillbebetter-placedtobuyorselldebtattherightprice.Itwillalsobeabletocollectonmoreaccounts,morequicklyandmoreprofitably.

Therichnessofdatafeedsnowavailableonlyenhancesthepotentialreturnsofsmartanalytics.Byintegratinganalyticsinto strategy setting, collections teams can not only improve expected margins, theycanflagupearlytrendsthatmaycallforachangeinthestrategy.Asknotjustwhatyoucandoforyourcollectionsfunction,askwhatyourcollectionsfunctioncandoforyou.

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Moredebtthaneverhasbecomecollectableatanaffordableprice…


IFRSThenewaccountingstandardforthecalculationofimpairmentresults,replacingIAS39,

comesintoforceinJanuary2018.Justsecuringcomplianceisprovingenoughofaheadacheformanyfirms.Fewwillhavethoughtabouttheconsequencesfor their early arrears management, collections and recoveries teams – and thepossiblecontributionthoseteamscouldmaketowardslowerimpairmentbalancesandbetterreturnsoncapital.

Toputthenewrulessimply,allaccountsfallintooneofthreebucketsor‘stages’.Stage1accountscompriseallthoseloansperformingin-linewithexpectationswhentheloanwasoriginated(typicallynotincollections).AccountsmovetoStage2whentheyhaveshown‘significantcreditdeterioration’,whileStage3accountsarethoseindefault.ForStage1accounts,theimpairmentcalculationisbasedona12-monthexpectedloss(whatyou’dexpecttoloseonthataccountovertheremaininglifetimeusingtheprobabilityofdefaultingoverthenextyear;typicallyverylittle).ButassoonasanaccountentersStage2,theimpairmentrequirementbecomestheexpected loss for the entire lifetime of theloan(typicallyalotmore).

Theincentivestosetuppre-arrearsfunctionswillbecomemorestriking.CollectionteamswhosuccessfullymanagecustomersbackfromtheedgeofStage2willbesavingtheirfirmsasubstantialamountofimpairment.TheP&LandbalancesheetbenefitsofcuringanaccountfromStage2toStage1willalsobegreater.Thevalueandbenefitsofagoodcollectionsoutfitwillthereforebecomeeasiertomeasure–andthefocusoncollectionseffectivenesswillrise.

Deloitte’s Tier Structure ModelWith so many interlocking trends and marketdynamics,firmsshouldlookathowincrementalchangesacrossthewholeoftheiroperationscancontributetowardsgreaterbusinesssuccess.Itcanbehardtosecureinvestmentandharderstilltoknowwheretoprioritiseyourspend.OurTierStructureModel(seepage24)hashelpedfirmstargetimprovementsthroughouttheirbusinesses,oftenwithoutsignificantoutlay.Ahundredmodestimprovementscanachieveremarkableshiftsinrelativeperformance.

Intheremainderofthisreview,weanalysethenineelementsoftheTSM,andshareourexperienceonwhattheindustry’sleadingfirmsaredoingineacharea,whythey’redoingitandhowthey’vegotthere.

Theincentivestosetuppre-arrearsfunctionswillbecomemorestriking.CollectionteamswhosuccessfullymanagecustomersbackfromtheedgeofStage2willbesavingtheirfirmsasubstantialamountofimpairment.

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Strategy, appetite and policy

Let’s start at the topIfyourcollectionsstaffdon’tunderstandhowyourriskappetiteframeworkrelatestothem,thenyoudon’thaveaverygoodriskappetiteframework.Why?Becauseoneoftheprimarygoalsofsuchaframeworkistoconnecttheday-to-dayactivitiesofyourstaffwiththeBoard-approvedriskappetite.Steponeistoexplainyourdesiredriskprofile.Steptwoisexplainingtoindividualswhattheycandotokeepthefirmontrackandwhatitmeanstothemintheirdaytodayrole.

To take a simple example, a collections teamwithoutstrategicawarenessmayfocusoncollectingpromisesratherthansustainablereductionsinarrears;theymaynotunderstandthateachR100 removed from arrears may save R2000fromthefirm’simpairmentstocks.Simplybyunderstandingthatlink,themoreadvancedfirmsareabletomotivatebetterbehaviours,booststaffengagement and most importantly lead tohighernumbersofgoodcustomeroutcomes.Whenriskappetiteisexpressedinonlysimpleterms,though,itcanoftenfocusonbroadlendingmetricswhichmaynotmeanverymuchtoacollectionsteam.

Themoresophisticatedfirmsarticulateandcommunicatetheirriskappetiteinbothfinancialandnon-financialterms,givingcleardirectiononhowtomanageconductandreputationalriskaswell.Donewell,ithelpsfirmsmonitorperformance against their strategy in bothfinancialtermsandtheimpactoncustomers.

Thewell-establishedriskappetiteframeworksusebothloweranduppertrigger points for their metrics to signal wheretheyneedtoreduceriskandalsowheretheycancomfortablytakeonadditionalrisk.Andtheyusethatknowledgetoprioritiseactivitieswithintheircollectionsteams.Forinstance,theyredirectstafffromproducttoproductorsegmenttosegmenttohelpthefirmkeepwithinitsoveralldesiredriskprofile.

Within the overarching risk management strategyofthesefirms,thecollectionsstrategyisbothclearanddetailed:thedesiredoutcomesarespecifiedinavarietyofconsistentwaysandnotjustintermsofrandscollected.Weseethemostadvancedfirmsbreakingdownthedesiredoutcomesoftheirstrategiesbysegmentandalsobycustomeroutcomes.Doneproperly,yourcollectionsstaffwillunderstandhowtheycontributetothefirm’soverallriskappetiteobjectives.Moreover,yourBoardandmanagementwillbeabletoadequatelyreviewandchallengethecollections team’s performance in a balancedwaybymeasuringnotjusttheamountcollectedbutalsotheoutcomesthatcustomersarereceiving.

Strategies for arrears management willhavemultipleobjectives,rangingfromgeneratingsufficientprofitabilitytomaintaininggoodrelationswiththeregulatorandupholdingagoodreputationwiththepublic.UndertheTwinPeaksBill,firmsthatfailtodeviseand demonstrate appropriate treatment strategiesforcustomersinarrearscouldfaceheftyandpainfullypublicfines.

Whetherindefininganoverallstrategyor the process of trialling strategies forparticularrisksegments,themostsophisticatedfirmsintheindustryhavebeensmartinlinkingtheirstrategiestoincentivesandremunerationplans,training,ITandorganisationaldesign.

Thefocusbyregulatorsongoodcustomeroutcomeshasputtheonusonindividualfirmstoputinplacenotjuststrategiesbutalsopolicies.Andnotonlypolicies,butacultureofadheringtopolicies–andbeingabletodemonstratecompliance to senior management, internalauditandtheregulator.

The more sophisticated firmsarticulateandcommunicatetheirriskappetiteinbothfinancialandnon-financialterms,givingcleardirectiononhowtomanageconductandreputationalriskaswell.


Thebest-placedfirmscanshowthataclear, appropriately detailed policy is in place,thatisunderstoodandfollowedbytherelevantstaff.Doingitwellsavestimeandmoney,encouragesloyaltyandcontributestobrandreputation.

Likeallofthemostinterestingproblemsinbusiness,thereisnoperfectsolutionwhenwritingapolicyforyourcollectionsfunction.Ifyouaretoogeneralyouwon’thavegivenyourstafftheguidancetheyneedtokeepyourfirmbothcompetitiveandcompliant.However,ifyouaretooprescriptiveyouwillfailtotakeintoaccountyourcustomers’particularsituations.

Forexample,agenerationofunsecuredlendingcustomersmaybeabouttofeedthroughtoyourcollectionsteam–andeachofthemarelikelytohavedifferentcircumstances.Whatpolicyruleswouldapplytothemall?Anindividualisedapproachthatfollowsclearlyarticulatedprinciplesisthebestdefenceagainstproblemsdowntheline.

Showingtoomuchforbearancecanbeabadthingtoo.Acceptingtoolowa payment and extending the time of repaymentisdeemedtobeanunfairwaytotreatcustomers.Themoresuccessfulkindsofpoliciestendtobalancetheneedto:(i)challengethecustomerontheirrepaymentsandontheirabilitytorepay;and(ii)ensurethedebtisrepaidasquicklyaspossiblewithaffordablerepayments.

Thesolutionswe’veseenworkwellenablefirmstodemonstratehowtheyidentifywhatgoodoutcomeslooklikefortheircustomersandhowtheirtreatmentstrategieshaveachievedthem.Justasimportantly,though,theyalsohaveaclearpictureofwhatconstitutesabadoutcomeandhaveMIinplacetomonitorperformance against expectations – alongsidedocumentedpolicyprovisionthatstipulatesgovernanceandappropriateresponses.

The best-placed firms can show that a clear, appropriately detailed policy is in place, that is has been understood by the relevant staff and that it is followed. Doing it well saves time and money, encourages loyalty and contributes to brand reputation.

Like all of the most interesting problems in business, there is no perfect solution when writing a policy for your collections function. If you are too general you won’t have given your staff the guidance they need to keep your firm both competitive and compliant. However, if you are too prescriptive you will fail to take into account your customers’ particular situations.

For example, a generation of self-cert mortgage customers may be about to feed through to your collections team – and each of them are like to have different circumstances. What policy rules would apply to them all? Then there is the coming wave of interest-only customers with large outstanding balances; they will likely retire with sharply varying abilities to pay. An individualised approach that follows clearly articulated principles is the best defence against problems down the line.

Recently, the regulator has also shown that showing too much forbearance can be a bad thing too. Some firms have received regulatory sanctions because of accepting too low a payment and extending out the time of repayment, which has been deemed to be an unfair way to treat customers. The more successful kinds of policies tend to balance the need to: (i) challenge the customer on their repayments and on their ability to repay; and (ii) ensure the debt is repaid as quickly as possible with affordable repayments.

The solutions we’ve seen work well enable firms to demonstrate how they identify what good outcomes look like for their customers and how their treatment strategies have achieved them. Just as importantly, though, they also have a clear picture of what constitutes a bad outcome and have MI in place to monitor performance against expectations – alongside documented policy provision that stipulate governance and appropriate responses.

5Collections strategies for the digital age: A fresh perspective


Risk governance and organisation

Thethorniestissueofallwhendesigningthe target operating model for a collectionsfunctionishowtocoordinatethe activities and incentives of disparate teamswithverydifferentspecialisms.Abalanceneedstobestruckbetweengivingyourcollectorstheflexibilitytousetheirknowledgeeffectivelywhileremainingawareofhowtheiractionsimpactotherpartsofthebusiness.Andthatfeedbackloophastoworkintheotherdirectiontoo.

Thechallenge,then,liesincalibratingorganisationaldesignsotoembedacreativetensionbetweentheriskanalyticsteam(inchargeofsegmentation, forecasting and modelling) and the operations team (whoneedtoensurethatrightnumbersoftherightpeopleareavailableattherighttime).Bothneedastrongvoice,yetneithershouldbedominant.

Theriskmentalitywillviewpeopleasbelongingtoonesegmentoranotherwhiletheoperationsperspectiveseesthemasindividuals.Itisoneofthejobsofthecollectionsstrategytobridgethatdivide.Inthelesssophisticatedfirms,collectionsisrunalongoperationallines,withrelativelylittleinputfromriskanalytics.Firmsrunthiswaytendtoassigncallstostaffbasedontheirproductknowledgeratherthanonanyinsightsonaccounttypesorcoherentstrategy.

Forallbutthesmallestfirms,thecoreteamsofcollectorsandanalyticsstaffneedtobejoinedbyteamsdedicatedto:

• Compliance(normallywithadotted reporting line to the central compliancefunction).

• QualityAssurance(becauseit’seasierto spot trends early and react, than fix).

• IT(becausewhensystemsordata

qualitygowrongtheytypicallyneedmending sooner than a centralised IT servicecouldmanage).

Afirm’sriskgovernanceandorganisationaldesignmustassignresponsibilitiesanddefinerolessoastooptimisethequality,speedofrevision,implementation and governance controls over a range of evolving strategies.

Donewell,theoperationalareasreceiveaccountsbasedonacombinationofstrategyandcapacity.Collectionsarea decisions are only made after a thoroughevaluationoftheirimpactonotherareas,withsupportfromcapacityandresourcemodelling.

Intheotherdirection,ahugevarietyofbusinessdecisionstakenupstreamcanaffectcollectionsperformance.Onerecentexamplewesawwasafirmthatspeededupitsprocessofsettingupdirectdebits.Animprovementofjustafewdayswasenoughtoknockthecollectionsteamoffitstargetsbecauseithadnotbeentoldofthechange.Asaresult,itwasexpectingtodealwiththeusualvolumesoflatepayerswhosedirectdebitshadnotyetbeenprocessed.Withouttheexpectednumbersof‘easy’cases,targetsweremissedandresourcesmisallocated.Timewaswasted(andpreciousgoodwillwaseroded)researchingthecauseofthe‘poorperformance’.Allthatwasneededwasanestablishedchannelofcommunicationbetweenthecollectionsteamandthosebusinessareaswhoseactionsaffectit(seepage18for‘CommunicationsandManagementInformation’).

Awell-designedsystemofgovernancejoins the separate areas of expertise andenablesstrategyandpolicytobedeployedefficiently.Italsocreates

transparencywithintheorganisationthatisincreasinglyimportantnowthattheregulatorhasmadeclearitsexpectationsaroundcustomeroutcomes.Internalaudit,asthethirdline of defence, is likely to maintain a close interest in collections departmentsforsometimetocome.Inourexperience,internalauditstypicallyfocusonthefollowing:externalproviders’performance,forbearance,reconciliations of data and cash reporting,customercommunications,compliance record keeping and theidentificationandtreatmentofvulnerablecustomers.

Somefirmsintheindustryarestrugglingwithold-fashionedoperatingmodelsthataroseoutoftacticalsolutionstoregulatoryorbusinesschanges.Theirorganisationaldesignisoftencumbersomeasaresult.Othershaveclearlydefinedrolesandresponsibilities,smoothonlineportalsfor policy dissemination and a clearly definedthreelinesofdefencemodelbutstillfailtorunsmoothly.Thecausecansometimesbeasensitiveonetomanage:tenureandtitledonotalwayscorrespondtoexperience.Collectionsteammanagersmayhavebeenintheexactsamerolefortoolong,andgrownalittlestaleintheirthinking–showingthatskillsandtrainingneedcarefulconsiderationaswell(seepage19).


Dataanddefinitions

Somebusinessproblemssolvethemselvesbecausegivenenoughtime,theproblemjustgoesaway.Dataqualityisn’toneofthem.Infactthewholeareaof data management seldom improves spontaneouslyofitsownaccord.

It’snotthattheincentivesareweak.Missoutasignature,dateofbirthorfullfirstnameandyourdebtcanbecomeunenforceable.Yettheskillstomasterdataandharmonisedefinitionsareoftenlackingincollectionsteams.Andwhentheyareavailablewithinthewiderfirm,theymaynothavemuchfreetimetohelptheircolleaguesinarrearsmanagement.Thisisashamesincetop-classdatamanagementgeneratessubstantial(andsustainable)businessadvantages.

Single-customer-viewArich,single-customer-view,thataggregatesdatafrommultiplesourcesisthefoundationstoneforunderstandingyourcustomers,ensuringgoodcustomeroutcomesandhelpingyoudemonstratethattoothers.Customerinformationshouldbeverifiedandupdatedasnecessary to facilitate seamless contact withtheclientthroughouttheprocess.Yetthequalityofdataisoftenworsethefurtherdownstreamittravels.Bythetimeithaspassedthroughseveralsystems to the collections team, the greaterthechancesofdata‘pollution’.Mistakesendureandgapsonlygrow.Asanyonewhohasworkedinacollectionscallcentrecantellyou,withoutaclearandaccuratepictureofthecustomer’sprofile,youstarteachcallatagravedisadvantage.

The analytics arms raceRiskanalyticsisadata-thirstyendeavourand the top prizes generally go to the firmswhocanbesttranslatethelargestamountofpertinent,correctdataintothebeststrategies.It’salsoanarmsracethatrewardsinnovationandflexibility.Ifyourdatabaserefresheswithinformationthatyourcustomerhasjustboughtanewcar,movedinwithsomeone possessing a far higher credit ratingandpaidoffapersonalloan,thatcouldsuggestnowisthetimetogetbackintouch.Conversely,somefirmsexploitthepredictivepowerofpay-daylendingdata(nowreportedtocreditbureaus)toflagupsignsofearlystresswithintheircreditriskmodels.

Youcansetyouranalyticsteamstoworkonahugevarietyofdatasources,andthepotentialtobecomelostinbigdataispalpable.Forexample,creditcardtransactiondata(whenpermissionsandsystemsallow),canhelpprepareyourcallers for the conversations that are to come.Anupsurgeinspendingonpetrol,beerandcashwithdrawalsuptothemaximumlimitoftheaccountpaintsaverydifferentpicturefromacustomerwho’sstoppedshoppingatCheckersandbeguntouseWoolworths.Agreaterfocusonsmarteranalyticswouldhelpspotcustomersatriskofslidingintoarrears.

Data protectionItishardertocomplywiththeProtection of Personal Information Act(POPI)ifyouhaven’tkeptgoodrecords.Checkingtherightpermissionsareinplacetousedataforinternalmodelling, controlling access rights anddemonstratingaudittrailsareallsimplerwithstrongdatamanagersinplace.SomebankaccountsaresooldthattheyweresetuplongbeforecreditcardsorATMshadbeeninvented,andtheywillprobablylackthenecessarypermissionsonusageofaccountdata.Conversely,ifyoucaptureemaildetails,makesuretheyareapprovedforcollectionscontactpurposes.Evenknowinghowcustomersnavigateyourwebsiteishelpful.DidtheylookattheFAQsandthencontactdetails?Ordidthey go straight to the online payments option?

Missoutasignature,dateofbirthorfullfirstnameandyourdebtcanbecomeunenforceable.Yettheskills to master data and harmonisedefinitionsare often lacking in collectionsteams.


Eventhedefinitionof‘arrears’isupfordiscussion:isitonedaypastdueoronedaypastcycledate?

Extract, transform & loadYourdataarchitecturecaneitherfacilitateorhinderthesmoothflowofinformationwithintheorganisationor–justasimportantly–backandforthfromoneorganisationtoanother.Thebestfirmscantransportdatatoacreditbureau,waitforittobeenrichedbymultipledatasourcesandthentransportitbackintohomesystemswithverylittleneededbywayofmanualintervention.Theworstfirmshobbletheircollectionsteamsfromthebeginningbymakingthemworkwithadataarchitecturethatcannothandletherichnessofdataheldwithintheirfrontendsystems.Valuabledataislost–beitfilenotes,fulladdressorpaymentshistory–becauseitcannotbeeasilytransferredfromonecolleagueorsystemtoanother.

Data dictionariesWhenisadefaultnotadefault?Theanswerdependsonthedefinitionofdefault,ofcourse,andtherearegoodreasonswhypeopleindifferentpartsofthefirmwillhavevaryingperspectives, not least the variation inregulatoryguidanceonthesubjectacrossjurisdictions.TheFinanceandRiskfunctionsmayfocusonBaselIIIorIFRS9butitcanmakesenseforcollectionsteamstohaveafunctionalunderstandingaswell.Forexample,aself-employedcustomerwhohabituallypays late – and has done for years – shouldnotbetreatedinthesamewayasacustomerwhoarrivesinarrearswithaplummetingcreditscore.

Eventhedefinitionof‘arrears’isupfordiscussion:isitonedaypastdueoronedaypastcycledate?Highlyregulardataisneededforfirmstomakethemostofbureaureportingandtofeedintotheirbehaviourscoringmodels.Andbalancescancauseconfusiontoo.Withoutaclearcommonunderstanding,it’salltooeasytocontactacustomerwithanincorrectviewoftheirtotaldebt.Doesthecreditcardbalanceincludethelatestpaymentsordefaultcharge?Hasthemortgagetotalbeenupdatedtoincludeinterestaccrued?Wasthelatest version of fees and commissions applied?Customersmayarguetheyarewithintheirrightstowithholdrepaymentofwronglycalculatedamounts.Poordataqualityerodesthecredibilityofyourcollectionsandweakenstheincentivesofcustomerstocooperate.Wehavealsoseenproblemsariseintheindustryfromthedefinitionofoperationalandperformancemetrics.Take‘contactattempts’.Aweakandinconsistentdefinitionof‘contactattempt’mayincludecallsmadebutmetwithanengagedorunavailabletone,callsmade that go straight to voice mail or callsmadewheretheintendedpersonactuallypicksup.Robustperformanceandoperationdataisvitalwhenassessingthesuccessorchampionandchallengerstrategies.

IFRS 9The increased expectations of IFRS 9forfirmstomeasurealifetimeexpectedlossmoreaccuratelywillputincreasingpressureoncollectionsand recoveries departments to accuratelyandconsistentlycollectdataafteracustomerhasdefaulted.Thedifferencebetweenchangesresultingfrom operational choices and impacts resultingfromthewidermacroeconomywillneedtobebetterunderstood.Intheabsenceofthisinformation,firmswillbeexpectedtomakesomebroadassumptions,potentiallyresultingininaccurateimpairmentandpoorbacktestingresults.

BCBS239Supervisorsexpecteverhigherstandardsofdatawithinfinancialinstitutionandthecollectionsfunctionisnoexception.TheBCBS239standardpublishedin2013(alsoknownasthe‘Principlesforeffectiveriskdataaggregationandriskreporting’)setsoutthe expectations for the completion, accuracy,timeliness,materialityandusefulnessofriskdataasusedintheworld’smostsignificantfinancialinstitutions.Increasingly,though,thesamesortofexpectationsarebeingappliedtosmallerfirms.Afterall,itshouldbeeasierforsmaller,lesscomplexfirmstobecompliant.


Process management

Supposeyouhaveyourcollectionsstrategyinplaceandyourriskappetitefullyquantifiedandcalibrated.Youhaveaclearsenseofwhatyou’repreparedtodoandwhatyou’renotpreparedtodo.Thecrucialnextstepisspellingthatoutintermsofclearprocesses.

Inthemostadvancedfirmswe’veworkedwith,theend-to-endprocessiscapturedinavisualworkflowmapthatrecordsallthedecisionpoints,criteriaandif/thengates needed to convert a strategy into a transparentsetofrulestobefollowed.

Forexample,thefirststepforcustomersinearlycollectionsmaybesegmentationinordertoidentifythe‘forgetful’customers.ThenextstepmaybetosendoutanSMStothosecustomerstoremindthemoftheirpaymentdateusingspecificandpre-agreedwording.Forthe‘non-forgetful’customers,differentprocess steps, scripts and treatment pathswillbeneeded.

Beingabletoseewhattheprocessishelpsenormouslyintraining,designingcontrols, assessing and demonstrating compliance,generatingMIandperformingqualityassurance.Decisionenginesoftwarehasbeenaroundforafewyearsnowthatenablesuserstoclickanddragcomponentsofthismapusinganintuitivegraphicalinterfaceandbysodoingreprogramtheunderlyingdecisionengines.Andthathelpsfirmstoamendprocessestoreflectnewregulations,learnfrommistakesorquicklytryoutnewstrategies.

Withtheirprocessesfullymapped,firmscanproductionisetheirprocessestoensurethatcustomersinsimilarcircumstancesaretreatedsimilarly.Iftheregulatoreverenquiresintoyourtreatmentofcustomersindistress,thefirstthingtheywillwanttoseeistheprocessthatyouhavedesignedto

screenforsuchcustomers.Atransparentprocessenablesyoutodemonstratewherethekeycontrolpointsareplaced,whichscriptsareusedwhen,andwhoinyourteamtakesresponsibilityfordealingwithdistressedcustomers.

Thenumbersofaccountsflowingthroughdifferentprocessroutescanbetrackedandreportedandqualityassuranceteamscanconductriskbasedassessments.

Itbecomeseasiertotrainyourstaffandtoallocatecallstocallersbasedontheskillsneededtohandleparticularaccounts.Ingeneral,callsrequiringlittlesubjectivityarebestroutedtoyourmorejuniorstaff,leavingyourexperiencedstafftohandlethe more complicated cases, potentially involvingafullincomeandexpenseassessment(I&E).Noonewoulddisagreewiththatintheory;butonlysoundprocessmanagementcandeliverit.

Withoutclearlydefinedprocessmaps,firmssometimesfindtheirprocessesbecomeinvisible,eventothemselves.Anumberoffirmsacrosstheindustryhavesufferedfrom‘lostprocesses’becausetheirpolicieswerehard-codedintotheirITsystems.Overtime,thepolicieschangedandtheITsystemwasupgraded.Buttheprocessesimpliedbythesepolicieswerenevermadeexplicitortransparent.Theupshotcanbe:illogical(inconsistenttreatment);impractical(tinyclustersofaccountsinover-stratifiedsegments,sometimesleftuntouchedforyears);andinsensitive(belatedattemptstocollectfromthedeceasedbecauseofunforeseeneffectsofachangeinonepieceofcoding).

Feedback processesThebestfirmsintheindustrycannotonlyvisualiseandreprogramtheirprocesseswithinseconds,theyhavealsoestablishedfeedbackprocessesbetweencollections,creditrisk,complianceandmarketing.

Forexample,collectionsneedtobekeptintheloopwhenthemarketingteamslaunchamajornewinitiative.Theyneedtounderstandveryquicklywhethercustomersinarrearsontheirpersonalloansaregoingtobeofferedacreditcardontop.Feedbackloopsfromcollectionstotherestofthebusinessarealsovital.Supposetheydiscoverahighnumberofaccountshavefailedtomaketheirfirsttwodirectdebits.Thatsuggestsaglitchinsomeupstreamprocessratherthanasuddendeteriorationincreditquality.

Becausecollectionsteamsinteractwithcustomers,theyarelikelytospotgenuineshiftsincreditorfraudtrends.Aspikeinthenumberofcustomersclassifiedas‘hardtodealwith’mayreflectagreaternumberofcustomerswhoarevulnerableduetotheirhealth,ageorlanguageabilities.

Earlytrendshereneedtobefedbackintothecreditapplicationprocess.Theymaycountasclearevidencethatthefirmisn’tspottingfront-endvulnerabilityamongitscustomers,orthatfraudcontrolsarenotworkingeffectively.Unlessthecollectionsteamknowsthevalueofthiskindofinformationitwillgenerallyfailtopassitontotheircolleaguesinotherpartsofthebusinesswhocouldreallybenefit.Thefirmsthataregoodatcategorisingfraudwithintheircollectionsbalancesmayhaveahigherlossduetofinancialcrime,buttheywillhavecorrespondinglylowerbaddebtbalances,whichcanhaveprofoundimpactsoncreditriskappetiteandallowfirmstounderwritemoreloansandearnabetterreturnonrisk.

Inourexperience,though,veryfewfirmshavethoughtthroughhowtooptimiseanendtoendfeedbackprocesstolinkuptheinsights and info needs of their collections functionswiththeirwiderbusiness.


Information technology

WithintheITbudgetofatypicalcollectionsfunctions,the‘I’stilltendstofeaturemorehighlythanthe‘T’.Thereis,inotherwords,moreemphasisondatamanagementthangadgetry.Formanyyears,thebeatingheartofacollectionsfunctionhasbeenthecoreITplatformusedtoaggregatedata,organiseworkflowsandprocesspayments.

Beyondthecoreplatform,though,theindustryhasbeguntoexperimentwithself-servicemodels,automatedanalyticsandfieldagenttelemetry.Thatsaid,platformsremaintheplacetostart.

Top-notch platforms Threefeaturestendtodifferentiatethefeeblefromthefantastic.Firstistheeasewithwhichyoucanintegratethatplatformwiththerestofthebusiness.Arethererobustandintuitivelinkstoyourpaymentsplatform?Doesyourdigitalbankingwebsiteofferseamlessconnectivity?Doyourcollectorshaveasingle-customerviewattheirfingertips?Haveyoueventhoughtabouthowyourplatformwouldcopeifyoutriedtolinkittocashlesspaymentsorsmartwatches?

Thesecondfeatureisspeed.Nottherawspeedofprocessingbutthespeedwithwhichyoucanadapt,experiment,evolveandrefine.Themostsophisticatedfirmsknowthatthetruebeautyofanalyticsisonlyrevealedwhenyoucanactquicklyonthoseinsights.Thelastthingyouneedisacumbersomechangerequestprocessthattakesweekstocomethroughbecauseitrequiresthesay-soofmultipleteams,third-partypermissionsand a raft of expensive recoding and this highlightsthethirdessentialfeature:flexibility.

Thefirmswhohavedesignedtheircorecollectionsplatformswithintegration,speedandflexibilityinmindhavebuiltthemselvesanenduringadvantage.A

specialistDCAcanquicklybranchoutinnewdirections(saystudentloansorpeer-to-peerlending)becauseitscoreITisadaptableenoughtoworkwithnon-standarddatafields.Itcanalsoworkoutwhichsegmentsarelikelytoproveprofitablebeforeitsrivals,andsocanleavethelessattractivedebtforothers.

Abankwiththesamequalityofplatformwillbeabletoquicklyintegrateanewsourceofdata(let’ssayoncustomers’employability)andfactorthatintoitssegmentationstrategy–withrapidknock-oneffectsfortreatmentpathsandcollectionsstrategy.Inthemostsophisticatedfirms,staff-generatedsuggestionsforprocessimprovementscanbeactionedbythestaffthemselves.Intheleastsophisticated,suchsuggestionswouldbesoexpensiveandtime-consumingtorolloutthatpeoplejustdon’tbother.

Theabilitytointegratedifferentsystemsandfeedsrapidlyiswhatunderpinsstrategicflexibility.Whenfirmsfailtogetitright,someoftheproblemsareobvious:thelackofsingle-customer-viewmeansthatthesamepersoniscalledtwiceinonedaybydifferentpeoplefromthesamecompanyaboutdifferentproducts.Wehaveseencaseswhereabankhasadvisedacustomertomakeamortgagepaymentbygoingbeyondtheiragreedoverdraft.Thisispoorpracticeinanycircumstancesbutparticularlycluelesswhenthecustomer’smortgageandoverdraftfacilityarewiththesamebank.

However,ifyourfirmfailstoembedspeedy integration as a principle of its ITthereislessofanincentiveforyouranalyticsteamtodeploytheirbestideasbecausetimedelaysmeantheywon’tbefeasible.Yourriskanalyticsisthereforeblunted.Thescalabilityofyouroperationsmaybeconsiderableless

thanatyourrivals,meaningyoucannotrespondasquicklytonewopportunitiesandcannotclearbacklogswhenbusinessconditionstakeaturnfortheworse.

InnovationinIThashelpedthebestfirmskeepaheadoftheirpeersthroughalowercosttocollectandbetterqualitycustomerinteractions.Insomecasesthatisbestdonethroughsemi-automatedonlinewebchatsthatanswerthebasicquestionsusingabankofkeyphrasesandthemes.Inothercases,IThashelpedmonitorindividualcallqualitythroughvoicerecognitionsoftwarethatcanscan,transcribeandflagthepresenceandfrequencyofdesiredorundesiredlanguage.

Dialler technology has also evolved todiagnosetrendsinwhatkindsofconversationscustomersarehaving and can assess the ratio of positivetonegativecalls,aswellashighlightingparticularcallstoexamineinmoredepth.Thevoicerecognitionsoftwarecanbesettoscorepointsforparticularphrasessuchas“Areyousurethisisaffordablegivenyourothercommitments?”or“Wewouldliketoworkwithyou…”Pointswouldbedeductedforaphrasesuchas“Youmustpay…”

Richdataonthiscanhighlightproblemswithparticularstrategies,orsegmentsofindividualcall-centrestaff.Firmsexpectingaquickreturnoninvestmenthavebeendisappointed,though,sinceconfigurationcanbelengthyandcomplex.


CollectionsisbecomingevermoreavolumesbusinessgiventhetightmarginsavailableonceafirmhasconductedanIncome&Expenditureassessment,decided on a strategy and made initial contact.Theoverheadinmanagingthismarginrequireseither:largevolumeofaccountsandeconomiesofscale(whichputstheemphasisonautomationandoperationalefficiency);ormarket-leadinganalyticsthatenableyoutopricebetterandspecialise.BothoptionsrequireflexibilityinyourIT.

ThemostobviousreturnsonITinvestment spend typically come from betteranalytics,amoreeffectivecollections platform and improved productivityfromabetteruserinterface.Overasustainedperiodoftime,firmsshouldseethecosttocollectcomingdownandaloweringinthecostofdemonstratingcompliance(atleast,relativetorivals).Withinyouranalytics–andcall–centrestaff,thegoalhastobetoreducelow-skilledmanualeffortandautomatemundaneprocessingtofreeupthehumancapitalintheseteams.

Self-service models The goals of collections platforms ten yearsagoweretoempowerthecollectorandautomateprocesses.Thegoalofsomecurrentsystemsistoautomatenegotiationsandembedself-serviceattheheartoftheprocess.Two-waySMStechnologyallowscustomerstotextthecollectionsagencyandbe‘understood’byadecisionenginethathasbeenprogrammedtosendoutrepliesautomatically.Thecustomercanmakesuggestionsandreceivefeedbackonthosesuggestionsuntiltheyagree on a payment plan that meets policy, commercial and compliance requirements.ThesoftwareontheotherendoftheSMS‘conversation’canthenprocesstherequestandturnitintoadirectdebitinstruction.Thiskindof

self-serviceapproachcanbeusefulforcustomerswhoattachstigmatobeingincollectionsandwouldrathernotspeaktoanyoneabouttheirsituation.Theself-servicemodelalsoenables‘frequentforgetters’topaybySMSinstructionwherevertheyhappentobeintheworld,helpingpeoplewhotravelfrequentlyorwhoarealwaysonlinebutseldomathome.

Automated analytics Self-learningsoftwareisalreadyupandrunninginsomefirmswhichcanmonitorthekeystrokestypedoutbytheirdataanalystsandworkoutwhatprocessthatimplies.ThiskindofsoftwarecanalmostentirelyreplacethemanualprocessofcreatingMIbydownloadingdatafromseveralsourcesystems,creatingchartsinExcelandformattingPowerPointslides.

Thesameprinciplecanbeappliedacrossacollectionsfunction,includingtheprocess that investigates correlations betweenvariablesandassignsaccountstocollectionsstrategies.Theroutineaspectsofmodellingcustomerbehaviourcanbeautomatedandperformedovernight,leavingyouranalyticsteamwithmoretimetoresearchthetoughestissues.Andsoftwarecanevenworkouthowto translate freshly drafted policies orregulationsintosuggestedcontrolpoints.DeloittehasalreadydevelopedatoolthatcandothisbyintegratingitsProActregulationpackagewithWatston(IBM’sneurallearningsoftware).TheresultofthejointventureisRCA–orRiskandControlAssessment.

Field agent telemetry Manyfirmshavesteeredclearofdeployingfieldagentstocollectdebtbecauseofthedifficultiesinmonitoringtheirbehaviour.Theincentivestoclaimperformancebonusestothedetriment

ofcompliancegoalswereconsideredsimplyunmanageable.Acombinationofreadilyavailabletechnologiesisnowencouragingarethink.Digitalcameraswornonthelapel,GPSmonitoring,real-time listening and voice transcription softwareenableseffectiveoversightofthefieldagents.Andfurthercontrolscanbebuiltin:ifapotentiallyroguecollectorcoversthecameraormicrophoneduringavisit,thecontactdetailscanbeblankedtopreventanymoneyfrombeingcollected.Anybanknotespaidbythecustomercanbescannedintoensurefulltransparencyandvalidation.

Oncethecomplianceriskoffieldagentscanbemanagedtothesamestandardastheirdesk-basedcolleagues,theycanpursuestrategiesunavailablefromacallcentre.Wemayliveinadigitalworld,butcallscreeningandemailblocksmeanpeople can readily avoid electronic contact.Fieldagentscansometimesbethe only remaining option for a hard core ofaccounts.


Analytics

Somefirmsintheindustryhaveaveryclearunderstandingthattheystandorfallonthequalityoftheiranalytics.Thesearethefirmsthatliveandbreathethestuff.Theyhaveinvestedinbothpeopleandsystemstoensuretheyexploitthebusinesspotential.Thepricingissharp.Thestrategiesarehonedandfrequentlyrefreshed.Segmentationisgood.Governanceisgood.Monitoringofstrategyisgood.Feedbackloopsarewellestablished.

It’snottheonlypossiblestrategy,ofcourse,andotherfirmsdevotemoreresourcestotrainingupcall-centrestafforthelatestcollectionsplatform.Adedicatedanalyticsfunctionwithinthecollectionsdepartmentsofbanksisstillararity.Inthemediumtolongterm,though,wethinkitishardtoseefirmssurvivinglongwithoutacapacitytoexploitanalytics.

Why?Becausetheroomforerrorinthedebtmarketissmallandunforgiving.Firmsneedtounderstandtheprofileofeachtrancheorassignment.What’stheexpectedcostofcollectingthedebt?What’stheexpectedamountyoumightliquidate?Atwhatservicingratewouldyoubewillingtoperformtheworkforahighstreetbank?Wouldyoubewilling,forexample,toaccepta12percentservicingfeewherethecosttocollectis12.5percent?

Analyticsnotonlyhelpsyouworkoutcoststocollect,butalsotoadjustyourapproachtofitthemoneyonthetable:ifthemarketwillonlypay12cintheRandinservicingcosts,whatkindofstrategyisfeasible?Andwhatmightthatkindofstrategydeliver,ifappliedtosufficientlylargevolumes?

Thebestanalyticsteamscanhelpyougetabetterunderstanding(thanyourrivals)ofawholeraftofvitalbusiness

questions:What would it cost to collect?

How much effort would it take?

Which customers are likely to respond to collections activity? In response to what? And over what time period?

What is the best time to call? And the best number? Or the best channel? Email? SMS?

What’s the propensity of a customer being contactable? And of their responding? Split by strategy?

Analyticswithincollectionsfrequentlycallsuponmodellerstoreversetheirhabitualpatternsofthinking.Thesearetheaccountsthatyoudidn’tthinkwouldgobadbutdid.Sotheyarealreadyanexceptionspopulation.Andthenwithinthatpopulation,youarelookingforthepropensityofaccountsthathavegonebadandthenrecovered.Althoughthesametechniquesareapplicable,thelogicandthethinkingareverydifferentfromstandardcredit-riskmodelling:thequestionathandnowishowlikelyarethingstogowell?Itmaydependheavilyonwhatotherdebtsthecustomerhasandhowimportantitistopaythemofffirst.Soittakesaspecialkindofmodellertoexcel–withafeelnotjustforthedatabutalsofortheparticularcircumstancesofarrearsmanagement.

Donepoorly,analyticscanresultinnaïvestrategies.Theperfecttimetodialmaybefirstthinginthemorningorlastthingatnight.Butthatisneitheraterriblylargesurprisenorparticularlypracticaladvice.Whatanalyticsneedstogiveyouisthebestsequenceorsegmentsbasedontheavailabilityofresources.Similarly,anaïveapproachtoanalyticscansometimesleadmodellerstofocustoomuchonpastpaymentbehaviourasapredictoroffuturebehaviour.Ifthepastwerethatprescientaboutthefuture,wewouldn’tseecustomersincollections

inthefirstplace.We’vealsoseenfirmsmakeanefforttocollectcontactpreferencesfromcustomersonlytodisregardsuchinformationwhentryingtospeak,writeortextthem,showingthatit’snotenoughtohaveanalyticalinsights;youalsoneedtoactonthem.

Thereturnsfromgoodanalyticsfeedthrougheverystepofthearrearsmanagementprocess.Ahighercontactrate yields a high promise rate, from whichyoucanexpectahigherpaymentrate(althoughcontactratesalonecanalsodrivepaymentrates).Firmscanestablishabettersenseofthecostsandreturnsandassigntheirstaffmoreefficiently:nottothepeoplewhoareinarrearsbutwhoaregoingtopayanyway,regardlessofwhetheryoucontactthemornot;nortothepeoplewhohavepromised and failed to pay seven times alreadyandhavepatientlysettleddowntowaitfortimeseight,nineandten.

Donewell,analyticscanassignyourstafftothepeoplewhosebehaviourismostlikelytobepositivelyinfluencedbyaphonecall,email,SMSorletterfromoneofyourcollectionsteam.


Donepoorly,analyticscanresultinnaïvestrategies.Theperfecttimetodialmaybefirstthinginthemorningorlastthingatnight.Butthatisneitheraterriblylargesurprisenorparticularlypracticaladvice.

Donewell,analyticscanassignyourstafftothepeoplewhosebehaviourismostlikelytobepositivelyinfluencedbyaphonecall,email,SMSorletterfromoneofyourcollectionsteam.

Segmentationstrategiescanalsobebeefedupthroughanalyticsbyusing‘nearestneighbour’analysis,whichdefinecustomersviaaseriesofparametricscales rather than assessing them on theirownbehaviour.Suchanapproachisespeciallyusefulforcustomerswhoarenewtoyouoraboutwhomyouknowverylittle.ThebasicideaisthatifCustomerAwalks,talksandshopslikeCustomersB,CandD,thentheywillprobablybehaveastheydowheninarrears.ThemoredatayoureceiveonCustomerA’sage,spendinghabits,otherdebts,utilisationpatterns and payment levels, the betteryoucanalignthemtoanearestneighbourcategory.

Theskillisknowingwheretolookforsub-groupswithinthewhole.Forexample,overpaymentonloanscanpredicttwocontrarythings:(1)ahigherthanaveragecreditqualitybecausethecustomerhasexcesscash,andwantstopaybackearly(thesecustomersarelikelytotakeoutmoreloansinthefuturebecauseoftheirpositiveexperiencewithcredit):or(2)alowerthanaveragecreditqualitybecauseoverpaymentbetraysanervousnessabouttheloanandadesiretopayitdowninanticipationofhardertimestocome.

Treating the ‘overpayers’ as one category wouldyieldlittleanalyticalbenefitbecausetheclumpasawholehasnoconsistentcharacteristics.However,splittingitintotwousingsecondarycharacteristicsallowsyoutocreatehighlydistinct segments that call for totally differenttreatments.

Thecentralenablerofatop-notchanalyticsfunctionisexcellentITsupport,whichinvolvesgooddatatransfer,sounddatastructuring,andaneasilyaccessibledatawarehousethatmakesreportingandextractionadoddle.

Don’thaveyouranalyticsfunctiontiedupproducingreamsofMI,beitscheduledoradhoc.Bigdatacansometimesleadtorelativelyfutilecottageindustriesof‘whatif’analysis,inwhichyouranalyticsteamprocesshunchafterhunchfromtheircuriouscolleagues.Themoredatathereis,themoreblipsandnoiseyoucanexpect.Sodon’tallowyouranalyticsfunctiontobecomedistracted.Theyshouldbefollowingarationalresearchagendaoftheirowndevising,adequatelyoverseen,reviewedandchallengedbyrelevantstakeholders.


Communicationandmanagementinformation

Thetimewhencollectionsteamscouldfunctionontheoccasionalreporthaswellandtrulypassed.Anindustrythataboundsindatafacestheoppositethreat:toomuchMI,takinguptoomuchtimetoproduceanddecipher,whileaddingtoolittletothedecision-makingprocess.

Asmallnumberofprinciplescanhelptamethispaperwilderness:

Pullnotpush.Themostsophisticatedoperatorsallowremoteaccessofdataanduser

configurationofreports.Youpullfromthesystemthereportsyouneed.Youdonothavetowadethroughreportsthatarepushedatyou,regardlessofyourdecision-makingscope.SomeDCAs grant access rights to their clients sothattheycancheckinrealtimehowmanyaccountswithinaplacementhavebeenservicedandwhattheresultsareofdifferentstrategies.Beingabletopulloffyourownreportsalsopreventsyouranalyticsresourcefrombecomingside-trackedasproducersofMI.Pullnotpushsystemsalsotendtobemuchbetteratlettingusersdrilldownintothedatato the extent – and at the time – that it suitsthem.Prettyclosetorealtimeisarealisticgoal.

Usethelatestviewtolookforward.RecipientsofMIshouldaskthemselves:whatcouldI

conceivablydodifferentlyasaresultoflearningwhatthisMIhastoldme?Iftheansweris‘nothingmuch’thentheMIcanbeneitherforward-lookingnoraction-driven.Projectedperformancerelativetoplanshouldbeconstantlyunderreview.What’sthelatestpicture?What’sdrivingit?Howareyouperformingrelativetoexpectations?Howcanyouusetolerances either side of performance metricstoavoidknee-jerkreactions?

If1000customersmadeapromisetopayanaverageofR1000onworkingday10ofthemonth,withanaveragepropensitytokeepsuchpromisesof80percent,thenyoucanworkoutonday11whetheryouareaheadorbehindplan.ContextiseverythinginMI,vintageanalysiscanrevealoutliers,thedistributionofbalancesismoreimportantthantheaverage.YoucannotassesswhetheryourcurrentstrategyoroutsourcingtoaDCAisreallythechampionstrategyunlessyoucancompareitwithachallenger.

Beingforwardlookingmeansexaminingemergingtrends,comparingprofilewithriskappetiteand(forsomefirms)dedicatingcollectionsstafftooverseeing‘pre-arrears’casesintheperformingbook.

Useyourforward-lookinginsightstoadjuststrategy.Settolerancesaroundyourmetrics

andreacttotheunexpected–whetheritbeanupsideordownsidesurprise.Suppose,forexample,youarewellaheadofyourplanforcreditcardsonworkingday11:usetheMItomakedecisionsonresources.Perhapsyoushouldswitchsomeofyourstafftothemortgageportfolio.ThebestMIsuitesinthebusinessaredesignedtohelpdecisionmakersdecidequicklyandenableeffectiveoversightbyarangeofreadersindifferentpartsofthebusiness.

Tailor the data and rethink the analysis depending on theaudience.YourBoardis

unlikelytowanttoknowthesamethingsandinthesamedetailasyourimmediateboss.Performancemeansdifferentthingsfordifferentpeople.AndcollectionsMIneedstoanswerdifferentquestionsatdifferentlevelsofafirm.Itcanbehardforsomeoneinthecallcentretounderstandwhat’spuzzling

theheadsoftheNEDs.Don’texpectthemtoguesscorrectly.Instead,designtheMIthatsupportsyourgovernanceand committee arrangements so astoanswerthequestionsthatareappropriateforeachlevel.

ThinkofinternalcommunicationsasthenaturalcounterparttoMI.MIflowsuptheorganisation,

becominglessfocusedondataandmorefocusedonsummary.Intheoppositedirections(downandacross)shouldcomesmoothinternalcomms.Forexample:

• acleararticulationofriskappetitethatismeaningfulforpeopleintheirdaytodayjobs;

• succinctupdatesofbusinessormarketingstrategies;and

• clearadvancewarningofsystem,regulatoryandITchangesthatcouldimpactthecollectionsfunction.

Thebetteryourcomms,thebetteryourMIislikelytobe.

Rememberthevalueofwhatyouknow.Collectionsteamsgenerateawealthofpotentially

valuableinsightanddatapoints.Harvestitwiselyandpassiton.It’sinyourself-interesttoshare.Executivemanagementneedstohearfromyourcollectionsstaffiftheaveragepaymentvaluerisesorfalls,ifdataqualityfallsoriftherearemajorchangesinthesegmentationmix.

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Youcanhaveabrilliantdiallerandcuttingedgeanalyticsbutitstillwon’thelpyouverymuchwithouttherightnumberoftherightpeople.

It’snotusuallyaproblemofrecruitment,sincecollectionspersonnelusuallyearn more than their near relatives in customerservice.Specialistrecruitmentagenciesareavailabletohelpwiththescreeningprocesswhileflexibleworkingand strong team camaraderie generally addtotheappealofthejob.Asaresult,attritionratesareoftenlowerthanelsewhereinbanking.

So,whattendstodistinguishthegreatfromthenotsogreatmustbesomethingelse.Andinourexperiencethekeyfactorsaretraining,remunerationdesignandcapacityplanning.

It’sworthrememberingthatintheageofonlineorigination,theonlyhumanbeinginyourfirmwithwhomyourcustomerseverspeakcouldbethepersonwhocallstocollectalatepayment.Theyareyourbrandambassadors.

TrainingAskingformoneyfrompeopleyoudon’tknowisaskillthattakestimetoacquire.Wehavehelpedturnaroundteamswherefully85percentofoutward-boundcallsdidnotincludearequestforcash.

Inthebestcollectionsdepartments,initialtrainingtypicallylastsuptoeightweeksandfeaturesone-to-onetuition,practiceondummyaccountsanda‘nursery’areawherebeginnerscanhonetheirskills.Thatmightseemlikealongtime,butnotwhenyouconsidertheamountofthingsacollectormustgetright:familiaritywithscripts,complexIT systems, risk segments, dynamic collections strategies and evolving regulatoryrequirements.

Addtothatlistthespecificsofbothcreditandrepaymentproductsandyoucanseewhytop-notchtrainingisaworthwhileinvestment.

Butit’snotjustabouttheonboarding.Althoughindustryaccreditationprogrammesaregrowinginpopularity,collectionsstaffdonotneedanyformalqualifications.Andthatincreasestheimportanceofcontinuousdevelopment.Themostsuccessfulteamstendtostarteachdaywithafive-minute‘huddle’tolearnanylessonsfromthepreviousdayandshareinformationaboutemergingtrends.Evensomethingassimpleasgettingyourstafftosharethe‘callofthe day’ can dramatically improve the learningculture.

Extensiveonlineresourcesareavailableinthemostsophisticatedfirmsthatteachcollectorsaboutdifferentstrategiesforeachsituation,varyingthekindsofconversationstohaveandgaugingsuccessrelativetoexpectedoutcomes.Notallfirmsgetthisright,though,sinceitisn’tenoughtohaveabankofinformation.Intuitivesignpostingandnavigation is essential to make the most ofonlinelearning;afactthatisoftenoverlooked.

Continuoustrainingisalsoimportantbecausetheregulatoryenvironment(bothrulesandtheirinterpretation)isconstantlychanging.Oneofthedownsideswe’veseenoflowattritionrates is that a team can sometimes becomeoverlyfamiliarwithestablishedpracticeandfailtoadaptwiththetimes.

Skillsandresources

It’sworthrememberingthat in the age of online origination, the only humanbeinginyourfirmwithwhomyourcustomerseverspeakcouldbethepersonwhocallstocollectalatepayment.Theyareyourbrandambassadors.


Remuneration and incentivesManagingyourcollectionsstaffwelliscruciallydependentoncreatingtherightincentives.Gonearethedays(atleasttheyshouldbe)whenaheadofficehotshotarrivedwithaR100000rewardonoffertotheindividualwhocouldcollectthemostcashinayear.Thebestfirmsmakesurethatremunerationschemesarebalancedandincentivisehigh-qualityteamwork.

WhererudimentaryschemesusedtorewardstaffforRandscollected,thebestoftoday’sschemesembedarangeofgoals,normallyincludingcallquality,compliance, cash collected and promises kept.Inthesameway,teammanagersshouldnotberewardedinrelationtosimplemetricssuchasnumberofcallsortheirlength.

The goal is to align incentives to the overallobjectivesofthefirm.TimespentexplainingtostaffhowR100collectedcanremoveR2000fromafirm’simpairmentbalancesisusuallytimewellspent.

Capacity planningEventhebestcollectionsstaffwillstruggletooperateatfullpotentialunlesstheircolleaguescanaccuratelyforecastcallvolumesandtypicallength.Securedorlitigationcallsgenerallytakelonger,asdofirstcontactcalls.Efficiencysavingsandbooststoproductivitycanbesubstantialoncetheforecastingprocesshasbeenoptimised.

However,theambitionofthebestfirmsis not simply to plan for capacity as currentlyunderstood.Itistomaximisethetimespentbyeachkindofskillset performing activities that most contributetowardsthesuccessofthefirm.Thesekindsoffirmsdonotasktheirskilledanalyticsstafftospenddaysanddaysonroutinerecodingordata

extraction;instead,theyworkouthowtoemployscarceskillsonthemostvaluableproblemathand.

Specialist processes and exceptions teamsCollectionsteamscanbehandedasurprisinglywiderangeoftaskstoaccomplish,fromloadingnewaccountsandworkingwiththeprobateteamtoduediligenceandrespondingtorecoursequeriesfrombuyersofdebt.Theskillsbaseneedstobeflexibleandadaptabletohandlethevarietyoftasks.

ItalsohastoincludeasmallnumberofhighlyskilledstafftoworkinyourExceptionsTeam,investigatingandresolvingcasesthatslipbetweenallyourconventionalcategories.Wetypicallyseethatsuchteamsworkbestwhentheycombineknowledgeofcustomerbehaviour,creditproducts,regulationand the systems and processes that the bank’scustomersmighthaveusedandwhichmighthaveaffectedtimingandbalances.

Managingyourcollectionsstaffwelliscruciallydependent on creating therightincentives.Gonearethedays(atleasttheyshouldbe)whenaheadofficehotshotarrivedwithaR100000chequeonoffertotheindividualwhocouldcollectthemostcashinayear.


ValidationandassuranceAttheheightofthePPIeraintheUK,bankswerepayingoutover£700mamonthtocustomerswhoperceivedthattheyhadbeenmiss-soldpaymentprotectioninsurance.ThetotalbillfortheUKbankingindustrystandsatover£22bn.SimilarlyinSouthAfrica,millionsofRandshavebeenrefundedtoborrowersforthemiss-sellingofunemploymentinsurance.

It’snotastateofaffairsfinancialinstitutionwouldeverwanttoseerepeated.CollectionsfunctionsshouldbearthesefiguresinmindwhentheircolleaguesfromInternalAuditnextcomecalling.Thisisnottosuggestthatahugenewproblemliesskulkingaroundthecorner.Thepointisthatregulatorshaveshowntheyarepreparedtotakeastand,basedonprinciplesofgoodconduct,andtowaitandseewhatthefinancialimpactturnsouttobe.

Validationandassuranceare,then,centralconsiderationswhendesigningthe target operating model of a collectionsfunctionorinvestinginnewgenerationtechnology.Howcanyouhelpyourinternalauditfunctiontobeassuredthatthecontrolframeworkisdesigned and operating as planned? Are theaccountsflowingintothediallerasanticipated? Does the dialler contain the rightaccountinformation?Wouldanyonebeabletotellifthediallermistakenlyloadedthesamebatchofaccountstobeprocessedthenextdayfor30daysinarow?Itsoundsfar-fetched,butithashappened.Andeverydayforamonthateamofcollectorsworkedthesamebunchofaccounts,oblivioustothefactthattheircollectiveactionsarguablyamountedtoharassment.

Thecollectionsmanagementframeworkneedstobewelldocumentedandwithanagreedsuiteofkeyperformanceandriskindicators.InternalauditshouldhelptheBoardgainassurancethattherightframeworkandcultureareinplacetounderpincomplianceand

businesseffectiveness.Theframeworkshouldevidencegoodunderstandingoftheriskstothedeliveryofthefirm’scollections strategy and the controls or mitigation plans in place to manage thoserisks.

Theabilitytoprovidereassuranceovercollectionsactivitiesiscruciallydependent on the insight and understandingoftheinternalauditstaff.Withmanyfirmsnowturningtoco-sourcearrangements,thesuccessofanyauditwillturnonthespecialistknowledgeoftheauditors.

Externalauditshouldsignoffonthemostmaterialmodels,theinputparametersandassociatedassumptions,thatcouldincludecollectionmodels.

The latest generation of core collections platformsnowcomewithin-builtcontrols and tools, designed to make it easiertodemonstratecompliance.Thefocusbysupervisorsonconductriskandagoodriskculturemeansfirmsneedtodemonstratethequalityofcustomeroutcomesand‘appropriatenessofculture’.Thefeedbackfromcollectionsissometimesthewaytospotconductriskinotherareasofthefirm.

For example, the collections team is likely tobeamongthefirsttopickupcustomeruneaseoverobscuretermsandconditionsormisleadinginitialoffers.Thestandardwayofcollatingcomplaintstatisticsexcludescomplaintsthataresettledonthesameday,andwithouttheneedforescalation.Butdoneproperly,aggregation of these complaints can revealpatternsthatwouldnotbevisiblefromthemonthlycomplaintstats.Qualitativeassessmentsofcultureneedtostartmodestlyandsensibly:

• Isthereanyevidencethatrewardandremunerationareexplicitlylinkedtodeliveryofgoodcustomeroutcomes?

• Dodocumentsandpoliciesreferto‘customers’ratherthanproductsor

cases?Howfrequentlydopeopletalkof ‘arrears management’ relative to ‘collections’?

• Howclearlycommunicated,understoodandfollowedisthedefinitionofa‘goodcustomeroutcome’?Andwhat’stheevidencethatthisdefinitionisconsistentlysupportedthroughoutonboarding,training,policiesandworkflows?

Properlyunderstandingthelinkagebetweencollectionsandstresstesting can help to validate the arrears managementframework–andimprovethequalityofthestresstestitself.Collectionsstaffneedtounderstandwhateachofthemajorstressscenarioswouldmeanforthem.Howwouldtheircontingency planning need to respond? Howquicklycouldtheyliftcapacity?Whatisittheyneedtorampupfor?Andhowwouldthemitigatingmanagementactionscontainedwithinthefullstressscenario impact them?

Contingencyplanning,inparticular,needstobeclearlyarticulated,reviewedandchallenged.Whathappensifthepaymentportalfails?Whowoulddowhat?Howquicklywoulddisasterrecoveryplanningkickin?Couldyourbusinesssurviveathree-daytotaloutage?Whataretheknock-onimplications?Thefewerthepeoplewhoworkinyourcallcentreandthegreatertheamountofautomation,thentheheaviertherelianceontechnology.Contingency planning needs to evolve at leastasquicklyasthisreliance.

Looking at stress testing from the other direction,though,it’salsoclearthatinvolvingyourcollectionsfunctioninthestresstestexercisecanyieldsignificantbenefits.Theymaywellhaveabetterperspectiveonearlywarningindicators,evolvingcustomerattitudestodebtandlikelybehavioursinarrears.Theycanalsohelpassessthelikelyefficacyandcostsofplannedmitigatingactions.


Deloitte’sLondon-basedcollectionsteamhashelpedfirmsallovertheworldimprovetheircollectionsincludingcoverageoftheSouthAfricanmarketwithassistancefromthelocalDeloitteteam.Aswellasend-to-endreviewsofyourtargetoperatingmodel,wecanalsohelpyoudeployspecifictools,modelsortechnologies.

Operational assessmentDeloitte’sproprietaryTierStructureModel(TSM)assessesyourcollectionsoperationagainstrelevantpeers,usingninekeyparameterstogaugewhatthecollectionsfunctiondoeswell,andwhereyoushouldprioritiseyourimprovementefforts.TheTSMcanalsobeusedtoassess the entire range of collections operations, from risk appetite setting andstrategytoregulatorycompliance,ITarchitectureandhowyouselectthirdpartiesandmonitortheirperformance.

Capability assessmentOurCapabilityAssessmentbuildsontheTSM,showinghowcapableyouroperation is at applying the collections strategies,policiesandcontrolswiththeexistingsystems,dataflowsandITarchitecture.Wecanhelpyouidentifybottle-necksandcalculatewhatchangeswouldgiveyouthehighestreturnsonyourinvestment.Wealsohaveextensiveexperiencehelpinginternalauditteamsdeliverrobust,risk-basedassessmentandassurancereports.

Trends and future readinessDeloitteanalyticscanshowthelong-termtrendsinyourdelinquentbook,whichthenlinksbacktotheoperationalandcapabilityassessments.Howalignedarethecurrentstrategiesand development roadmaps to the changesinthebook?Howwilltheoperationperforminthefuture?Whatmustchangenowtomeettheevolvingdynamicsofthebook?

Pro-active managementDeloittecanenableyourcollectionsteamtopro-activelymanageresourcesandschedules,givingyougreatervisibilityaroundyourmonth-endresults.Thisprovidesconsiderableoperationalsavingsasitensuresthatresourcesareusedefficientlybutformoremaximumeffectiveness.

Modelling and scoringDeloittecanworkwithanythirdpartydataorbureauandevenassessandrecommendthemostsuitableexternaldatatouse.Wehavehelpedcollectionsclientswithadepthofcollectionsmodels:frompropensitytopay,throughto optimal repayment levels and daily behaviouralscores.

The Deloitte team are also expert atDebtPricingandcanprovidemethodologiesfortheaccuratepricingofdebtforbothsellersandpurchasersalike,includingduediligenceonstrategicbookpurchases.

Systems selection and implementationWehavehelpedmanyfirmsselectthe most appropriate system for their particularneedswiththoroughandeasilyunderstoodbenchmarkingreportsthatuseourin-depthunderstandingof core collections platforms and the latestanalyticstechniques.Wehavealsohelpedourclientsundertakecollectionsytemupgradesormorefundamentalre-platforming.


Deloitte’sLondon-basedcollections team has helpedfirmsallovertheworldimprovetheircollectionsincludingcoverageoftheSouthAfricanmarketwithassistance from the localDeloitteteam.Aswellasend-to-endreviewsofyourtargetoperatingmodel,wecanalsohelpyoudeployspecifictools,modelsortechnologies.


Deloitte’scollectionsTierStructureModelThisisasimple,high-levelviewofacollectionsfunctionwhichinturnisfedbyover200questionsregardingyourrelativecollectionscapabilities.

Improving practices

Tier 5 Tier 4 Tier 3 Tier 2 Tier 1


Thereisnoformalcollections-riskstrategy. Collectionsstrategyiscommunicatedbutthisisgenerallynotreinforcedbycommunicationsbybusinessunitmanagement.Therecanbesomeinconsistenciesinthecommunicationduetothedifferentlevelsofbuy-inbetweenbusinessunitmanagement.

The organisation’s collections & recoveries policiesareclearlycommunicatedtostaffatappropriatelevelsinbusinessunits.Documentationonthecollections&recoveriespolicies,processesandproceduresiseasilyaccessibletoallrelevantemployees.

Thepolicyisdistributedandcommunicatedeffectivelythroughoutallthebusinessunits,togetherwithclearsupportfromthebusinessunitmanagement.Thereisaformalprocessforpolicydistributionaschangesarise.Itformspartofregularuseacrossthebusiness.

Intranet-basedpolicy,withregularcommunicationofupdates.Policyiscross-referredfromotherrelevantpolicies,proceduresandotherinternalcommunications.Useandunderstandingofproceduresisapparent.


Collectionsisrunasanoperationallydrivenarea.

Therearesignificantspecialisttreatmentsofaccountsbutexpertiseisbasedonproductratherthanaccounttypes.

Therearesignificantspecialisttreatmentsofaccountsbutexpertiseisbasedonportfolioratherthanaccounttypes.

Operationalareasreceiveaccountsbasedonacombinationofstrategyandcapacity.

Collections area decisions are only made afterathoroughevaluationoftheimpactonotherareaswithsupportfromcapacityandresourcemodelling.

Data and definitionsNoformaldefinitionofdifferentriskclassesexists.

Anaccountriskclassificationexistsforsomebutnotallbusinessunitsintheorganisation.

Multipledefinitionsofriskoroutoforderaccountsexistacrossthebusiness.

Asingledefinitionriskoroutoforderisused,butthisisinterpretedandimplementeddifferentlyacrosstheorganisation.

Asingledefinitionofriskoroutoforderisusedandappliedacrosstheorganisation.

Process management

Noadditionalcollectionsandrecoveriesdatastoredotherthantransactionandaccountinformation.

Basiccustomercontactinformationstoredinfreetextfields.Aggregatedcollection,andbalanceinformationstored.

Basiccustomercontactinformationstoredinspecificfieldsavailablefordataanalysisandsupportslimited“ChampionversusChallenger”strategies.

Fullcustomercontactinformationstoredinspecificfieldsavailablefordataanalysisandsupportslimited“ChampionversusChallenger”strategies.Aggregatedcollection,recoveryandbalanceinformationstoredwithdrill-downcapabilitytoindividualcollectionsandrecoveryactivities.

Dataarchitecturefullflexibletosupport“ChampionversusChallenger”strategies,withfullcustomercontactinformationrecorded,includingmethodofcontact,time,individualetc.tosupportfullanalyticalanalysisandback-testingofmodelsandstrategies.


Ad hoc collections and recoveries processesusedwithlittleornocontrolorstandardisation.

Standard collections and recoveries process exists arrangedarounddelinquencystatusoftheaccount.

Standard collections and recoveries process exists,arrangedarounddelinquencystatusofthecustomer.

Distinct collections and recoveries processes existbasedonoutputfromspecificscorecards.Limitedstrategyandanalyticalcapabilityremains.

Virtualcollectionsandrecoveriesprocessesoperatedasfactorieswithstrategyandanalyticcapabilityperformedbyseparateanalyticalfunction.Processesconsidercommunicationmechanism(SMS,etc.),timing,scriptetc.

Analytics

Measurementisbasedonselfassessmentsandsimplerelativemeasures(Low/Medium/High)usingbasicindicatorsasaproxyforriske.g.balance

Measurementbasedonsimplerelativemeasures(suchaslow,medium,high).

Somequantitativemeasurementisattemptedusingscoringmodelsonaproductbasis.There are standard processes, models and guidelinesforassessingandmeasuringriskacrossbusinessunits.

Collectionsandrecoveriesriskisquantifiedusingacustomer-levelscoreloadedatinceptionwhichusesallinternalandexternalinformationavailable.

Collectionsandrecoveriesriskisquantifiedusingcustomerlevelscoreswhicharekeptuptodateanduseallinternalandexternalinformationavailable.

Communication and management information

Adhocmanagementreports. Regularmanagementreportingatbusinesslevel,althoughitdoesnotcontaincompleteinformationfromallofthebusinessunits.Reportingisconductedmoreonaninformationbasisthanasanassistancetodecision-making.

Managementreportingtailoredtomeetrolesandresponsibilities.RegularreportingofperformancetomanagementandBoard.Somedefinedproceduresforactionandremedial steps according to information, focusedlargelyonmaterialissuesandconcerns.

Regularmanagementreportinganddepartmentalreportingatleastweekly,somestandardreportsavailableondemand.Efficiencyandeffectivenessmeasuresinplace.

Regularmanagementreportingandsupplementaryreportingondemandandatmoredetailedlevels.Efficiencyandeffectivenessmeasured.Forecastsdrivenfrom reporting to compare to targets and informdecisions.

Skills & Resources

Limitedskillsincollections.Nocollectionsandrecoveriescompetencymodelexists.

Relianceonasmallnumberofspecialistresourcewithinthecollectionsandrecoveriesfunction.Asimplisticcompetency model exists that all collections and recoveriesindividualsmeet.

Pockets of collections and recoveries skills existwithinthecollectionsandrecoveriesfunction.A competency model exists that provides somedegreeofdifferentiationastothekeyskillsthatarerequiredinacollectionsoperation.

Collections and recoveries skills are prevalent throughoutbusiness.Acomprehensivecompetency model exists that provides a high degreeofdifferentiationastothekeyskillsrequiredinaspecificproductcategory,brandorcalltypeenvironment,butthiscompetencymodelisnotreviewedorupdatedonaregularbasis.

Specificskillsareprevalentthroughoutthefunctionwithkeyindividualsrecognisedasindustryspecialistssupportedbystrongtrainingandsuccession-planningculture.Acomprehensive competency model exists thatprovidesahighdegreeofdifferentiationastothekeyskillsrequiredinspecificproductsorenvironments;thisisreviewedregularly.

Validation andassurance

Noformalinternalorexternalvalidationofthecollectionsmanagementframeworkoccurs.Nostresstestingtakesplace.

Stressteststakeplacebutdon’trecognisethatintheeventofastressscenariomanagementactioncouldmateriallyimpactthelikelyoutcome.

Stresstestingtakesplaceonanadhocbasiswhenrisksareidentified.

Modelsandsituationsarestresstestedandearlywarningtriggersareused.

Externalauditsign-offonthemodels,theinputparametersandrelevantassumptions.Stress tests take place and consider a comprehensive range of management actions in the event of a stress scenario, whicharethenreflectedinthestresstestresultsreported.Earlywarningtriggersareintegraltoreporting.


Tier 5 Tier 4 Tier 3 Tier 2 Tier 1


Thereisnoformalcollections-riskstrategy. Collectionsstrategyiscommunicatedbutthisisgenerallynotreinforcedbycommunicationsbybusinessunitmanagement.Therecanbesomeinconsistenciesinthecommunicationduetothedifferentlevelsofbuy-inbetweenbusinessunitmanagement.

The organisation’s collections & recoveries policiesareclearlycommunicatedtostaffatappropriatelevelsinbusinessunits.Documentationonthecollections&recoveriespolicies,processesandproceduresiseasilyaccessibletoallrelevantemployees.

Thepolicyisdistributedandcommunicatedeffectivelythroughoutallthebusinessunits,togetherwithclearsupportfromthebusinessunitmanagement.Thereisaformalprocessforpolicydistributionaschangesarise.Itformspartofregularuseacrossthebusiness.

Intranet-basedpolicy,withregularcommunicationofupdates.Policyiscross-referredfromotherrelevantpolicies,proceduresandotherinternalcommunications.Useandunderstandingofproceduresisapparent.


Collectionsisrunasanoperationallydrivenarea.

Therearesignificantspecialisttreatmentsofaccountsbutexpertiseisbasedonproductratherthanaccounttypes.

Therearesignificantspecialisttreatmentsofaccountsbutexpertiseisbasedonportfolioratherthanaccounttypes.

Operationalareasreceiveaccountsbasedonacombinationofstrategyandcapacity.

Collections area decisions are only made afterathoroughevaluationoftheimpactonotherareaswithsupportfromcapacityandresourcemodelling.

Data and definitionsNoformaldefinitionofdifferentriskclassesexists.

Anaccountriskclassificationexistsforsomebutnotallbusinessunitsintheorganisation.

Multipledefinitionsofriskoroutoforderaccountsexistacrossthebusiness.

Asingledefinitionriskoroutoforderisused,butthisisinterpretedandimplementeddifferentlyacrosstheorganisation.

Asingledefinitionofriskoroutoforderisusedandappliedacrosstheorganisation.

Process management

Noadditionalcollectionsandrecoveriesdatastoredotherthantransactionandaccountinformation.

Basiccustomercontactinformationstoredinfreetextfields.Aggregatedcollection,andbalanceinformationstored.

Basiccustomercontactinformationstoredinspecificfieldsavailablefordataanalysisandsupportslimited“ChampionversusChallenger”strategies.

Fullcustomercontactinformationstoredinspecificfieldsavailablefordataanalysisandsupportslimited“ChampionversusChallenger”strategies.Aggregatedcollection,recoveryandbalanceinformationstoredwithdrill-downcapabilitytoindividualcollectionsandrecoveryactivities.

Dataarchitecturefullflexibletosupport“ChampionversusChallenger”strategies,withfullcustomercontactinformationrecorded,includingmethodofcontact,time,individualetc.tosupportfullanalyticalanalysisandback-testingofmodelsandstrategies.


Ad hoc collections and recoveries processesusedwithlittleornocontrolorstandardisation.

Standard collections and recoveries process exists arrangedarounddelinquencystatusoftheaccount.

Standard collections and recoveries process exists,arrangedarounddelinquencystatusofthecustomer.

Distinct collections and recoveries processes existbasedonoutputfromspecificscorecards.Limitedstrategyandanalyticalcapabilityremains.

Virtualcollectionsandrecoveriesprocessesoperatedasfactorieswithstrategyandanalyticcapabilityperformedbyseparateanalyticalfunction.Processesconsidercommunicationmechanism(SMS,etc.),timing,scriptetc.

Analytics

Measurementisbasedonselfassessmentsandsimplerelativemeasures(Low/Medium/High)usingbasicindicatorsasaproxyforriske.g.balance

Measurementbasedonsimplerelativemeasures(suchaslow,medium,high).

Somequantitativemeasurementisattemptedusingscoringmodelsonaproductbasis.There are standard processes, models and guidelinesforassessingandmeasuringriskacrossbusinessunits.

Collectionsandrecoveriesriskisquantifiedusingacustomer-levelscoreloadedatinceptionwhichusesallinternalandexternalinformationavailable.

Collectionsandrecoveriesriskisquantifiedusingcustomerlevelscoreswhicharekeptuptodateanduseallinternalandexternalinformationavailable.

Communication and management information

Adhocmanagementreports. Regularmanagementreportingatbusinesslevel,althoughitdoesnotcontaincompleteinformationfromallofthebusinessunits.Reportingisconductedmoreonaninformationbasisthanasanassistancetodecision-making.

Managementreportingtailoredtomeetrolesandresponsibilities.RegularreportingofperformancetomanagementandBoard.Somedefinedproceduresforactionandremedial steps according to information, focusedlargelyonmaterialissuesandconcerns.

Regularmanagementreportinganddepartmentalreportingatleastweekly,somestandardreportsavailableondemand.Efficiencyandeffectivenessmeasuresinplace.

Regularmanagementreportingandsupplementaryreportingondemandandatmoredetailedlevels.Efficiencyandeffectivenessmeasured.Forecastsdrivenfrom reporting to compare to targets and informdecisions.

Skills & Resources

Limitedskillsincollections.Nocollectionsandrecoveriescompetencymodelexists.

Relianceonasmallnumberofspecialistresourcewithinthecollectionsandrecoveriesfunction.Asimplisticcompetency model exists that all collections and recoveriesindividualsmeet.

Pockets of collections and recoveries skills existwithinthecollectionsandrecoveriesfunction.A competency model exists that provides somedegreeofdifferentiationastothekeyskillsthatarerequiredinacollectionsoperation.

Collections and recoveries skills are prevalent throughoutbusiness.Acomprehensivecompetency model exists that provides a high degreeofdifferentiationastothekeyskillsrequiredinaspecificproductcategory,brandorcalltypeenvironment,butthiscompetencymodelisnotreviewedorupdatedonaregularbasis.

Specificskillsareprevalentthroughoutthefunctionwithkeyindividualsrecognisedasindustryspecialistssupportedbystrongtrainingandsuccession-planningculture.Acomprehensive competency model exists thatprovidesahighdegreeofdifferentiationastothekeyskillsrequiredinspecificproductsorenvironments;thisisreviewedregularly.

Validation andassurance

Noformalinternalorexternalvalidationofthecollectionsmanagementframeworkoccurs.Nostresstestingtakesplace.

Stressteststakeplacebutdon’trecognisethatintheeventofastressscenariomanagementactioncouldmateriallyimpactthelikelyoutcome.

Stresstestingtakesplaceonanadhocbasiswhenrisksareidentified.

Modelsandsituationsarestresstestedandearlywarningtriggersareused.

Externalauditsign-offonthemodels,theinputparametersandrelevantassumptions.Stress tests take place and consider a comprehensive range of management actions in the event of a stress scenario, whicharethenreflectedinthestresstestresultsreported.Earlywarningtriggersareintegraltoreporting.

Contacts

Jonathan SykesPartner (South Africa)Capital Markets+27 (0)74 960 [email protected]

Contacts

Damian HalesPartner07917 201661 [email protected]

Sarah WinesSenior Manager07917 [email protected]

Eleanor DemuthManager07795 [email protected]

Editorial Co-ordinationDan OakeyAssociate Director07554 [email protected]

22

Damien HalesPartner (UK)07917 [email protected]


Sudesh SinghManager+27 (0)83 483 [email protected]

Contacts





22


Contacts





22

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