Managing collections in unprecedented times to help customers and safeguard competitiveness

Today, we face an unprecedented global health and economic crisis as we continue to combat the spread of COVID-19. Economically, this crisis is very different from the last major economic upheaval we faced worldwide—the Great Recession of 2008.

What are the differences between then and now, and how should creditors respond? Here are a few insights and recommendations for creditors looking to move beyond stopgap measures toward effective response, rebound and reinvent strategies that help customers facing financial hardship while safeguarding competitiveness.

The Great Recession versus the COVID-19 pandemic

One major difference between the 2008 downturn and our current financial crisis is the underlying causes. Many direct and indirect economic factors triggered the Great Recession, beginning with a devaluation of real estate in the U.S. For several years following, the world economy was in a tailspin, and it took about eight years to see real recovery and for societies to regain their lost prosperity.

The sudden and intense financial crisis resulting from the current pandemic is different because there are no underlying macro or micro economic causes. The causal factor driving today’s historically high unemployment rates is the virus. Further, economic recovery from a global pandemic is unknown. We have no playbook for projecting how quickly markets will respond and recover.

Moving from stopgap measures to ongoing mitigation

During the Great Recession, unemployment and financial loss affected many countries. In the U.S. alone, unemployment peaked at 10 percent (in October 2009), $1.8 trillion was lost in real estate equity, and there was an $8 trillion devaluation in the stock market. With today’s crisis, losses include jobs, businesses, retirement investments and more.

Because of the virus’ swift economic fallout, many creditors are responding with stopgap measures to address quickly the negative economic impact. However, there also is a critical need to develop long-term strategies for reinventing default management in the months and years ahead. For example, while focusing on immediate tactical data needs, now also is the time to define, gather and analyze key data required to implement long-term reparative actions.

Taking a long-term perspective will enable bank leaders to build a strategic foundation that supports ongoing help for customers who continue to experience economic hardships in the months ahead. It also will strengthen their business performance and outcomes as they weather and rebound from the current storm.

Short-, mid- and long-term mitigation measures

What should creditors do to move beyond stopgap measures?

• In the short term, build the foundation for strong financial hardship management by answering questions such as: Which borrowers are most vulnerable to default? What are their demographics? What do they own? What will they likely lose? What type of remedies are they going to need?
• In the mid-term, address necessary workforce changes. For example, remote work is having surprisingly positive results at some firms. Should creditors continue paying for giant brick-and-mortar call centers, or should they to let their customer service staff continue working from home?
• Over the long term, focus on workforce management, managing customer hardships, regulatory compliance, repeatable processes, infrastructure, and automation. These will be key areas for reinvention in light of the fact that mitigation may be required over the next several years.

Policies, programs and regulators

Overall, dealing with the current financial crisis will require effective mitigation policies and programs. Many creditors were slow to implement these in the Great Recession. For example, some continued to run sub-par financial hardship websites until as late as 2017, and had financial hardship programs that required a large number of people to operate using mostly manual processes. Regulatory fines levied on banks due to poor management of consumer hardship have been in the billions since 2008.

In developing mitigation policies and programs, leading creditors will take advantage of the digital advances made during the past several years. Digital technology is much more prevalent today than in 2008. These leaders will invest in data analytics, automation, artificial intelligence, and omni-channel delivery, to name a few, to help their customers through this crisis and safeguard their competitiveness moving forward.

In addition, they will be mindful of regulators. Regulators will continue to be laser focused on consumer protection during and after the crisis. How are creditors communicating with their customers? What kind of support and access are they providing? How are creditors handling judgements and garnishments?

Creditors will be under intense regulatory scrutiny and face hefty fines for poor management of financial hardship programs. The implementation of strong internal controls with integrated consumer communication and management technologies is going to be critical for managing the regulatory scrutiny.

Emerging from the crisis stronger than before

Although there is much uncertainty surrounding the current economic crisis—how long it will last and how severe its impact will be—creditors can emerge from it stronger than before by taking a long-term view and investing today in the data, technology, policies and financial hardship programs needed to help their customers overcome default risks. CGI is working with creditors across the globe to help them effectively respond, rebound, and reinvent in the face of the crisis—both now and in the months ahead. If you would like to learn more about our work or how we might be able to help your business, feel free to contact me.