Credit servicing - Much more than just a back-end process

While credit origination is considered as a very customer-centric process, the credit servicing part that comes afterwards is usually considered as a purely operational, back-end process. However, substantial added value and competitive advantage can be reached by a more customer-centric approach during this credit servicing lifecycle. In an earlier blog "Are credits not too commoditized?" I already mentioned that banks should come up with new value-added services on top of a running (active) credit, like more flexible ways of reimbursing the credit, automatic suggestions to rewrite a credit, etc. These value-added services mean that banks should foresee much more (possible) customer contact-points during the loan lifecycle.

Today most credits already allow several servicing requests, but most of these servicing requests are handled manually (usually not supported by the online banking platform, but manually inputted by a branch employee or even someone in the mid- or back-office). Some examples are:

• Update the credit feeding account, i.e. modify the account used to do the (monthly) repayments
• Early Repayment, i.e. a partial or full early repayment of the credit amount
• Adapt the involved parties linked to a credit, i.e. add or remove a party acting as a borrower of the credit. This will typically happen in case of marriage, divorce or decease of one of the involved parties
• Increase or decrease the duration of a credit. A typical example is the prolongation of a bridge loan
• Adjustment of interest rate of a credit, i.e. customer wants to renegotiate his credit interest rate (when market interest rates have dropped significantly or when customer’s financial situation has significantly improved)
• Mortgage transfer, i.e. change the asset in an existing mortgage: client who buys a new house and who wants to transfer the existing mortgage to the new property, while keeping the same mortgage collateral
• Deliver ad-hoc fiscal attestation, i.e. allow customer to request a duplicate of the delivered fiscal attestation

Apart from the aforementioned requests initiated by the customer, there are also a number of servicing actions that take place (automatically) according to the credit contract. These can serve as interesting contact points with the customer for financial optimization and cross-selling. For example:

• Automatic adaptation of interest rate in case of variable interest rate loans. This can be an interesting event for the bank to offer the possibility to increase or decrease the duration of the credit, in order to allow reviewing the new monthly reimbursement amount
• Fiscal attestation delivered by the bank for tax deduction
• Closure of contract at end date, i.e. when the credit is fully reimbursed, the credit will be closed. This can however be an interesting moment to congratulate the customer, propose solutions to use the freed up monthly reimbursement amount in investment products, but potentially also pay out a bonus to the customer, when they have successfully repaid a loan without any payment issues during the course of the loan (i.e. reward good customers)

Independent of whether a service event is triggered manually or automatically, this event should offer an attractive and compelling user experience and should preferably be handled fully online.

This means following features should be foreseen:

• Notify customer of any automatic/contractual event (upfront and at the moment itself)
• Allow customer to trigger a manual service request easily in different online channels and provide cross-channel continuation
• Allow to immediately simulate the impact of a possible change to the credit (e.g. (i) show the new reimbursement amount and impact of total paid interest and total repaid amount, when changing duration of a credit, (ii) show simulation of early repayment fee, etc.)
• Proactively be informed when certain service requests might be interesting. E.g. propose to increase reimbursement amount (and thus decrease credit duration) when maximum fiscal deductible amount no longer filled up or when financial situation of person clearly allows a bigger repayment
• Digital signing and contracting of any service request
• …​

Such digital credit servicing not only reduces operating costs (by automation and focus on self-service), but also improves the relationship with the customer, which has a positive effect on the sales of other credits and financial products. Clearly, digitalization and excellent user experience in the credit origination process are the highest priorities, but once these objectives are reached, banks should also tackle the credit servicing requests.