Why Automation is Crucial

Collections, like virtually all areas of financial services, is an increasingly digital business, with universal digital drivers forcing the pace of both change and opportunity. As Cisco’s outgoing CEO John Chambers boldly predicted in 2015, “At least 40% of all businesses will die in the next 10 years… if they don’t figure out how to change their entire company to accommodate new technologies”. This blog considers why Collections automation must be a priority and how to move from theory to practice.

According to the New York Fed, as of June 30, 2021 there was $405 billion in past due consumer debt in the U.S. alone. Of that, $316 billion is seriously delinquent – at least 90 days late or “severely derogatory” – a portion of which has been removed from lenders’ books but which they continue to attempt to collect.

Banks need to recognize their Collections operations must increase automation levels now. Not only is the scale of delinquency immense, but the cost of collections is at an all-time high, and the process requirements are getting increasingly complex. The situation is not expected to get any better, particularly after pandemic-related financial relief programs are discontinued. Maintaining the status quo is not an option.

It’s important to note that during the COVID-19 pandemic, many Collections operations added more manual processes to an already overburdened amount. The general thinking has been that implementing a manual workaround offers a “quick and simple remedy” to a given collection situation. Unfortunately, these one-off manual processes and actions have progressively accumulated into an inordinate amount, now exacerbated by necessary responses to the pandemic.

Manual efforts – when viewed individually – are generally innocuous endeavors and entail minimal human effort. However, when taken in the aggregate, they collectively represent a major labor drain, as well as a drag on efficiency, a substantial impact on overall operational expense and increased regulatory risk exposure arising from potentially inconsistent manual practices.

Considering the above, raising the level of Collections automation is one of the best ways to counter rising collections-related costs and improve customer relationships. The results can be immediate and have a dramatic positive impact on the financial bottom line. Not to mention, automation generally enables you to “do more with the same or less” and can help improve overall Collections performance and compliance.

When it comes to optimizing level of automation, consider two important criteria:

• Key areas of automation to focus on (for example, how best to eliminate or reduce manual processes and tasks)

• Available Collections software system automation capabilities (evaluating the extent and degree of ease to which solutions deliver needed capabilities)

Modern Collections solutions offer several key features and functions that will add value, such as:

• Customer-centric collections capabilities

• Real-time processing/updating

• System-wide interoperability (throughout and across the entire Collections and Recovery life cycle)

• Robust centralized strategy management workflows & rules engine

• Broad “do it yourself” (DIY) system configurability to optimize speed of change

• Omnichannel integrated communications with embedded digital channels (email, SMS, and always-available consumer self-serve portal)

• Seamless integration with other platforms, applications, vendors and service providers

• Highly flexible and extensible database schema that supports all products and all stages of the Collections life cycle

Banks should weigh the effort and cost to automate a specific process or activity against its expected benefit, as well as its broader impact when moving to a higher level of automation. While certain legacy systems may be able to support some level of automation, they will generally require significant time, effort and expense to implement and sustain; moving to a modern solution may well be a better option. When performing the time, resource, and cost-to-benefit analysis, organizations must be cognizant to not fall into the trap of being “penny-wise and pound-foolish” … or they may end up in the manual process nightmare they were intending to leave behind. 

Collections costs are at an all-time high and increasing, while simultaneously the number of manual collections activities in place is exceedingly high and growing, perhaps more than leadership may realize. The need for upping the organization’s Collections automation game has never been greater and can no longer be “put on the back burner” – the situation will only get worse with additional challenges that are expected to materialize in the near term. Older systems are less likely to have what it takes to support higher levels of automation, while modern systems have the requisite capabilities, and more.

Ultimately there is a cost for moving to higher levels of Collections automation – be it a function of enhancing the organization’s existing systems or moving to a more modern solution. In any event, moving to a higher level of Collections automation can provide tremendous savings and productivity gains.

Going forward, an organization’s level of Collections automation will be the key to collections success, and for many it will be a necessity for survival.