Managing Director at Experian Asia Pacific with experience starting up, scaling and leading businesses.
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A global pandemic, a tsunami of economic disruption, debt moratoriums, fiscal injections, policy overlays, accumulating risks — it’s been quite a year and a half. All these have led to substantial challenges to banks in the Southeast Asia region, saddling them with the burden of hardship management and looming defaults.
If one analyzes different sets of data and parameters, including bureau data, there isn’t an exponential increase in delinquency, but that does not mean there is no risk. In fact, the "inherent" risk is very high and is currently masked by all the relief measures provided. Governments in the Southeast Asia region continue to extend various support to individuals and businesses via various relief measures. Indonesia’s Otoritas Jasa Keuangan (OJK) has extended its loan restructuring program to March 2022, while the Monetary Authority of Singapore (MAS) also announced an extension of existing support for individuals and SMEs.
Adding several layers of additional uncertainty to the mix is increasing adoption seen in low tenure, high velocity emerging products such as Buy Now Pay Later (BNPL) and short-term lending. Asymmetry in information is being felt in the financial services industry today, and banks, faced with existing data inconsistencies and data gaps, are restraining their ability to take the right action for the right customer.
With the pandemic playing the long game and with moratorium relief and other support measures being extended, banks continue to see an increase in customers under relief. With collections approaches highly localized to the bank, the challenge is not just limited to pure collections and recovery, but it's also about maintaining the customer relationship.
Collections could be the Achilles' heel for Southeast Asia banks.
In different markets around the ASEAN bloc, especially at the beginning of the pandemic, banks had to resort to different measures such as reducing loan disbursements (especially to new customers), monitoring current loan portfolios and continuing to observe key macro-economic and internal indicators. Continued relief measure restructuring and moratoriums have added to the uncertainty.
What several of them missed to tackle adequately prior to the pandemic was putting in early warning systems to identify and work with the highly vulnerable or the "at-risk" category of customers that will help formulate an optimized treatment for different customer segments at different stages of distress. This also includes the ability to differentiate business-as-usual customers from people who have taken up repayment assistance measures and to actively monitor them. With a long road to recovery ahead of us, there needs to be more concerted efforts not just in collections strategies but also in preventing regular accounts from falling into delinquency.
How does the financial services industry recalibrate and reshape its collections strategies in times like these?
It's time to pivot the future of collections.
Banks need to start right at the beginning, right from the "proactive period," which includes functions such as understanding data gap, identifying the internal and external data sources that are relevant to warning signals, creating homogeneous groups of similar risk profiles and strategies and developing advanced analytical models and with ongoing validation. This can lead to lower costs in the collection and better engagement through sensitive actions and communication such as excluding higher-risk customers from up-selling and cross-sell campaigns. The pressing job at hand is to better identify the "self-cure" customers and customers with short-term difficulty, thereby allowing collection efforts by financial institutions to be more focused on the customer segment in financial trouble.
To be able to do that effectively, data and analytics will need to take the front seat in terms of priority, as locations, sectors and segments are becoming key differentiators in how banks need to align their response and outreach. Identifying and working with like-minded ecosystem partners, banks can prioritize incorporating end-to-end process digitization, automated workflows and decisions, and constant monitoring and reporting while adhering to compliance and regulations to manage the collections function to move the process closer to the consumer. Otherwise, collections and remediation will remain a patchwork of pandemic success and failure.
There is also strong merit in looking at macroeconomic data and for banks to refine their analytical models to add segmentation and decisioning on top of that to craft the right collections strategies. Building a desired and ideal level of accuracy in segmentation can help banks offer the right relief measures to the right customers. Banks also need to understand how to incentivize customers to come back and work with them, especially when a single consumer holds a relationship with multiple banks.
This involves banks looking at customers from an overall portfolio perspective and establishing personalized treatment and communications strategies, such as matching customers with the right solutions for now and scaling when they have recovered in the future. Payment prioritization will play a key role in this approach. For example, work with the customers to mutually cap/freeze credit card expenditures, prioritize mortgages, focus on medical expenses, etc. This will help create a better customer experience and generate greater goodwill and longer-term value to both the customer and the bank.
To tackle the collections conundrum, banks need to continue collecting and analyzing granular data and consider their collections outreach with targeted assistance at a customer-level view, aggregated across all the accounts held with the bank and not from a single product portfolio view. The time is now to pivot the future of the collections function and approach and to be able to identify anomalies and early warning triggers that lie outside of existing data availability and normal tolerance to improve one’s recovery effort while maintaining a positive customer experience.
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