December 10, 2020 at 2:30 PM
Principa Decisions (Pty) L
The COVID-19 pandemic was first identified in December 2019 in Wuhan, China. On 5 March 2020 it was confirmed that the virus had reached South Africa, and a national state of disaster was announced on 15 March 2020.
On the 23 March, a national lockdown was announced in South Africa, starting from 27 March 2020 and expected to last for only 21 days.
This chain of events has changed the way we live and work, and the changes we have experienced this year will undoubtedly be our new normal, at least for the foreseeable future.
When we look at the first stage of the pandemic, we know that most countries went into total lockdown, that businesses closed and people lost jobs or, if they were lucky, only had to deal with salary reductions. This had massive repercussions on many areas of life, most notably on the economy and people’s bank accounts.
The introduction of relief schemes
Financial institutions immediately realised the impact the pandemic would have on their customers’ ability to service their loans, and therefore introduced short-term relief schemes aimed at assisting customers in the immediate future.
If we look at how these relief schemes have influenced collections, we will notice that it created a large reduction in accounts rolling into worse delinquent states, and falsely created a positive portfolio position.
From August and September 2020, a balloon of accounts begun to roll through the delinquent stages as the South African population continuously found themselves in financial difficulty. Sadly, it looks like we can expect this to continue into 2021.
This shift in financial positions for a large proportion of the population is going to force the credit industry to carefully look at their debtor books and consider how they are going to move forward in the future.
Personality traits of debtors
We generally deal with three types of debtors, identifiable by key ‘personality’ traits.
- Financially disorganised: this group makes up the bulk of the defaulting portfolio, and are those customers who are disorganised in their finances, but ultimately are still capable of managing their finances;
- Financial difficulty: this group comprises customers who experience some difficulty in satisfying their financial obligations and can improve their situation with short to medium term support;
- Financially distressed: customers in serious financial difficulty, who are unlikely to be able to recover.
Now we must ask ourselves the question: Will the second group of customers increase in size during the recovery phase of this pandemic?
The answer must surely be yes, but more importantly we need to ask ourselves which employment sectors will be most affected, and can we pro-actively identify and assist, before they become delinquent?
As we head into 2021, we can comfortably say that we are going to need to look at business differently in the upcoming year.
The question remains, how can we ensure that our collections capability is resilient to what is to come? And are we efficient and effective in recovering debt in the new normal?
Using the data we have available
Do we utilise data analytics and where are we in the evolution of data analytics within collections?
Are we still in the descriptive analytics space, where we use analytics solely for the tracking of our collection performance and yields?
Have we evolved into the Predictive Analytics space, where we utilise predictive models to rank on a single predictive outcome? Perhaps, we have evolved a bit further where we utilise multiple collection scorecards within our collection segmentation? Here we may have evolved to using multiple data (policies, models and segmentation) within a decision tree in order to assign actions against micro-segments?
Perhaps we are “leaders” in the collection analytics evolution by using prescriptive analytics (mathematical optimisation), by bringing all predictive analytics into a single decision framework to assign the optimal action for each account given specific business constraints?
Most large organisations that we come across are in the single scorecard/multiple scorecard stages.
The age of digitalisation
One thing that this pandemic has made us (especially us older folk) contemplate is the use of technology when communicating.
“As the coronavirus pandemic has forced millions around the world to stay in their homes, the 9-year-old platform Zoom has emerged as the go-to service for not only virtual meetings and classroom lessons but happy hours, costume parties, church services, brunches, book clubs and romantic date.
On Monday March 23, Zoom was downloaded 2.13 million times worldwide, up from two months prior which only received 56 000 global downloads in a day.” - CNN Business.
We already know that the younger generations prefer chat over voice, but did you know that during this lockdown period there has been a remarkable rise in email open rates? Email open rates are 26.95% higher during lockdown, and outperforming the annual Black Friday shopping event, with the click through rates registering 6.38% higher during lockdown.
The evolution of communication will force us to move from a multi-channel communication and cross-channel communication approach to an interactive omnichannel capability.
A customer-preference-driven communication approach has become a MUST in the new normal.
In part 2 we will look further at legislation & scrutiny, and we will finish off with part 3 - flexibility of systems and processes.