Magazine article American Banker

Collecting Debts Doesn't Have to Mean Alienating Customers

Magazine article American Banker

Collecting Debts Doesn't Have to Mean Alienating Customers

Article excerpt

Byline: Steve Platt

For most banks, the customer experience is rightfully at the forefront of every business strategy.

Many would-be customers are at pivotal stages in their lives -- purchasing a home, building retirement savings or investing in insurance policies -- and they have numerous financing options available to them. That is why so many financial institutions carefully analyze every customer communication: They want to ensure the message helps to nurture and grow the relationship.

Unfortunately, the operative word is "almost." When it comes to customer communications, the same care and attention isn't always given after someone becomes a customer -- particularly if he or she falls behind on payments. Too often, lenders lump these customers into a generic, collections approach where they make aggressive phone calls and send numerous letters in the mail -- often leading to a fractured customer perception of the company.

Lenders always need to make their customers the priority, even when they are past due.

The trade-off between getting the money or saving the customer experience has long been a debate within the financial industry. For obvious reasons, the collections discussion is driven by delinquencies and card losses -- banks often lose sight of the broader customer conversation. But getting money owed should be just one element of a collection strategy.

Based on a recent analysis of the traditional collections process, 3% of 30-day delinquencies in card portfolios closed their accounts after paying their balance in full. And of those closures, 75% happened shortly after they paid off their account. Moreover, our analysis showed the propensity to close accounts was four times higher in the young, urban, affluent population than in any others.

While the traditional collection approach may result in companies getting their payments, it could cost them customers if the collections process is frustrating, particularly with a segment of the population that will continue to grow. …

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