For those of us closely looking over bank results for any signs of an economic recession, there is more evidence that we’ll be there soon if we’re not already here.
Wells Fargo announced on July 15th that revenue and profits missed estimates. Of interest was CEO Charlie Scharf expects “credit losses to increase from these incredibly low levels,” and the bank had sharply increased its provision for credit losses in the quarter from a year earlier.
This isn’t only a Wells Fargo problem. A day before Wells Fargo, JPMorgan Chase posted results that missed expectations as it built reserves for bad loans. JPMorgan Chase is suspending stock buybacks, and its shares reached a new 52-week low.
Many consumers had temporary pops in income during the pandemic. Incomes fell—sometimes by half—as pandemic stimulus programs stopped. Consumers’ incomes were temporarily high as the pandemic brought about debt forbearance, pandemic stimulus checks, and enhanced unemployment benefits. Those days are over.
Wells Fargo and JPMorgan Chase increasing their provisions for bad loans suggest a wider swath of consumers are struggling despite narratives around large cash cushions and a strong job market. As inflation bites, interest rates rise, and concerns that the economy will move into a recession, banks are making difficult financial decisions based on the evidence more borrowers will default on loans, from auto loans to credit cards to mortgages to personal loans.
Banks can employ strategies to mitigate default risk and the impacts on their balance sheets. Our work in modernizing the debt collections function and providing empathy at scale supports industry metrics showing a digital-first collections strategy creates tangible value, with up to a 25% reduction in nonperforming loans, 15% reduction in collections costs, 25% increase in resolution rates for 30+ days past due accounts and a 25% boost to customer engagement.[1]
Our clients have been able to achieve:
- 41% increase in promise to pay conversions after 90 days
- 29% improvement in collector productivity
- 27% increase in monthly cash collected
- 19% sustained improvement in 30-59 delinquency roll rates
- 15% sustained improvement in 60+ delinquency
- 40% increase in cash collected per hour
We know that a digital-first approach to optimizing debt collections works. We help lenders plan and implement a modern architecture bringing together a full range of contact channels, data integration and orchestration, advanced analytics, behavior and risk-based segmentation, and personalized treatment strategies.
Through persona and journey development, we also help lenders improve consumers’ “moment-of-truth” experiences with their collections departments. We apply our expertise in staff layout and design, training and development, adoption management, and scheduling. We help lenders increase accountability, efficiency, and productivity, improving delinquency roll rates and providing superior customer service experiences.
With consumers struggling to make ends meet, lenders that find the right digital-first approaches to engaging with borrowers pre-delinquency and delinquency will see tangible financial and non-tangible benefits, including longer-term customer loyalty and happier customers.
The time is now. If you want more information about how Perficient can help you achieve the benefits mentioned earlier in this blog, contact Scott Albahary or Byron Gifford.
[1] McKinsey & Company, Holistic customer assistance through digital-first collections
