Steve Crowell

Default management as a path to digital banking, part 1

In the face of unprecedented demands for performance and value creation, fast-changing customer expectations, and new competitors, banks are investing in digital technologies to transform their way of doing business for the future. The challenge is to find the best path forward. In this two-part blog series, I’ll explore one proven option—the implementation of a single, comprehensive and tightly integrated technology platform, starting in the area of default management.

In this first blog, I cover why default management is a great place to begin a digital transformation journey, and in a follow-up blog, I’ll share key issues and challenges in implementing a true customer-centric default management “maturity model” that drives digitalization.

Digitalizing default management

Tech savvy banks approach digital banking with a long-term strategic vision. They don’t try to “boil the ocean” by attempting to transform all of their application areas at once. Rather, they adopt a plan that moves them application by application into the digital future—and they stick to it.

The default management area is a great place to start, serving as a pilot case and building momentum for the digital transformation of other core services. Digitally-enabled, customer-centric default management can help at-risk clients gain control over spending, better manage debt, eliminate collection contacts and, in extreme cases, avoid wage garnishments, repossessions and defaults. The move to such a “maturity model” can be envisioned in four stages:

  • Stage 1 started In the 1970s as banks began moving from a very manual process to an automated process for credit risk and collection. Emphasis was placed on operational efficiency, but systems remained disparate and product line data was partitioned into separate silos.
  • Stage 2 began in the 1990s as banks paid greater attention to operational effectiveness. Risk-based tools and decision engines began to appear. Statistical and empirical models were used to predict default management and to create risk differentiated collection treatments. Instead of using silos, products began to be grouped together and across lines of business.
  • In Stage 3, banks began looking to maximize profitability by analyzing the customer relationship and how it might be improved. A client might, for instance, be staying current on a mortgage or car loan but consistently late paying credit card debt. Stage 3 account collections included consolidation based on customer segment. In addition to collections, emphasis was placed on upselling, cross-selling and retaining customers.
  • In Stage 4, banks create full blown customer relationships, addressing the entire credit risk life cycle using a single set of integrated tools and systems to interact with clients.

A typical large retail bank today finds itself somewhere between Stage 2 and Stage 3, operating with several discrete collections, recovery and accounting systems, as well as multiple decision engines. Few banks operate with a single, integrated, end-to-end default management, collections and recovery platform with one set of tools to manage all portfolios. Such a goal, however, is quite achievable.

Benefits of a single default management platform

The CGI approach brings a single platform to all aspects of default management, collections and recovery. Through a customer-centric orientation, rather than product-based one, the platform allows a bank’s collection agents and other authorized parties to see complete account records for making better decisions and recommendations and developing better treatment strategies. A single, consumer-oriented digital banking platform provides:

  • Unified business strategies
  • Consolidated and integrated underlying IT systems
  • Knowledgeable, empowered customer service agents and extensive self-service capabilities, including omni-channel, 24x7 digital access
  • Management of IT infrastructure and operations by experts, ensuring all service level agreements are met
  • Powerful big data analytics that unlock customer data to yield actionable business intelligence
  • Monitoring of regulatory compliance and mitigation of non-compliance risks through up-to-date systems
  • Third-party management via a single digital gateway with a common set of data and workflow treatments
  • Consulting expertise that ensures platform suitability, now and into the future

Other benefits of a single platform approach include rapid response to market changes and customer needs; faster introduction of new tools, channels and system capabilities; avoided costs for system development, implementation, updating, maintenance and training; and, from a default management perspective, maximum revenue recovered faster than ever before.

In my next blog, I’ll discuss the key issues and challenges in implementing a single platform approach in the area of default management. In the meantime, feel free to contact me with any comments or questions.

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