When credit is a carefully considered financing tool that bridges current cash flow and future wants or needs, most responsible borrowers are willing and able to make regular and adequate repayments to meet their obligations. Such decisions are more easily made in a stable economy when personal circumstances are reliable and predictable. The almost constant upheavals since the onset of the global pandemic — and now the war in Ukraine — mean that stability has vanished for most consumers.
In the current macroeconomic environment dominated by volatility, inflationary pressures, rising prices and personal financial insecurity, many vulnerable consumers have come to view credit less as a bridge to help achieve future acquisitions and more of a lifeline to everyday necessities.
Increased credit-based consumer spending is linked to rising delinquency across a range of credit products as consumers prioritise debts they view as more critical than those they feel they can let slide.
In such an environment, responsible, forward-thinking lenders need new strategies, approaches and technologies to effectively manage long-term, reliable, valuable customers who may face financial difficulties — while confidently onboarding new prospects for future growth.
The required solution is a paradigm shift in collections prioritisation that goes beyond leveraging or maximising the traditional tools of monthly batched, passive, retrospective segmentation.
The new debt repayment environment is more complex and demanding for unexpectedly vulnerable consumers under pressure. The response of lenders seeking to secure repayments and help rehabilitate valuable customers needs to align with this new volatility.
More robust information and enhanced insights can help provide a better understanding of the underlying forces influencing a consumer’s repayment decisions, leading to the deployment of more sophisticated, appropriate and effective collections techniques.
Integrated technology that addresses these issues is in the final stages of development and will soon be available via the TransUnion Collections Prioritisation Model.
Building on global expertise and local experience, this new solution combines machine learning, advanced analytics, enhanced credit data and alternative data to offer lenders and their customers insights and opportunities to reprioritise the broad collections model.
The result is a more robust, segmented strategy informed by granular insights suggesting personalised tactics for more empathetic and effective repayment and rehabilitation behaviours.
As lenders, retailers and consumers look forward to the next normal, defined by greater stability and predictability, there will be no value in returning to past strategies and prioritisation models. The future of collections is flexible, predictive, automated and insightful.
By strategically curating, and constantly updating and automating the analyses of trended credit data on existing customers, lenders can gain critical insights into emerging financial stresses, enabling them to prioritise collections campaigns, account adjustment and special terms accordingly.
This predictive and personalised approach to the varying circumstances of a customer will empower lenders to reframe the repayment relationship, be more actively engaged and accommodating, and work with customers to prioritise that institution’s debt over competitors.
Contact your TransUnion representative to help your business better manage predelinquency risk, optimise collections and realise locked-in revenue.