Banks suffer immense losses every year due to payment defaulters and delinquent accounts, but the volatility of the economy during the pandemic had them poised to suffer even more.
By the end of 2020, the default rate by both, amount and volume, was at its highest in over a decade. Obviously, with rising defaults comes a heightened focus on what investors can recover, and yet that also suffered: the average discounted recovery rate for bank loans dropped to 74.4%, down from a historical average of 79%. As for delinquencies, the mortgage delinquency rate jumped nearly four percentage points to 8.22% during the second quarter of 2020, when the economic fallout from the coronavirus pandemic really began taking hold.
When lenders must deal with widespread defaults and delinquencies, they are forced to set billions of dollars aside that otherwise could be invested or re-distributed as dividends to shareholders, as well as spend precious resources on often long, frustrating and potentially fruitless collection efforts.
Thanks to government intervention, the worst-case scenario - a full-scale default disaster - was avoided, but the pandemic nonetheless highlighted the precariousness of the collection process. So, with the economy pointed towards recovery, banks need to pause, take stock of the last year, and invest in opportunities to shore up the weaker defenses that the pandemic almost managed to breach.
Part of this will involve building up a more intuitive, responsive and robust collection process that can ensure payments are consistently made on time. One promising solution that is already helping financial institutions reduce late payments is text messaging, proving to be an efficient and easy method to not just reduce losses but also improve customer experience. Statflo’s one-to-one text messaging platform is equipped with a host of features that banks need to strengthen, future-proof and speed up the debt collection process.
Contact borrowers and send reminders
With Americans exchanging roughly 2.1 trillion texts in 2020, up 52 billion from 2019, text messaging is arguably the most preferred method of communication in today’s world. This predominance positions text messaging as an ideal channel for collection communication, and its advantages are readily apparent:
· Discretion. Texting is an inconspicuous and non-invasive way to remind borrowers of upcoming payment dates and missed deadlines.
· Presence. Texting strikes a fine balance in its presence, being more direct than emails which tend to be forgotten in inboxes, but not as intrusive as phone calls, which customers dread.
· Speed. Obviously, the speed with which a text message can be sent means scaling is exponential, but don’t forget the speed with which a text message is read: studies show 90% of text messages are read within 3 seconds of receiving them.
· Convenience. At nearly every minute, customers already have their phone at hand, so when you can send reminders for upcoming or late payments directly to them via text, it makes the whole collection process easier for everyone.
Discreet, present, speedy and convenient: banks that leverage text messaging to contact borrowers and send reminders of upcoming or late payments will simplify, streamline and strengthen their collection process.
Offer easy payment options
The speedy evolution of fintech means that even business text messaging has quickly moved beyond simply sending reminders. With robust security measures incorporated into texting, banks can now offer easy and secure payment collection options via text, simplifying the entire collection process.
Secure text messaging is one of the easiest ways to send links to collect money, and platforms like Statflo incorporate a sendable feature which allows any bank to create secure payment links to collect installments via text messages.
Within seconds of receiving a notification, a customer can make an upcoming or late payment by simply clicking on a secure link that leads them directly to your portal and into their accounts. Text messaging tools that offer easy payment options don’t just make the customer experience easier, but the speed, efficiency and effectiveness of text makes collection much easier for banks as well.
Use tracking systems
A payment-tracking system is designed to alert banks of upcoming or overdue payments. In most cases, it is a software specifically designed to segment a bank’s database into those who need to be contacted for upcoming due dates and those who are past their payment due dates. Once segmented, a strict protocol should be in place so that action can be quickly taken to address and remediate potential issues.
When incorporated into your tracking system and your collection process, text messaging is action at a massive scale, ensuring that remedial protocols are followed. Instead of time-consuming phone calls or emails that may go ignored, banks can create text message prompts that go out to every person on the various segmented lists, tailored to their individual situation, and at designated times.
One-to-one text messaging platforms like Statflo can connect directly to a bank’s database, create targeted text lists and send out alerts so that payments are always tracked, reminders are always scheduled, and important upcoming or late payment communications are always sent.
Time to rethink
To safeguard against wider economic uncertainties, banks need to rethink their collection strategies. Whether simply speeding up collections or, ideally, improving the debt collections process as whole, using text messaging as a part of the communication process will make it easier for banks to collect payments when they’re due, saving them time, effort and resources normally allocated to more inefficient collection methods.
Statflo’s text messaging platform offers a quick and discreet channel to conveniently remind borrowers about their overdue and upcoming payments. This not only helps banks reduce their losses but also meets customers where they already are - on their phones - helping to improve customer experience.
Book a demo to see how Statflo helps retail banks improve client experience.