How Can Financial Institutions Achieve Optimal Customer Experienc

Over a last couple of months, we have been witnessing an overwhelming humanitarian crisis unfold.

A crisis, likes of which the world has not seen in the modern digital world. The analysts globally are quick to acknowledge the detrimental impact this event may potentially have on the world economy. According to a report by McKinsey, countries across the globe are staring at GDP degrowth of 6 to 12% and for most a countries recovery is estimated to happen not before 2021 Q2. At the ground level, people’s ability to pay bills and their loans on time will get impacted

Amidst extended global lockdowns aimed at stopping further spread of the virus, economic activities are severely impacted at an unprecedented scale. We all do see an array of prompt and proportional response to the impending economic crisis at all levels: the governments are infusing Trillions of $s worth bailout packages, the federal reserve are reducing their target rates / guidance values, the regulators are offering leniency to the lenders / banks in terms of reporting delinquent debts.

In this time of dire need, a measured response from the lenders is going to define lenders’ relationships with their customers and can potentially generate a lifetime of loyalty.

Governments across the world are issuing relief packages e.g. CARES Act (approved by US congress) that aim to provide timebound protection against foreclosures action and offer right to forbearance for federally backed Mortgages and Student loans. Reacting to the situation, many lenders have declared that they would work constructively with the borrowers to assign suitable assistance programs based on specific needs. While this is a great gesture, a few operational challenges lay ahead of them:

• Creating a consistent qualification criterion for the assistance program.
• Handling a surge in inbound call and prioritization of the outbound calls

Given these daunting challenges how can lenders convert a potentially adverse situation into customer delight?

Customer Needs, a Good Place to Start!

As a side effect of this disastrous event, people’s earning capacities will be impacted. However, this is unlike any other situation that we have witnessed in past, both in terms of severity and proportions.

To be able to assign a suitable assistance program, lending institutions need to first look at broad segmentation based on the magnitude of impact on their earning capacities. Here’s an example of segmentation based on industries where customer is employed and the amount of time it will take to bounce back for pre-Covid-19 times:

• Segment 1 (Short terms risk) – These borrowers are employed in the so-called gig economy, driving Uber, Lyft etc. They are the hardest hit due to lock down, but the impact is short term. As soon as the lockdown restrictions are lifted and people resume with their intra city trips, the cashflow for these customers will revive to certain extent. These customers are in the need of an immediate relief
• Segment 2 (Medium term risk) – People employed in restaurants, retail stores etc. These trades will take a big hit immediately after the pandemic subsides. But then, they, will be the first ones to steadily recover. Customers in this segment are likely to do two or more jobs and hence likely to recover within 3-6 months. Anything that takes care of the next 3 to 6 months time frame post the event, will be of a huge relief to these customers.
• Segment 3 (Long Terms risk) – People who are employed in the industries that will take considerably longer time to recover. Unfortunately, some of the customers in this segment may lose the source of steady income and may take up to a year to recover.
• Segment 4 (True High Credit risk) – It is important to note that the above 3 categories would be good customer if it were not for this crisis. Segment 4 is however fundamentally different. These customers were anticipated to default with or without the impact of the current event. These customers should be processed through the regular collections process.

Engage Customers and Offer Right Assistance Program

Identifying the customer segmentation is the first step in the right direction to offer personalized help to the borrowers. Once an incumbent account is segmented, the assignment of assistance program can be done based on the alignment of the internal business and legal teams.

A sample segmentation and their program assignment is illustrated in the table below