The Covid-19 pandemic has undoubtedly had a significant impact on customer arrears. We’re seeing many changes in the demographics of customers in arrears, as well as the typical arrears lifecycle. There is no such thing as a typical lifecycle! Increasing complexity, longer recovery periods and more vulnerability is creating a series of challenges for lenders, likely to be around for some time.
Let’s take a look at what’s been happening:
Shift in consumer profile
Covid-19 has created a new segment of customers – those people falling into arrears for the first time, unused to worrying about their finances, who are finding the arrears process alien to them. High net worth customers have experienced a highly unexpected and catastrophic drop in income to zero.
Increased operational demand
Lenders have expressed concerns relating to the need to up-weight existing operational teams to handle not only increased demand, but also increasing complexity. Recruiting, training, retaining and managing resources across the arrears lifecycle from simple processing to complex arrears, vulnerable customer and litigation matters will place increased strain on lenders.
Short timelines to respond
We can safely say that the last 12 months have demonstrated the need for agility in lending. Being able to respond quickly to change is critical in delivering good customer service and protecting customers in trouble.
Supporting customers in complex circumstances
Lenders and their servicing partners have been dealing with an initial spike in demand for arrears management. Although that spike in demand has subsided slightly, the economic impact of the pandemic and the end of government support means there is likely to still be growth in demand. This expected growth in the coming months and years will be coupled with the additional complexities of arrears cases. The arrears lifecycle is getting longer and more complex.
Long-term impacts of Covid-19 on consumer finances
As restrictions are eased, we’re seeing a polarisation of customer segments. While some are more fortuitous, others are being left behind. They’ve had little government support throughout the crisis and their ability to afford a property diminished as the market moves on without them.
Customers new to the arrears process are experiencing significant embarrassment and discomfort, leading to difficulty for lenders to communicate effectively. Letters are ignored and calls cut off as panic sets in.
Being able to cope with the speedy and far-reaching changes happening in the market is critical to maintaining good levels of customer service and deliver good outcomes.
Outsourcing arrears management to an experienced provider enables lenders to handle the peaks and troughs in demand as well as increasing complexity and longer arrears cycles.
Find out how Target can support with your collections and arrears management here.
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