July 7th, 2020

Communicating with Millennials Entering Collections for the First Time

Before the current economic debacle started, Millennials were already struggling to meet their financial obligations. Since 2015, Millennials have taken on more debt—an average 58% more—than any other generation. Economic downturn sparked by COVID-19 will push more Millennials (the largest segment of the U.S. workforce) into collections portfolios. The New York Federal Reserve shows that more Millennials were entering serious delinquency (90+ days past due) at the beginning of the COVID-19 pandemic than any other generation:

Younger workers are more likely to say they or someone in their households has lost a job or suffered a pay cut due to COVID-19. The industries hit hardest by the economic disruption are “millennial majority.

When these “digital natives” enter collections, they will bring with them their preference for digital communication. In a study of 1,000 delinquent customers, McKinsey found that digital channels (e.g., emails and texts) drove higher repayment action rates among “digital customers” than did traditional channels (e.g., letters and phone calls). Issuer sensitivity to consumers’ communication preferences improved payment outcomes.

McKinsey also found that traditional outreach methods elicited 18% fewer responses from “digital customers” with accounts 30 days past due. Collections organizations that disregard consumers’ communication preferences leave money on the table.

The current economic circumstances and McKinsey’s findings highlight the essential role accurate consumer data plays in effective collections operations. As the backbone of any outreach effort, higher accuracy in consumer data brings better results. Sensitivity to consumer communication preferences may yield even more improvement.

Conversely, during this disruptive era, and as delinquent consumer communication preferences diversify, relying on traditional outreach methods or failing to freshen customer information may inflict an outsized impact on debt collectors’ operational efficiency and revenue capture.

Most CRMs are out of date

Every year, 48 million people change their phone carriers or phone numbers. According to Neustar internal data, three percent of typical CRM records go out-of-date in a single month. Email addresses tend to be more stable. However, consumers collect email addresses over time, and knowing the primary email address is important. An email sent to a primary address is 14 times more likely to be read than one sent to a secondary address.

Data accuracy impacts all phases of collections: when accounts go delinquent, the duration of delinquency, and in the days prior to delinquency. At each phase, collectors with the most current consumer information have the best chance of reaching the consumer over his preferred channels and collecting.

As the U.S. economy re-opens and collection operations are allowed to resume, collectors may find themselves in a blind race. A consumer that enters delinquency on multiple loans may be contacted by multiple collectors at the same time. He may choose to make partial payments on several loans or strategically choose the loan that will receive full payment. Collectors slow to make contact over the consumer’s preferred channels run the risk of receiving only partial or no payment. Outreach over the wrong channels, or with inaccurate customer information, slows that effort. Days and multiple outreach attempts may pass before it’s clear the information needs updating, while another collector with more up-to-date information may arrange payment. The stakes will rise when the CFPB institutes the rule limiting collectorsto seven contact attempts per consumer per week.

Consolidations and acquisitions compound the problem. An acquired company’s consumer data doesn’t readily update when it’s integrated with the acquirer’s databases. Multiple fragmented records for the same consumer may muddy the parent company’s data. Siloed records could co-exist for years. Mostorganizations have no formal data governance framework or budget dedicated to data integration. It’s often difficult and expensive to bring data together into a single, current view; yet, inaction invites the risk of non-compliance and operational waste.

Multiple phone numbers and email addresses may appear in a consumer record. Some may be associated with an employer. One or more may no longer be associated with the consumer at all or, in the case of phone numbers, may have been reassigned, presenting a risk to TCPA compliance. One may be the consumer’s preferred point of contact, while another is mostly ignored. Without knowing which is which, agents or systems will waste outreach effort and increase regulatory risk.

The cost of data decay

Consumer contact information may change faster during a recession driven by COVID-19, either from moving residences or changing phone information. Collections organizations that assess the accuracy of their CRM sources in real-time will be better prepared for what’s coming.

A commissioned study conducted by Forrester Consulting on behalf of Neustar (Why Consumers Won’t Take Your Outbound Calls, July 2019) found that over 60% of respondents believe “lack of contact data” was “critical” or “important” to addressing challenges in contacting customers. These challenges impact the top and bottom lines: 48% of firms experienced increased operational costs. 43% lost productivity. While perhaps a tolerable annoyance during a prosperous period, inaccurate consumer information incurs critical costs during a downturn.

Refresh and deepen consumer data

Now is the time to implement a strategy that ensures that consumer information on file is consolidated, complete, and dynamically updated. A better understanding of consumer data and greater sensitivity to communication preferences can help streamline business processes and improve revenue capture. The goal is to create a single source of truth for each consumer record that is automatically updated when associated identifiers and attributes have changed. Because those changes never stop, automated CRM updates must likewise become a continuous part of business process.

This capability requires more resources to build and maintain than some organizations can afford to allocate. In a survey of 1,400 business and IT professionals, data integration topped the list of enterprise challenges. 67% of respondents to Forrester’s survey say that technology vendors are “critical” or “important” to solving the challenges discussed earlier.

If an audit of consumer records finds multiple phone numbers, email addresses, and other consumer data scattered across silos, invest in an identity resolution solution that can connect, cleanse, and score the records. These solutions match identifying information to a unique, persistent consumer key, improving data quality. Changes in consumer identifiers are pushed to the collections database automatically, improving right-party contact (RPC) rates and revenue-per-dial KPIs.

Higher quality data may be one of the most effective ways to mitigate the current environment of uncertainty. By proactively cleansing, repairing, and filling in the gaps across consumer records, a consumer identity management solution ensures the clearest connection between consumers and their contact information at all phases of collections.

Regardless of what disruption COVID-19 brings, collections organizations retain control over how they manage their CRMs and how they contact consumers. Honing an accurate view of customer information now will enhance customer outreach when normalcy returns.

Neustar offers a free data analysis for organizations to understand the quality of their current data and provides insights for operational data improvements. Learn more.

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