Understanding Customers’ Finances Strengthens Relationships

As the current economy shifts and evolves in response to inflationary pressures, and consumer debt increases, banks may encounter an influx of customers who are accruing late charges, overdue accounts and delinquencies for the first time in nearly a decade.

Banks have not been accustomed to seeing this level of volume in their collections and recovery departments since the Great Recession and have not worked with so many customers in financial stress. To weather these economic conditions, banks should consider automated systems that help manage their collections and recovery departments, as well as guide and advise customers on how to improve their financial health and wellbeing. Technology powered with data insights and automation positions banks to successfully identify potential weakness early and efficiently reduce loan losses, increase revenue, minimize costs and have the data insights needed to help guide customers on their financial journey.

Consumer debt increased $52.4 billion in March, up from the increase of nearly $40 billion the previous month. Financial stress and money concerns are top of mind for many households nationwide. According to a recent survey, 77% of American adults describe themselves as anxious about their financial situation. The cause of the anxiety vary and stem from a wide range of sources, including savings and retirement to affording a house or child’s education, everyday bills and expenses, paying off debt, healthcare costs and more.

While banks traditionally haven’t always played a role in the financial wellness of their customers, they are able to see patterns based on customer data and transactional history. This viewpoint enables them to serve as advisors and help their customers before they encounter a problem or accounts go into delinquency. Banks that help their customers reduce financial stress wind up strengthening the relationship, which can entice those customers into using additional banking services.

Using Data to Understand Customer’s Financial Health
By utilizing data insights, banks can easily identify transaction and deposit patterns, as well as overall expenses. This allows banks to assess their customer risk more efficiently or act on collections based on an individual’s level of risk and ability to pay; it also shows them the true financial health of the customer.

For example, banks can identify consumers in financial distress by analyzing deposit account balance trends, identifying automated deposits that have been reduced or stopped and identify deposit accounts that are closed. Banks can better understand a consumer’s financial health by collecting, analyzing and understanding patterns hidden in the data.

When banks identify potentially stressed customers in advance, it can proactively take steps to assist customers before loans go delinquent and accounts accrue late fees. Some strategies to accommodate customers facing delinquency include offering free credit counseling, short-term or long-term loan term modifications, and restructuring or providing loan payment skip offers. This type of assistance not only benefits the financial institution — it shows customers they are valued, even during tough economic times.

Data enables banks to identify these trends. But they can better understand and utilize the data when they integrate it into the workflow and apply automation, ultimately reducing costs associated with the management of delinquencies, loss mitigation and recoveries and customer relationship management. A number of banks may find that their outdated, manual systems lack the scalability and effectiveness they’ll need to remain competitive or provide the advice and counsel to strengthen customer relationships.

Banks are uniquely positioned to help consumers on their journey to improve their financial situation: They have consumer information, transaction data and trust. Banks should aim to provide encouragement and guidance through financial hardships, regardless of their customers’ situation. Augmenting data analysis with predictive technology and automated workflows better positions banks to not only save money but ensure their customers’ satisfaction.