Americans’ financial situations are worse than expected in early 2023, and 79% of consumers report that they are living paycheck to paycheck, up from 64% in early 2022.
While consumers want to pay their bills on time, it’s not possible for everyone, especially with the pressure of inflation and the still-rising costs of necessities like housing.
Here are three key challenges facing lenders in 2023 and how to build a collections strategy to address them:
Consumers prioritize housing above all else.
This is a no-brainer. Consumers need shelter, and if they are struggling to pay rent or their mortgage, they’ll deprioritize other bills.
The good news here is that after a sustained period of double-digit year-over-year increases in rent, the average cost to rent is stabilizing. The bad news is that even though the rate of increase has slowed or even stopped, average rents are $300 per month higher than they were two years ago, which puts many Americans in a precarious position.
Home costs have also stabilized after record increases from 2020 to 2022, but interest rates are significantly higher than in 2020, which means the actual sale price of a home doesn’t paint the full picture of the monthly mortgages Americans are paying.
For lenders servicing other types of products, like unsecured credit or telecomm bills, this means two things:
- Making it easy to pay is more critical now than ever;
- Empathy must be part of your strategy.
A third of consumers report that they were only given the option to pay their late bills in full, according to Lexop’s survey Behind on Bills: A 2023 Survey of Past-Due Consumers. For consumers struggling with housing costs, this might be impossible. Segmenting past-due accounts into buckets to determine where to apply payment-option flexibility in order to accommodate consumers.
Sometimes, consumers just forget to pay.
It’s not always that consumers don’t have the money to pay. Sometimes, they forget about an upcoming bill, or have an expired payment method on file. That’s why 60% of consumers cure their late bills within the first week after missing a payment.
There are two ways lenders can ensure payments are made either on-time, or very soon after a missed payment:
- Remind consumers they have a bill coming due;
- Invest in or improve your early stage collections strategy.
A whopping 85% of consumers are capable of curing a past-due account within 30 days of a missed payment. Using a digital outreach strategy is critical to reaching those consumers. In fact, the number of consumers who report being notified about past-due bills via email nearly doubled from 2022, going from 21% to 41%, according to Lexop’s survey. An effective outreach strategy and uncomplicated payment process will reduce later-stage delinquencies and keep account servicing in-house and relatively inexpensive.
If they have a bad experience, consumers will find a new service provider.
We’ve covered this before. It’s at least 5x more expensive to acquire a new customer than to retain an existing one. 40% of consumers report that their experience with a past-due account would make them consider switching to another service provider, and that number is higher in the younger generations.
Lenders need to take stock of what experience their customers really want, even as it relates to past-due accounts and later-stage servicing. This is especially true for newer lenders and fintechs who have been relying on originations and are just now investing in collections strategies.
Creating a collection strategy that is flexible, accessible, and empathetic will be critical to lenders as we continue to operate in an uncertain economic environment, and as consumers’ expectations continue to rise.
Download the full survey here.
Bonus Reading:
–Fintechs: It’s Time to Focus on Recoveries. Here’s How.
–Kredit’s Hanrahan on FinTechs and the Need to Get Better at Customer Service and Support Fast
Every Thursday, Collections & Recovery sends out an exclusive email packed with analysis on the newest trends in collections strategy, the shift to digital collections, best practices for vendor management, and deep-dives into regulatory and compliance issues that matter to you. The only way to get it is to subcribe.
