Other parts of this series:
In my previous post, I highlighted three overlapping phases of the looming credit crisis and the implications for banks. As I mentioned recently on the World Economic Forum’s COVID Action Platform (Accenture leads the WEF’s COVID-19 Banking and Capital Markets Industry Action Group), the next few months will likely see the weight of activity shift from the initial Public-Led Stimulus phase to the second Private-Led Debt Provision phase. And while banks should be well positioned to play the hero role for those consumers and businesses most needing capital, it won’t happen without clear intent.
We think there are four specific areas banks should focus on in phase two to ensure they strengthen their credit management holistically and prepare themselves for the challenges to come: portfolio strategy and execution monitoring, execution excellence, truly digital credit management and human + machine enablement.
A portfolio strategy and execution monitoring capability we see as critical for banks is having a credit command center that manages the portfolio, sets the strategy and continuously monitors success and adapts execution. It will consider a broad range of contextual factors in gathering, integrating and creating insight from a wide range of different data sources, and then use that insight to tailor credit management strategies to specific geographies and industries. Doing so will help banks to cluster their customer portfolios by similar financial needs and preferences. This will inform the development of treatment strategies based on those segments, rather than taking a broad-brush approach that fits some customers but not others. It will enable banks to manage their portfolio risks in a cost-optimal way and increase the probability of successful treatment and recovery. However, banks must also be careful not to land foul of regulators by creating disparate impact. They therefore need to ensure fair treatment of like borrowers.
A second priority for banks is executing with excellence. This means getting the basics right. The macroeconomic and credit modelling work that we have done shows potential losses building up quickly behind government-backed programs. When they are released by the wind-down of government support, the ability to scale collections management to meet the rising tide of defaults will differentiate those banks that handle this crisis well from those that are swamped.
To prepare, lenders will need to ensure that their operating model, processes, people and technology are well-equipped to manage the surge in activity. A simple, structured, cost-optimised and scalable approach to default prevention, debt collection and credit recovery management will rely on innovative digital capabilities that have been repurposed to empower highly skilled credit and collections specialists. Together, they will support customers in these unusual circumstances.
Thirdly, banks can use data, analytics and automation to power truly digital credit management. Despite banks already having strong analytical skills and capabilities, signals from traditional sources like bureau scores and internal risk ratings are muted in the current environment. SMEs who were pristine credits, suddenly find that their business has evaporated and that this type of possibility was never factored into banks’ credit-rating approaches. For this reason, non-traditional sources of data and the signals they provide (such as new external datasets blended with internal bank data) are essential to capture the true risk to the borrower’s business. The goal for banks in evaluating credit and making credit decisions is to be contextual, adaptive, data-driven, proficient in advanced analytics and relentless in automation and AI (especially in the back office)—all enabling truly digital credit management.
Lastly, banks should pivot to ‘human + machine’ enablement to run credit, collection and recovery cycles in scalable, cost-effective ways. This is where a bank deploys intelligent, automated machines alongside its people to make work more efficient, valuable and rewarding. It’s how banks can give mass-retail and SME customers the high-end treatment typically reserved for high-net-worth and corporate customers and create enduring relationships. It ensures that front-line staff who manage relationships and serve customers are equipped with the right insights and relevant recommendations based on clients’ contexts. Our experience suggests that human + machine capabilities can, for example, enable agents to handle more than 120 files a day. It also allows banks to be accessible to customers around the clock, freeing a bank’s people to focus on complex problems and enabling more tailored, customer-specific experiences.
By taking these actions in the four key areas, banks can bolster their credit management to ride out the impending uncertainty. This will allow them to successfully navigate the credit crisis, emerging with more resilient credit operations and stronger customer relationships.
To learn more, read our report: How Banks Can Prepare for the Looming Credit Crisis