CRMs are not the answer to better debt recovery. Here's why…

It may be ten years since the global financial crisis shook the world, but banks and consumers are still grappling with the repercussions.

With multiplying non-performing loans, limited credit availability, and customer debt rising rapidly, debt collections and credit risk management have become a major focus for many financial institutions.

Although awareness is high, the CRM solution currently used by many banks is unable to aid and manage the debt recovery process.

CRM software offers a rudimentary solution to a complicated and ever-evolving problem. It is not the answer to more consistent, economically sound debt management.

Here’s why.

Since the financial crisis, practices for planning and predicting debt recovery have changed significantly. Thanks to new regulations, banks are now required to constantly check their rearview mirrors while looking ahead for signs of upcoming problems. Loans and mortgages can no longer be given with alacrity and instead require a comprehensive credit risk assessment.

Using analytics, businesses are able to examine historical data to better understand and predict trends for late repayments. This insight helps them allocate resources, set realistic targets, and ultimately maximize collections.

Can CRM software help banks predict and plan effectively?

When it comes to capacity planning, they offer only basic functionality. They can’t capture all the crucial data in the debt collection process, they usually rely on their operational database to provide static reports as opposed to real-time reporting information and they can’t effectively predict workloads. Put all this together and you have an insufficient debt-recovery activity or wasted resources.

They’re also limited when it comes to personalized service. Banks rely on segmentation to group customers together, so that each segment can be offered different debt-recovery treatment.

With CRM systems, the choice of criteria for segmentation is limited, creating an inflexible, static view of customer behavior. Of course, people aren’t static. Implementing changes to the system requires additional IT support, which can be costly and time-consuming. In addition, CRM systems are poor at identifying self-cured accounts. When these accounts remain actionable, they waste funds.

Bespoke, specialized software allows greater adaptability and provides an extensive library of criteria to be implemented without additional IT intervention. This brings agility, speed, and consistency to the segmentation process, and in doing so increases profitability.

Debt management and credit risk assessment demand assiduous attention from the organization in question. Key areas like compliance, management of collections agencies, automated notifications, and case handling require constant vigilance. These everyday operations have a huge impact on business performance and customer satisfaction.

Do CRM systems make everyday operations run smoother? With regulatory initiatives like Basel III, Solvency II , and SEPA increasing compliance requirements for financial services, businesses need to be ready and able to respond to changes quickly. While CRM systems can be modified, the process for doing so is far from easy if not impossible. These systems have not been designed from scratch to tackle debt collection; it’s not in their DNA. Often bank staff use hacked workarounds to System changes are likely to require re-coding or re-designing, both of which take time and money.

CRM systems are often inflexible. This is fine if your customers are all on the same debt-collections journey. When it comes to sending automated notifications to a specific set of parameters - frequency of contract, size of the debt, age of the customer, for example - CRMs are relatively static. This can result in customers receiving notifications that are no longer applicable to them, causing avoidable stress and damaging the organization’s reputation.

A comprehensive software solution makes monitoring the performance of external agencies more effective: one flexible system can manage multiple customer journeys and multiple debt collections agencies. Meanwhile, most CRM systems require manual monitoring, limiting the coordination and management of external DCAs. most don’t even have a specialized module for agency assignments. Commission calculations are not automated and the lack of digital integration makes it impossible to accurately monitor DCA performance.

With so many shifting debt-collection cases to handle, a good system should allow for a mixed level of handling, at account-level and customer-level. The binary nature of CRM systems, however, means the only one that can be is supported, but not both.

The 2008 crash had some positive effects – not least in changing banking regulations and processes. The collective failure of the financial world to monitor credit risks and manage debt has resulted in greater regulatory pressure to assess reports, and, crucially, react quickly when customers stop paying.

To effectively track loans, overdrafts, credit cards, debts, and the like, banks require systems that are reliable, centralized, and fast at flagging potential problems. As many CRM systems are semi-manual, have multiple points of access, and rely on inadequate tools like spreadsheets, they often prove inadequate in all these respects.

Instead of using cohesive, bespoke software, many businesses use a variety of different CRM solutions for different products, often consisting of in-house applications and basic add-ons for existing processes.

This approach can create a messy, complicated web of systems with too much potential for error. They provide no audit trail and no documentation for system rules, making reviews and audits difficult or impossible.

When it comes to reporting, the static information provided by CRM systems makes meaningful analysis impossible. Their failure to actively monitor multiple loan products at different stages of the collections process means CRM systems reduce the speed and agility with which businesses react to debt issues.

Unlike CRM systems, bespoke software solutions create centralized, standardized systems to ensure efficiency. Crucially, they’re designed to need little additional IT support. Almost all changes can be made by the user, meaning no unexpected costs and no interruptions to the collections process. Responsive, reliable reporting of this type ultimately helps businesses identify trends and be proactive, not reactive.

Post-2008, banks adopted CRM systems as a quick-fix solution for better risk assessment while credit expanded.

While these systems offer some functionality, they’re not designed for the purpose of debt management and collections and so don’t provide the features or flexibility demanded by financial organizations. In turn, this means they’re not sophisticated or dynamic enough to meet today’s challenging operational demands.

With growing pressure on banks to optimize collections costs and reduce recovery times, the need for agility, speed, and consistency has never been greater. Customers expect to be treated as individuals and with consideration. Meanwhile, banks need to protect their reputations.

Swapping your CRM system for specialized debt-recovery software is likely to reduce overheads, improve your customers’ experience and enhance your brand image. Can you afford not to make the change?