Additional contributions to this story by: Doug Ekizian, Managing Director, and Alex Duchesneau, CPA and Manager, from PwC Consumer Finance; Steven P. Silver, VP and Global Industry Market Leader at Pega; and DC Chatterjee, Credit Risk, Reporting, and Analytics at Nissan Motor Acceptance Corporation.
It’s no secret that auto lenders’ core legacy systems, including for collections, have become outdated, difficult to maintain and update, and incapable of keeping pace with new business strategies and processes. Whether for captives or automotive lending divisions of traditional banks, outdated systems often dictate business processes rather than business processes driving technology decisions, making change management difficult. According to PwC, auto finance companies see technology as the largest transformation initiative over the next 3 to 5 years. Key areas of investment include collections, floorplan, servicing and data warehouse technologies.
Why are captive finance organizations so often faced with technology that do not meet business needs, customer experience aspirations, nor regulatory expectations?
The ugly truth is that legacy systems lack the ability to adapt to regulatory changes, which have forced institutions to deploy manual controls and workarounds to mitigate the continually evolving compliance risks. Aging technology infrastructure still housed on mainframe systems are often not scalable to business needs and slow down the digital transformation journey.
Because of these forces, there is an unprecedented increase in collection systems replacement due to legacy system inflexibility to newer interfaces, data integration needs, unsupported one-off point solutions from disparate vendors, the adoption of cloud-based technology, and changing needs within the business and in the automotive marketplace. Older systems simply do not have the capability to keep up with dynamic changes expected in the next 3 to 5 years. For example, old collection systems are often not capable of providing support for communication with customers across channels – web self-service, chat, email, text, and social media – despite those often being more effective or compliant touchpoints.
While the rate of delinquencies ebbs and flows, how do you prepare your collections teams for a possible economic downturn?
How might a recession or even a subtle change in consumers’ ability to pay impact your collections strategies, policies, processes, and procedures? Can your existing solutions allow you to get ahead of or minimally respond to these market changes?
If you are like most lenders, status quo is not an option, and now is the time to reexamine your default management systems, processes, people and skillsets to future-proof your business. For example, according to Moody’s Analytics and Goldman Sachs Group Inc., some evidence suggests that increasing credit scores are being influenced by factors that didn’t have an influence in the past. Early indicators of credit worthiness may not be as effective as they used to be. Credit score is a lagging indicator, and you need new ways of making old decisions. Using data and digital platforms across products and verticals to drive decisioning and analytics is the new way to outpace the competition.
Lenders need to rely on new data, analytics, AI, and digital platforms to stay ahead of changing dynamics in the industry and credit profiles of consumers.
To create and combine critical insights and actions that address and resolve these competing obligations, you need to not only look externally but also mine your own internal data across siloes, lines of business, products and channels. Amongst all lenders, leading captive finance companies are embracing end-to-end lifecycle management, including originations, collections, CRM, and remarketing. There’s a better way to use technology across functions, integrate with other systems of record, reduce the number of redundant or legacy applications, streamline the processes, and improve productivity.
How can you execute on the new way without disrupting your existing business?
Take advantage of this opportunity to stress-test your operations and start re-thinking your approach to collections using this operational readiness checklist:
- If there’s a market decline and scores don’t adequately reflect consumer credit risk, how much might delinquencies increase?
- Does your data inform you on how the consumer is performing on their account as well as other accounts, and do you have access to real-time reporting insights to observe changes in consumers payment behavior?
- How are you using collections outreach to build customer engagement and long-term value?
- Have you automated processes and reduced complexity in collections processes to reduce manpower constraints?
- Do you have a ramp-up plan for skilled staff available to service and assist consumers if collection call volume increases?
- What should operations do now to rethink the tech stack that supports them?
- Are your digital channels ready to service a higher volume of customers facing financial hardship?
- How long will it take to transform the business and fix legacy systems?
- How can technology accelerate your capabilities to respond to the changes that are influencing your business today, including additional risk management and shifting regulatory and reporting requirements?
- Where can you consolidate and upgrade your IT ecosystem and move to the cloud?
- How much can you reduce IT spend, TCO, and shadow IT by rationalizing your portfolio?
- How will you close the gaps to future-proof your business while still meeting your day to day business objectives?
Let’s face it. Most collections executives are forced by necessity to operate with a lack of end-to-end process automation and outdated systems of record – using duct tape and bailing wire and asking their collection agents to deliver heroic acts every day. But even collections superheroes can’t do it with 14 open browser tabs and windows, Excel, and a 10-key anymore. You have to adjust to new customer behaviors, with better scorecards, advanced analytics that leverage AI and machine learning, and an omni-channel solution to provide a better customer experience. You need a toolkit of drivers and levers that you can deploy to accelerate your digital transformation and the sense of urgency to make it happen now – not waiting for the next wave to hit.
Pega and PwC have been working together for years to solve these key pain points.
We believe in the intersection of digital process automation and digital customer engagement to make the job easier and free up your valuable human resources – by digitization, intelligent automation, robotics, and decisioning on next best actions. We can help reduce complexity in the collections process and create more time for your staff to spend with customer servicing and handling exceptions versus handling mundane routine tasks, thereby increasing your agents’ productivity and efficiency. Spend more time on the human touch when it matters. We have a structured approach to make the process easier for you.
For automotive lenders, the time is now. Don’t be delinquent. Your collections efforts can’t afford to wait.
Learn more about how Pega and PwC can solve your captive finance challenges and risks.
- Discover how automation is helping drive the customer experience.
- Learn how PwC uses a collection of intelligent automation tools to help solve complex financial services challenges.
- See how financial institution ANZ improved first-touch resolution by 20% with Pega.
- Learn how Rabobank streamlined lending to reduce paperwork, speed decisions, and save $80 million per year in costs.
- Watch how Commonwealth Bank of Australia calculates the next best conversation for each customer.