Ensuring portfolio health in an inflationary economy
After nearly a decade of healthy economic growth, financial institutions have seen an increase in consumer lending coupled with a decrease in delinquencies. However, the economy is undergoing a seismic shift due to rising inflation, rising consumer debt and hardship resulting from the pandemic. According to March reports, consumer credit hit an all-time high of $52.4 billion – a notable jump from $37.7 billion the previous month and the pre-COVID average of nearly $15 billion. dollars per month.
Moreover, not only is the economy in decline, but the Paycheck Protection Program (PPP) and COVID impact loans, as well as disaster relief funds, have dissipated, with an influx of defaults expected on the horizon now that repayments are needed. Prior to this change, credit unions were unaccustomed to seeing late fees, overdue accounts, and chargebacks, with collections and collections departments operating on spreadsheets, manual systems, or low-tech solutions. expensive and not scalable.
Despite these economic conditions and an exponential number of loans in progress, credit unions need a system that can both track and manage loans efficiently, while meeting members where they feel most at home. ‘easy. Harnessing technology powered by data insights enables credit unions to effectively and successfully reduce loan loss reserves, increase revenue and minimize costs associated with delinquency, while addressing the topic with personalization and sensitivity.
Using data as an indicator of member finances and overall economic health
Using the data, credit unions can easily identify predictive patterns, including member purchase and deposit patterns, as well as overall spend. This allows credit unions to more effectively assess risk and act on collections based on an individual’s level of risk. Predictive intelligence and automated risk scoring tools can also be used to analyze different types of accounts, ranging from share drafts, negative share drafts and credit cards, to tracking and recovering these assets. By collecting, analyzing and understanding the patterns hidden in the data, credit unions can have confidence in the experience provided to their valued members.
In addition to improving the member experience of a credit union, data can be a key indicator of the health of the economy. In a strong economic environment, the rewards associated with indirect consumer loans and credit cards outweigh the risk of higher defaults and charges. Yet in troubled economies like the ones the United States currently faces, credit unions can take more proactive ways to monitor their portfolio for potential defaults to identify relationships that may encounter issues, including:
- Regular update of credit ratings;
- Identify downward credit rating trends;
- Analyze deposit account balance trends;
- Identify previously automated deposits that have been reduced or stopped, such as payroll deposits; and
- Identification of closed deposit accounts.
When potentially problematic relationships are identified in advance, the credit union can take proactive steps to help members before the loan becomes delinquent. Some simple and understandable strategies for accommodating members who are facing a delinquent loan include offering members free credit counseling, changes to short- or long-term loan terms, and restructuring and/or or the provision of loan payment skip offers.
Use technology to carefully collect and manage a successful portfolio
Data enables credit unions to identify trends, but when powered by workflow and automation, credit unions are equipped with the tools to make sense of the data and ultimately , reduce costs associated with chargeback management, loss mitigation and collections. As there is an industry-wide increase in loan losses, many credit unions need to implement technology to better understand and serve their members. Outdated manual systems lack the scalability and efficiency to help credit unions stay competitive in the post-pandemic environment, revealing the need to prioritize technology investments to be better prepared to support members in the economic uncertainty.
As member-driven organizations, credit unions aim to encourage and guide their members through financial hardship in any situation before a member becomes delinquent. Improving data analysis with predictive technology and automated workflows not only saves credit unions time and money, but also ensures additional resources are available to handle these opportune situations with sensitivity and care.
Kris Bishop is CEO of Birmingham, Alabama-based FIntegrate, a data-driven analytics company focused on portfolio tracking, collections and revenue recovery software for the financial industry.