Swapping calls for texts and emails is a kinder, more compassionate way to nudge delinquent customers to repay their debts.
It’s also more effective.
This is the view at the heart of efforts by PNC Financial Services Group in Pittsburgh and KeyCorp in Cleveland to digitize their collections processes. Rather than barraging customers with phone calls and letters, they have expanded their outreach efforts to encompass emails, texts, push notifications and on-screen messages.
“It’s an older-school mentality where you have to try to call customers a lot to catch them when they are at home,” said Jennifer Masterson, director of retail lending default at PNC.
There are several reasons why banks such as PNC and Key are leaning more heavily on digital outreach. Some customers avoid answering calls from unfamiliar numbers. A phone call can also seem confrontational, or put an embarrassed customer on the spot. Digital outreach is more efficient and cost-effective than assigning agents to chase down customers who may respond quickly to a text reminder or notification.
These changes are also timely. Banks that deploy such methods may find they align well with certain debt-collection rules from the Consumer Financial Protection Bureau that will take effect on Nov. 30, such as restricting the number of calls collectors can make.
“Digital channels are much more cost-effective for collections than relying on big call centers with humans doing that work,” said Matt Higginson, a partner at McKinsey in Boston. “There is also regulatory scrutiny to ensure lenders do not call customers many times per day because that can be viewed as borderline harassment.”
At the same time, many banks will want to ensure they comply with rules governing electronic communications. The rules are directed at third-party debt collectors, rather than creditors, or first-party collectors, but banks tend to use such rules as models.
McKinsey research from 2019 found that digital-first customers who are contacted through electronic means make 12% more payments than those sought out through traditional channels.
“We think it’s because customers can service their debt at a time and on the channel they prefer, rather than being cold-called by a human, which is inconvenient and can be embarrassing,” said Higginson.
A McKinsey article from May also found that lenders favoring digital-first solutions have seen monthly installment payments triple across portfolios and the cost of collections fall by more than 15%.
The most sophisticated banks use a broad array of physical and digital channels for debt collection, including phone calls, letters, emails, text messages and on-screen messages upon login, Higginson said. Many also offer a landing site for customers to review their delinquencies and easy ways for customers to pay; the sites can be a dedicated webpage or a feature on a mobile device that lets users pay in one or two clicks.
Generally, he finds that monoline lenders, such as large credit card issuers, are better equipped to adopt digital collection methods than universal banks with mortgage, credit card and loan departments split into silos. He has not seen regional banks as a whole invest heavily in digital collection processes.
The $553 billion-asset PNC began integrating texts and emails into its collections outreach in late 2019 to complement phone calls. Depending on the customers and what they have opted into or out of, they may receive some or all of these communications. Most of this functionality was built internally, although a third-party service sends the texts.
“A lot of customers just need a reminder because they forgot to make a payment,” Masterson said “Especially with people who are newly delinquent, we find shooting out a text the day they miss a payment or shortly thereafter is an effective way to trigger them” to make that payment.
Texts and emails have another benefit: They are less confrontational.
“Maybe people are avoiding our calls because they know they owe us money and they don’t have money that month,” Masterson said.
Furthermore, an email can elaborate on hardship solutions, such as skipping a payment or temporarily reducing payments, and direct customers to the appropriate part of the PNC website through a link. Eventually, Masterson plans to add an online chat feature so customers can discuss options with the default team.
Overall, the goal is to smooth the way for self-service where possible and reserve employee discussions for customers who need to explore hardship solutions. This range of outreach also acknowledges that some customers respond to some forms of communication better than others, or rarely pick up calls from unknown numbers.
“Emails aren’t always a great way to get a hold of me, because you get so much spam,” Masterson said “But if someone texts me I will respond almost immediately.”
This three-pronged approach has sustained or improved PNC’s ability to get hold of people, said Masterson, and has opened up PNC’s agents to speak with customers who need more personalized help.
As of 2020, customers in default may receive a mix of calls, letters, texts, emails, push notifications and messages that appear upon login to online banking, depending on which forms of communication they have opted into receiving from Key. Texts and emails will contain links to the KeyBank Payment Assist portal to make or schedule payments, extend their loans, make a promise to pay or initiate loss mitigation. A promise to pay will temporarily suspend all phone calls.
“This provides tremendous flexibility for our clients,” said Amy Brady, chief information officer at Key. “They can do this at 2 a.m. when we are closed or our agents are not on the phone.”
Brady sees online pop-ups and notifications as gentler reminders than phone calls. Like Masterson, she notes this kind of outreach frees up agents to use their time more efficiently and devote their energy to clients who need a phone conversation.
Key worked with Katabat, a debt-collections software company, to enable its email and text outreach strategy and build a customized portal. The bank reports a 25% reduction in staffing needs throughout 2021 and a reduction in losses that began in 2021. It expects the new system to save $7 million in 2023.
“These capabilities allow clients to maintain their dignity during what can be very challenging times, and sometimes avoid embarrassment if a situation was a mistake,” said Brady.
The CFPB rules taking effect on Nov. 30 do not apply to creditors, or first-party collectors of debt, but “banks and other creditors have for decades used the Fair Debt Collection Practices Act as guidance for how they engage in their own collections,” said Jeff Naimon, a partner at Buckley. “My strong expectation is that banks will be largely following the substantive rules created in the rulemaking.”
Both PNC and Key say they follow FDCPA guidelines.
Some changes align well with a digital-first approach. For instance, texts and emails can replace calls, which will be limited to a maximum of seven times in seven days. Still, there are gray areas for banks that want to comply.
The CFPB requires that third-party collectors tell customers how to opt out of electronic communications. That could be tricky for banks to implement. “Where do you include that in a one-sentence text that says ‘Wouldn’t it be great to get this squared away, click here’?” said Naimon. “Should the disclosure have been in the text, or is it OK to put it deeper in the online process?”
Masterson said PNC is implementing the upcoming guidance from the CFPB, such as ensuring controls are in place to keep calls within the seven-per-week maximum, and is on track to do so by Nov. 30.
“I look at these rules as doing what is right for the customer,” she said.
Key is in a similar place.
“We feel very good about our practices in terms of opt-in, opt-out in the digital space,” said Dave DeSantis, head of default management at Key. “I feel comfortable that the new rules will not have any impact on what we need to do to serve our clients or have a financial impact on our bottom line.”