Fundamentals PowerPoint Presentation

Fundamentals PowerPoint Presentation

2015-10-05 31K 31 0 0

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Collections and Recoveries. Daniel Melo. Senior Director, Fair Isaac Advisors. FICO. High Level Overview: Collections and Recoveries. Risk Management vs. Operational Emphasis. Operational Policy Issues for Collections. ID: 150527

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Slide1

Fundamentals

Collections and Recoveries

Daniel MeloSenior Director, Fair Isaac AdvisorsFICO

Slide2

High Level Overview: Collections and RecoveriesRisk Management vs. Operational EmphasisOperational Policy Issues for CollectionsTactics for Collections Improvement

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Key Concerns within the Collections and Recoveries Function

Allocating resources for collection functionDefining strategy for pursuit of delinquenciesStaffing, training, developing collector skills Defining treatment strategies for delinquencies, insolvenciesAssigning accounts to agents, attorneysDefining strategy for debt saleDetermining Workflow systemDetermining incentive structure

Data

Data

Client Prospects

Client Customers

Actions

Reactions

Precision

Marketing

Customer Origination

Customer Management

Customer Collections

External

Data

Internal

Data

Obtain payments

?

Allocate resource?

Channel & contact strategy?

Treatment strategy?

Debt placement?

Debt sale?

Agency strategy?

Collector skills?Legal/insolvent/ repo accounts?Workflow? Incentives?

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Slide4

Target Segment, Economic and Market Conditions,

Collections Approach Drive Policy, Staffing and Volume

Profile of The Target Segment

Implications for credit policy and risk profile of the past due customer

Payment Insurance & Card Protection?Online statements and communication preference?Behavior scoring?Credit limit strategy?Attrition scoring?

Economic and Market Conditions

Implications for volume impacts

Collections Strategy

Implications for staffing model, trainingConservative?Average?Aggressive?

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Collections approaches seek to obtain payment of delinquent balances and prevent lossesAppropriate collections strategy performs a customer service function, bringing customers back to good standing and retaining their business loyaltyTactics can include internal collections, agency outplacement, settlement and debt sale

Collections Goal: to Work to Bring Delinquent Customers Back into Good Credit Standing

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Bad Debt

An internal financial analysis-driven definition of a

non-performing assetUncollectible Automatic at a certain stage of delinquency Bankcard must write off at 180 days delinquent in US, for exampleFor other jurisdictions, Bad Debt may be declared when Basel II considers the account in default—typically 90 days delinquentAccelerated for other types of delinquency—bankruptcy, death, other—at time of noticeFraud recognitionUnsubstantiated adjustments—adjustments to satisfy

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Impact of growth on coincident indicators—“Denominator Effect”

Historic portfolio risk level is a function of:

Revenue continually increasing if rate of net bad debt grows more slowly, NBD rate may decreaseRevenue decreasing may cause NBD to increase if dropping faster than bad debt or if bad debt is growing

% Net Bad Debt = Net Bad Debt/Portfolio Outstandings

Variables that drive the % Net Bad Debt include:

Number of involuntary closuresBalance amount per involuntary closuresNumber of voluntary closures—churn

The inherent risk of the portfolio as a result of acquisition policies and proceduresThe efficacy of the subsequent account management actions

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Preventing accounts from rolling to write-off or charge-off status

Collecting maximum potential payment

Negotiation and openness to deferments, settlements

Use of early agency assignment, multiple-collection agency approaches to maximize money collected thereby minimizing overall loss

Delinquent Collections Focus Determines Treatment Approach

More intense efforts as account becomes more seriously delinquentLittle “give” in payment demands to return account to contractual good standing

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Collections requires a strong operational focus

Collections must manage varying volumes

Workflow and case management approachesScripting and treatment scenarios not unlike customer service

Collections: The Risk—Operations Hybrid

Collections has a very high turn-over

Market for skilled collectors very competitiveConstant need for re-training new recruits

OvertimeCross-trainingOutsourcingTreatment prioritization

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Training:

Incentives

Role playing to help staff adjust to higher volumes or less sophisticated populations entering delinquency

Collections: The Risk—Operations Hybrid

Interactions:

Focused on solving problems and being respectful to the customer Obtaining situational facts and responding accordinglyUse deferments, settlements, etc., recommending counseling“Sell” unprofitable account segmentsTone and severity of call scripts and collection letters made consistent

Be careful what you ask for…

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Can alienate good customersCan get a jump on risky accountsMedium Risk: customer service callHigh Risk: more intense early approachCan reduce collection costs by avoiding contact with “self cures” Use analytics to target riskiest accounts/customers

Early Stage Collections

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Custom Collections Score

Usage:CollectionsTells You:Per credit grantor:Expected collection amount Likelihood that an account will roll Dollars at risk of rollingLikelihood of charging offIdentify early outsBased On:Analysis of historical master file and collection performance informationDecisions Supported:Early-stage and late-stage collections treatment definitionType Of Model/ Score:Self-learning customDelivery:ASPSystems Used Within:FICO® Debt Manager™ solution; FICO® TRIAD® Customer Manager; FICO® Blaze Advisor® business rules management system; other well-known commercial or proprietary systems

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Customers able to “hide” via mobile phones, e-mail contact preferences Calls, letters universally usedSMS text messaging, e-mail contact, contact with cell phones increasingly seen, especially in EuropeAnonymity of internet payment portals proving very attractive to debtorsHigher payment amountsHigher rate of kept promisesLower collection cost

Collections and Communication Challenges

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Get the customer’s attentionYou have about 7 seconds to control the flow of the discussionAssess their situation, ability to payAssess the reasons for delinquencyEstablish payment arrangement

Collection Expectations

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Contact timelines—should vary by segment based upon cost/benefit of the treatment:New versus establishedHigh versus low riskHigh versus low revenueFirst pay defaultIf making outbound contact that will generate inbound volume, insure adequate staffing and hours of operations to handle return callsOtherwise waste investment in outbound effortTest use of toll-free vs. toll-charge inbound numbers

Timelines and Treatment

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The account is charged-off—but it’s still an asset!Tools to recover:Final scoring—refines strategyCustom recovery scores—assist in prioritization, resource allocationOutside collection agencies—multiplePrimary—incentives?SecondaryTertiaryInternal collections—avoid premium?Other options—settlement, debt sale

Recoveries

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Agency Assignment

Debt Sales

Local Debt Markets Vary

Making Use of Local Debt Markets

Non-uniform array of specialty agenciesMore aggressive placement useAnalytically drivenEarlier placementMultiple agency assignment

Multiple agency assignment used to drive increased returnsStronger MISUse of placement optimizationOutsourcing to cut costs and increase coverage

Not evenly developed

Credit crunch slowing developmentDebt purchase appetites down

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Custom Recovery Score

Usage:Recovery/post charge-offTells You:Supports keep/sell/place/attorney decision; prioritize according to expected collection amount; optimize agency placementBased On:Analysis of historical master file and recovery performance informationDecisions Supported:Keep/sell/place/attorney decisionType Of Model/ Score:Self-learning customDelivery:ASPSystems Used Within:FICO® Debt Manager™ solution, other recovery software; FICO® Blaze Advisor® business rules management system

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Rolling Rate Analysis May be Most Familiar Report Used for Collection Planning and Success Evaluation

#1 Roll Rate ($000s)—Illustrated Bankcard Calculation(Calculated results are influenced by rounding)

37,416 x 82.7% ® 30,923 x 20.6% ® 6,355 x 11.0% ® 696 x 38.1% ® 265 x 71.8% ® 190 x

37.8

% ® 72 Annualized gross charge-off lagged = 2.31%

Illustration of Year 1 Roll Rate

37,416

38,265

42,23344,47446,84347,58548,97849,41248,93447,51247,69647,49549,29649,03948,57247,823

Month

Total

% Current

Current

0 to 1

Flow %

30 Day

1 to 2

Flow %

60 Day

2 to 3

Flow %

90 Day

3 to 4

Flow

120 Day

4 to

Charge

Offs

Flow

to ChargeOffs

Actuals

12345678910111213141516

82.7%79.7%82.5%84.6%81.7%84.1%82.2%79.5%82.7%79.0%80.5%75.6%79.2%78.3%78.2%78.0%

17.1%20.6%19.2%15.7%18.5%15.3%17.1%20.1%16.1%18.7%17.9%22.8%19.5%19.0%19.0%19.0%

5,0926,3555,8575,4787,0045,8716,8558,0996,3167,5576,6988,7417,0187,3977,2977,195

12.5%12.2%11.0% 9.5%12.0%10.6%13.4%13.0%11.3%16.1%13.8%15.7%15.0%15.1%15.2%15.1%

549 621 696 556 659 742 785 896 9161,0171,0401,0531,3081,0561,1251,099

241245259265261299335358374468523557548680549584

159163169179190192229250262267362412425418521420

59 68 70 7 80 72 91 91 84129115148125199215224

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System down time above historic levelsChange in collector performance to reduce talk timeSystem conversionPhysical site changesUnpopular/ineffective management or supervision styleInappropriate incentive program(s)Weather, natural disaster or manmade disaster that could have delayed payment transmission or damaged communication infrastructure

When Interpreting Results, Consider if These Conditions Were Present

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Management actions may affect roll rate;Changes in risk operations/collection management contact strategiesChanges in collection operations effectivenessChanges in acquisition strategies may result in new populations performing differently then prior observed populationsOther factors that can increase roll rate:Failure to replace management in a timely fashionReduced effectiveness in new employee trainingIncrease in the management to staff ratio beyond historic levelsFailure to re-energize collector incentive programs

Tracking—Lessons Learned

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Delinquency Bucket/Performance Stage

Where Impacts Are Typically Strongest

0-11-22-33-44-C/OBKEconomyMMMMHHPayment ProcessingHLL---New Account QualityHLLL--Queuing-HLL--Collection-MHHHHBankruptcy Law Change-----H

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Daniel MeloDanielMelo@fico.comPhone

Thank You!

Slide24

Learn More at FICO World

Related Sessions

Credit Boot Camp: Game On! How to Make Banking Training Fun

Collection Platform Success in a Transitioning Economy

The New Normal: Adopting and Adapting to Drive Growth

Products in Solution Center

FICO

®

Debt Manager™ solution

FICO

®

PlacementsPlus

®

service

FICO

®

Collection Scores

FICONet

®

service

FICO

®

Engagement Analyzer

P&L Insight Service

Experts at FICO World

Bruce Curry

Miguel Cabezas

Alecia Jacobs

Mary Dupont

Juan Carlos Lopez

White Papers Online

Eight Steps to Collection and Recovery Excellence

Can your Collections Team Support Your New Compliance Framework

Blogs

http://www.fico.com/en/blogs/category/collections-recovery/

Slide25

Please rate this session online

Daniel MeloDanielMelo@fico.com

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