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AI-driven compassionate lending: Better for banks and customers

Two women in discussion while sitting in an officeDelinquency rates have been low during the pandemic. However, forbearance, social policies, and fiscal relief are phasing out. Institutions must be prepared for an oncoming bubble of non-performing loans (NPLs). As EY stated in a recent blog post, “With large swathes of retail customers and small-to-medium-sized enterprises (SMEs) expecting to need financial assistance to avoid collections, banks must act now to devise a set of unique debt treatment strategies and solutions.”

Unfortunately, traditional collections methods are expensive, ineffective, and damaging to customer relationships and brands. Once an account goes into outbound collections, the success rate drops to 5 percent.[1] This is a costly and inefficient process at best. Processes like this also rarely consider the context of the debt and the psychological impact on the customer. Customer retention suffers, the NPL is less likely to be paid, and a bank then needs to invest to acquire new customers.

Focusing on customers, relying on science

These are some of the reasons that leading financial institutions are embracing compassionate lending, a consumer-centric approach based on behavioral science and advanced analytics. Identifying risk earlier and tailoring resolution strategies help keep customers out of collections—maintaining the relationship and reducing losses. It’s better for the customer and better for the business.

Symend, a Microsoft partner, is leading innovation in compassionate lending by delivering hyper-personalized digital experiences. Symend’s white label software as a service (SaaS) solution, which uses Microsoft AI services and Microsoft Azure, designs and deploys digital engagement strategies that match the pace of changing consumer needs, preferences, and behaviors. Symend’s solution can be applied to proactively engage at-risk customers, providing tailored, proven options that resolve past due accounts faster. Institutions can engage with customers through their preferred channels, ethically and empathetically guiding customers toward self-serve tools and flexible payment options at scale. This helps customers maintain a healthy relationship with the lender, reduces penalties, and resolves past due bills before reaching collections. All of this enables enterprises to protect their brands, retain customers, resolve NLPs, and reduce costs.

Combining behavior and risk

As I learned recently from David Nathanson, Senior Vice President, Head of Global Sales and Partnerships at Symend, this is a departure from segmenting portfolios based on types of risk, which tend to rely on simple thresholds for decision-making. Instead, Symend uses data to personalize offers and interactions. “By capturing insights from millions of engagements, we can tailor digital interactions to groups of customers that behave similarly, which are overlaid across risk cohorts. This way, you wind up with a much more personalized interaction and strategy, which adapts as your customers change.”

Symend’s research shows that 76 percent of consumers are more willing to pay off debt if the experience is friendly and personalized. The company’s in-house analysis further confirms that customers treated with empathy are more likely to engage positively and pay outstanding bills.

Maintaining the chain of communications is critical. Distressed customers are often fearful of communicating with their financial institutions, especially when the relationship turns adversarial. Using Symend, financial institutions can prevent this disconnect. Based on its own research on open and click-through rates, Symend’s clients see click rates up to five times higher than the industry average. This increased engagement correlates with improved cure rates.

With tailored messaging and the ability to drive specific behaviors, Symend’s clients also see customers move out of delinquency faster. Research shows speed-to-cure improvements averaging 10 percent and improvements in roll rates averaging 2–3 percent for customers 90-days-plus past due. In Nathanson’s words, “There’s both a positive economic impact and a positive brand impact, and an overall positive societal impact. When you can drive value across those three very specific pieces, there’s a huge return for our clients.”

When customers feel empowered to make decisions, they take positive action. When financial institutions bridge the gap for those who are struggling to make payments, success is achieved for both the consumer and the enterprise for the long-term. At Microsoft, we are proud to partner with innovative companies like Symend that are using data and technology to tackle big challenges and improve people’s lives around the world.

[1] Five ways banks can transform their collections processes, EY US, 2020