Why Consumer Experience and Compliance Will Be Critical to Downturn Survival

Q: In a recent interview, Dave Hanrahan, CEO of Kredit, said fintechs will need to get more sophisticated when it comes to their customer service processes, especially collections. Do you agree with that statement?

A: We agree. Customer service suffers from quality and risk control challenges due to the multitude of human touch points. As regulators like the CFPB increase their oversight, implement more consumer-friendly requirements such as Reg F, and volume increases, those human touch points become higher risk and more costly. 

Meanwhile, creditors are interested in protecting their brands and increasing their margin as the public markets prioritize cash flow in a world no longer buoyed by zero interest rates. To mitigate these risks, we’ve seen that fintech lenders have prioritized solutions that increase the quality of the customer experience while decreasing the human touch points required. In particular, they’re assessing solutions that prioritize consumer engagement, compliance, and automation to minimize the historical risk associated with those touch points.

A philosophical change is needed as it comes to collections. Countless creditors have told us how the practices of collections departments have long been overlooked. As creditors care more about protecting their brand and rehabilitating relationships with their borrowers, a compassionate collections program is critical. 

The philosophy of collections must shift from a short-term focus on incremental additional dollars collected to sustained relationships. Compassion at scale is missing and needs to be added to the collections equation.

Q: How would you advise fintechs to approach a potential economic downturn?

A: We’re biased, of course, but we would focus on what happens when payments are behind. We encourage fintech companies to consider what happens if delinquencies and charge-offs are higher than modeled. Strengthen your analysis of key challenges leading to the uptick. Ask your teams:

• How will you engage – at scale – with borrowers suffering from increased financial distress? How will you maintain collections effectiveness?
  
• Do you have confidence in your agencies’ compliance and oversight?
  
• Can you quickly adapt to ever-changing regulations at the municipal, state, and federal levels?

Depending on the magnitude of these challenges, lenders might want to evaluate new solutions to ultimately help them improve their profitability and reduce their operational, compliance, and reputation risks. Solutions range here from better telephony systems, more reliable and dynamic systems of record, superior agency partners.

Q: What was your reaction to the recent CFPB announcement that they intend to use their oversight authority to supervise nonbank entities which pose a risk to consumers?

A: We weren’t surprised. After all, the CFPB’s mission statement makes clear their focus on doing well by consumers. Compliance, effectiveness, and empathy don’t need to be mutually exclusive.

More generally, we view additional oversight as a good thing for consumers and the credit ecosystem. With the rapid increase in new financial products and tools, we appreciate the need for renewed focus on how consumers are impacted. 

That said, we echo industry feedback that additional guidance and clarity on the operationalization of the announcement would improve compliance of companies in our industry.

Q: Did that announcement come as a surprise to your clients? What advice have you given to them regarding the CFPB?

A: Most of the discussions we’ve had related to answering what the announcement actually means. Our advice is to continue prioritizing compliance and the consumer experience. While the CFPB appears to be casting a wide net in who they can target here, those with sub par compliance and customer service will quickly rise to the top of the CFPB’s list.