Managing Delinquency in a Post-COVID World
Delinquency is one of the financial services sectors that COVID-19 is bound to have a direct and immediate impact on. Large scale income disruptions, compounded by a looming financial recession and growth slowdown, dictate that financial institutions around the world adopt proactive strategic measures to handle the impending increase in delinquency rates. At an individual level, the contextual trigger for delinquency can be either of a) temporary e.g. disruption of business due to shutdowns, or b) permanent e.g. job loss.
For individuals with temporary financial hardships, the strategy should be centred around assisting their return to ‘back to normal’ before they slip deeper down the funnel, whereas for those with permanent financial hardships, the strategy has to be centred around
getting them ‘adapted to their new normal’.
What worked/is likely to work
For temporary hardships - Communicating empathy and common interest, offering flexibility in repayment options to help them cope with their hardships, and providing reminders that maintaining financial health will help them cope with future hardships.
For permanent hardships - Communicating flexibility, signaling alignment with their current financial management goals, providing roadmap for minimizing damage in the medium-term and adapting to the new normal in the long-term.
What should be avoided/could be improved
Any punitive measures adopted during this time would only increase avoidance of delinquency resolution. Lack of empathy with their current hardships leads to poor perceptions about intent and interests of the financial institution.