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What to be aware of … setting your goals for 2018

It is starting to develop, slowly but surely, that end of year feeling. End of year parties are taking place, decorations are up and more importantly EVERYTHING now needs to be done by the end of the week.

Unfortunately, the days when we would all ‘wind down’ for the holidays seem to be long gone. Now if anything it seems more intense as we all try to squeeze in one more deliverable before January.

Despite delivery pressures, thoughts at this time of year do gradually start to move to what next year will bring. Importantly what do I need to put in my 2018 goals, what can I promise and what is actually achievable? Here are some thoughts.

Being prepared

There are a couple of trends we know about, on the horizon, and worth being prepared for. They are heading our way.

1. Seasonal volume increase. Q1 is always busy, especially in collections. Customers have started the new year too and many sort out their affairs at this time. Undoubtedly this will increase demand for resources. Have smart strategies to help handle the volume. Have these ready asap.

2. IFRS9. The much-anticipated new accounting standard is live in January. Understand the impact and ensure you have a strategy to respond.

3. GDPR. The new data protection regulation is due to go live in May 2018. Whilst many organisations are advanced in terms of regulatory preparation, this will get rolled out to operational teams for implementation Q1. Procedural and operational readiness will be required, so make sure you are ready.

4. Persistent Debt. Further to the FCA Credit Card market study, the policy rules for companies to help customers in persistent debt are expected Q1 2018. This is expected to include the waiving of interest and fees for customers in persistent debt, bringing a new wave of volume into the collections arena (if it is not there already for pre-arrears work). Understand the implication, volume impact and anticipate a strategy to handle the change.

5. Open Banking and PSD2. Open API frameworks are due to go live in early 2018. If you are in financial services, it is worth checking in on the response for your organisation. Be ready to handle or capitalise on implications or opportunities for your process.

Ready to respond

This is a lot of change and let’s not forget all of this is in a cost controlled environment, already requiring strict regulatory compliance. Responding is not always easy and staff can often feel over stretched with not enough hours in the day.
However, a couple of approaches we have seen may also help.

Automate and use data. The use of automation and data is becoming increasingly important to both manage compliance and control costs. These techniques can be used to take the load off existing processes.

Ensure System robustness. Many organisations are still reliant on legacy system platforms. The collections system market is particularly exciting at the moment, with many new entrants competing against established suppliers. Innovation is up and some organisations are using this as an opportunity to make a significant step change of capability. This could be worth review and benefit assessment to see if the time is right for an upgrade too.

Prioritise activity. This can help to eliminate or de-prioritise non-value add activity, focusing on high priority items such as financial performance, ensuring customer fair treatment and compliance. Understand where you are, what needs to be done and in what order to maximise benefit.

Flexible resourcing. But genuinely, in a world where resources are stretched and there are not enough hours in the day, there are three choices; elongate the deadlines, reduce quality of output or get additional resource. When deadlines cannot be moved, time limited expert resource can really add a lot of value.

2017 was undoubtedly a year of consolidation and change. Indications are next year will be similar, with some new structural change we know we will need to be handled.

So once your year-end deadlines are done, the stream of email subsides (at least for a day!), hopefully you are able to take a breath, step back and recharge, so you can be prepared and take charge in 2018.

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OFWAT: Affordability in the water industry

Recently OFWAT released their Affordability and Debt document and it has made interesting reading.

There has been a significant increase in the debt burden across the water industry, with outstanding bills jumping by £300m over four years. Collectively, supporting unpaid bills is now adding £21 to everyone’s bill, which of course also hits those already in financial difficulty.

What is also interesting is how the water regulator has clearly listened and taken note from other UK regulators, in particular the FCA. Affordability and vulnerability feature prominently across the document, and there is a small sense of frustration that more can still be done.

Clearly there is a compelling financial argument to improve performance and, with the news that there will be no glide-path in the next price review (PR-19),  improvements in customer treatment and performance are essentially being mandated which is good news for customers.

Accepting bad debt as ‘just a cost of doing business’ is no longer going to be acceptable.

Getting ahead of the game

Just as OFWAT has been guided by other industry regulators, so can the industry itself be guided. In fact, although the guidelines may seem tough in many ways, they are in line with what we observe elsewhere. Knowing this can provide a huge gain in setting out a plan of action and response which can provide companies with a competitive advantage.

Here are three steps to think about.

1          On-boarding process

A response often heard is ‘we have to accept everyone’, so why does this matter? As a universal service this is true; however, understanding your customers’ circumstances as early in the lifecycle as possible (i.e. acquisition) is critical. It allows you to develop and sell appropriate propositions which better meet customers’ needs. It also informs and provides insights that enable effective collections strategies to be developed for different customer segments, including the use of affordability schemes. It’s important that customers are encouraged to embrace these schemes and manage within their means.

2          Gathering and maintaining high quality data throughout the customer lifecycle

Customer service and collections are in the data business. In every interaction we need to gather data that can help us inform and improve the level of service provided from onboarding customers to the collection of debts. This data is also invaluable in developing and determining which collection strategies to deploy, when to deploy them, anticipating problems and presenting solutions early before they come unresolvable. This scientific approach as used to a great extent across the wider industry is also applicable here. The emphasis needs to be on prevention rather than cure.

3          Tailoring solutions

A significant theme over the last nine years in financial services has been one of treating customers fairly (TCF). More recently this has been referred to under the headings of Affordability and Vulnerability, the terms used in the OFWAT report. On every call, affordability needs to be discussed, potential vulnerability assessed and appropriate solutions found. These can range from product switches, pricing changes, forgiveness of additional fees to sign posting of free debt advice, the objective being to find the right affordable solution to mitigate the risk of the customer spiralling further into debt.

Identifying, assessing the customer situation correctly and presenting the best options is not always easy; now, however, with many years’ experience in this area we have implemented some great solutions that are well worth considering and discussing.

A change of approach

From what has been seen, there has already been some great progress. See for example Arum’s case study with Thames Water reduced the bad debt charge by around 35%.

There has also been substantial investment by some companies facilitating the execution of good practice including the use of scoring, segmentation and indeed some robust practices in Account management/Collections which have assisted various stakeholders and delivered improved customer outcomes.

This being said, there is also opportunity. Some of the best in class practices/process routinely implemented in other sectors are also applicable in water and with the latest guidance from OFWAT will need to be implemented to maintain and hopefully improve performance and customer outcomes.

OFWAT’s direction is one of a number of good reasons why water companies who are already performing well in debt would wish to improve in addition to those who are performing less well.

Looking further ahead, full, open market competition in the consumer water industry is not yet in place, although this is likely to be another step on the path to it.

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The GDPR changes headed towards us

Late last year I attended an event in London on compliance and control within the Collections and Recoveries area.

The question was asked, “By show of hands, how many of you have heard of or are preparing for the implementation of GDPR?”; about three hands went up.

It was quite a shocking sight, both given the audience and the level of potential fines that could be applied. Clearly greater awareness was needed.

Since then, visibility for GDPR has increased.  With the legislation proposed this month by the UK government, there has even been greater interest and coverage within the media – a positive development.

However, data is the lifeblood of the Collections and Recoveries industry. With such potential for significant impact, GDPR is a topic that we need to be fully aware of –  understanding and safeguarding against the potential impacts on business.

GDPR origins and meaning

GDPR is the General Data Protection Regulation. It is EU legislation, due for implementation in May 2018.

This legislation is an enhancement to existing data protection legislation (e.g. UK DPA 1998). The intention is to bring the rules up to date for the modern environment (e.g. cloud computing, data processing, social media, ‘big’ data). It is applicable to any company that exchanges or holds data with someone within an EU member state.

This is applicable in the UK, which will still be an EU member in May 2018. However, the UK is introducing legislation, so it will also be embedded in UK law too.

Either way, if you are in the UK, this applies to you.

The GDPR key requirements

The legislation builds upon many existing requirements, strengthening where required. A useful summary of changes under GDPR has been provided, summarised below.

  • Consent: Consent needs to be clear and accessible, being as easy to withdraw as to give.
  • Data breaches: Breaches of data need to be notified to the regulator within a 72-hour window and to customers ‘without any undue delay’ once discovered.
  • Right to Access: Customers will have the right to access a copy of their personal data, free of charge.
  • Right to be Forgotten: Customers also have the right to be forgotten and have their data erased, where the data is no longer relevant or the customer withdraws consent (this is with some constraints around legitimate interest).
  • Data Portability: Data can be received in a format that can be sent elsewhere.
  • Privacy by Design: Privacy needs to be included within the system design, not an add-on.

Penalties for non-compliance

Under GDPR, organisations in breach of regulations can be fined up to 4% of annual global turnover or €20 Million (~£17m), whichever is greater. The fines are tiered depending on the specific details of non-compliance, however still significant vs the previous regime which had a limit of only £500,000.

Getting your organisation ready

The ICO has already released a good paper on steps organisations need to take in order to be prepared. They are as follows:

  1. Awareness: Ensure there is awareness of GDPR across your organisation.
  2. Documentation: Document the information you hold on customers.
  3. Review of current privacy notices: Ensure they are compliant.
  4. Individuals’ rights: Review of processes to ensure rights, such as provision or deletion of personal data, can be covered.
  5. Access requests: Ensure suitable processes are in place to handle access requests within the timescales (30 days).
  6. Lawful basis: Ensure lawful basis for processing personal data.
  7. Consent: Review processes for seeking, recording and managing consent per the new regulations.
  8. Children: Ensure there is ability to record and identify a customer’s age (if children).
  9. Data breaches: Ensure procedures are in place in advance, for action, should a data breach occur.
  10. Data protection: Needs to be included by design.
  11. Data protection officers: Appoint a data protection officer.
  12. International: Understand the implications if you work in more than one EU member state.

Impacts for Collections and Recoveries

Over the last ~20 years, data has increasingly become the lifeblood of Collections and Recoveries.  We have become more and more reliant on digital, electronic interaction, and the data trail it leaves, to inform and guide our processes.  It has driven efficiency, increased the accessibility of credit, brought down costs and enhanced interactions with the customer.

In part GDPR places some limits and controls around these processes.  It has the objective of providing a higher degree of consumer protection, which is undoubtedly positive for the customer base.

However, with the current reliance on data, it is not without potential for impact.

Losing data or consent

The big fear for the collections industry is that, either through withdrawal of consent or by request of erasure, there could be a reduction in level of information and data available.

This data is currently used on a daily basis to inform actions, efficiently tailor solutions for customers and trace those that have moved.

Loss of this data would have impacts to the cost of credit, increasing operating expense and the impairment charge.

Obviously, with such potential for impact, this generated some discussion during the consultation period (particularly for credit reference agencies).  As a result, there are some safeguards to allow this information to be processed under the legitimate interest wording.

Similarly, the view is that customer account details will still be able to be passed to third parties e.g. DCAs, as this is in the legitimate interest and on balance a reasonable course of action.

However, the company will still have the requirement to inform the customer of the legal and legitimate interest pursued.

Customer profiling limits, increasing transparency

Additionally, within the data science industry (the good folks that build our risk scoring models) there are a couple of further impacts.

GDPR will place some limits around customer profiling, ensuring greater transparency on automated model decisions. The customer will need to be aware of and understand the consequences of such profiling.

There are also provisions to provide the right to an explanation of any automated decision (e.g. why a credit application was declined) and safeguards for bias/discrimination.

In short, we could see changes to the volume and level of detail of data available for Collections and Recoveries processes.  This is something we need to monitor for.

Action for now

The exact size, speed and extent of these impacts are still to be determined; however, what is certain is that changes are underway that will impact us all.

It is going to be critical to have the infrastructure to monitor and prepare for any changes in data quality within the collections and recoveries process.

Additionally, consent and transparency need to be included within our processes, linking into any wider organisation process for data breaches and changes.  This is a ‘must ask’ question for any new system implementation or pending change.  It will be important to have infrastructure ready and in place.

Lastly if your organisation does not have a data protection officer and/or you have not heard about GDPR at work, you need to raise this now and take advice.

These changes are coming down the road for us all, at speed, and are something we cannot avoid.  With scope for such large fines, complacency is somewhat dangerous with such short time frames.

Be ready, be informed and be prepared.

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