Canada is in what experts believe to be the peak of the COVID-19 pandemic. Many Canadians have been financially affected by furloughs, layoffs, or other forms of income reduction. In late April, Canadian provinces began to announce re-opening plans. Although this is a positive sign that our economy will start to rebound, it may take months before the plans fully roll out, and months again before we are back to ‘normal.’
In our previous blogs on Canadian financial institutions’ response to COVID-19, we stressed the importance of identifying customers that have yet to hit their most distressing point and proactively offer support to help mitigate upcoming distress. The significance of this approach will only be more critical in the months ahead as they struggle to stay afloat during extended social distancing measures.
From our experience, we know that during the Recession 2008/2009, lenders began building tools to identify which customers would likely default on their loans proactively. However, once the economy improved, these tools became less of a priority and were eventually discarded. Financial institutions now have the unique opportunity to reimagine these predictive tools and create durable assets to exist in perpetuity. The tools should effectively and responsibly use the data they already have, and enable them to guide customers through these financially troublesome times to mitigate the potential upcoming impacts. To successfully build and use these predictive tools, financial institutions need to:
1. Develop a customer data strategy that spans channels and back-office/operations
2. Provide customers with meaningful and forward-looking advice, tools, and information promptly, and in a way that compels action.
In our blog 'March was a Dress Rehearsal,' we emphasized the importance of financial institutions understanding the whole customer relationship, as opposed to operating on a product by product basis. This remains a key tenet for offering the level of customer support currently required. A data strategy that spans a customer's entire relationship with the bank is essential. During this pandemic, people are interacting with their financial institutions more than ever , requesting assistance with not only COVID-19 specific financial measures but rebalancing portfolios and increasing saving activities. The challenge with the data gathered from these interactions is not in collecting the data itself but in consolidation across departments and lines of business. For example, a customer meets with an advisor to rebalance their portfolio and cash-out some investments, then separately inquires about their overdraft limit and applies for a personal loan online.
When you take these actions individually, they do not indicate an immediate need, like a mortgage deferral application. Still, they could signal to the bank that its customer is preparing for financial hardship by attempting to increase cash flow. With consolidated data, a bank is now able to offer the right support before the customer hits its highest distress point. While developing an organization-wide data strategy may seem like a herculean task, the benefits of doing so will long outlive the immediate need.
Proactive support to avoid defaulted loans or mortgages is obviously in both the banks’ and the customers' best interest. However, the bank must handle the offer of support with tact so that customers feel that the advice comes from a place of partnership rather than a sales opportunity. The risk of offering proactive support is that this may come before customers are aware of impending distress and may feel that banks are not only watching their activities, but taking advantage of their financial weakness during a time of high stress.
Some opportunities for financial institutions to provide meaningful support that customers are more likely to accept and act upon include:
Spend/habit tracking applications
Many banks already offer spend tracking apps, which demonstrate spending patterns and highlight changes in behavior. This presents a unique opportunity to provide advice and support in a forum where customers are already used to receiving insights and recommendations.
Interactive advice portal
As covered in our blog ‘Becoming a Source of Truth,’ an interactive advice portal is an excellent option for customers to explore information and assistance measures available. Offering this service in an authenticated environment would allow customers to receive targeted advice.
Mining data and the development of these algorithms may initially seem like large investments in reaction to the current circumstance. However, understanding and partnering with customers at this level will drastically change their relationship with financial institutions in the years to come. The availability of the right resources and the implementation of easy-to-use tools will drive brand loyalty and sales, and lower default rates, long after Canada has recovered from COVID-19.
For more information on Capco’s pandemic customer strategy, please contact us at solutions@capco.com.