The Trio around Credit

As we saw this week with the announced reductions at Klarna, managing credit is orbited by three groups being drastically impacted by the ongoing shifts. Here I'll do a short look at how the enterprise, the customer experience, and agents are impacted. The long-term sustainability of any enterprise providing credit needs all these pieces to work in together, all of which are strengthened by technology.

The Enterprise: Cost and Scale

At the heart of credit servicing lies the enterprise extending credit. This piece is fundamentally shaped by two critical financial metrics: the cost of servicing and the default rate. The cost of servicing encapsulates all expenses associated with managing credit accounts, from processing payments to handling customer inquiries and maintaining compliance with regulatory standards. It's a complex amalgamation of operational expenses, technology investments, and personnel costs. The default rate, on the other hand, measures the percentage of borrowers who fail to repay their loans as agreed, a direct hit to the lender's bottom line.

Operating as an enterprise is an intensive endeavor. The economies of scale play a crucial role; larger institutions can spread their fixed costs over a greater volume of serviced credit, potentially lowering the cost per account. However, this scale comes with its own set of challenges. It's easy to get stuck in existing operational patterns, accustomed to a certain default rate and manual processes. When default rates shifts upward —even slightly— the inflexibility of these setups starts to make a lot of noise. They struggle to adapt, often resorting to hiring more personnel, which further escalates costs.

The Customer: Seeking Agency

The customer experience embodies the entirety of borrower. Here, the dynamics of credit management intersect with psychological and cultural factors. The notion of discussing financial issues, especially debts, is fraught with sensitivity. The fight-or-flight response is a testament to the deeply ingrained cultural aversions combined with our own evolution. This sensitivity underscores the need for a nuanced approach to customer engagement, one that empowers customers with agency.

Agency, in this context, means giving customers control and options in managing their debt. It's about moving beyond the traditional, often adversarial, creditor-debtor relationship to one that is more collaborative and supportive. Customers who feel they have agency are more likely to engage proactively with their creditors, seek solutions, and ultimately, fulfill their obligations.

The Agent: Bridging Tensions

The agents are the frontline workers managing customer accounts and negotiations. Agents operate in a highly pressured environment, typically driven by KPI's that focus on mass or squeezing the situation. The nature of their work, dealing with upset customers who may have received distressing letters or messages, is inherently stressful. This stress is compounded by the volume of accounts they must manage and the pressure to extract payments from difficult situations.

The high-stress nature of this role leads to significant churn, further escalating the enterprise's costs and creating a vicious cycle of inefficiency and dissatisfaction. The challenge, then, is to find ways to alleviate the pressures on agents, enhancing their capacity to manage those accounts that really require empathy and the human capacity.

Transform Now

Going back to the news this week, you will see more and more of these types cases like Klarna popping up in the news. Although I would not try to diminish the impact of job loss, these are highly frustrating jobs because of a lot of the nature of the work. If you can leverage the current wave of chat to remove friction for both the customer and the agent, then you will see the benefits in all three groups. Customers are not prompted to run, agents focus on more complex issues that require a person, and the enterprise gains efficiencies, lowering those servicing costs.

It doesn't end there though. By combining other types of automation and AI models into other parts of the process, all three groups will see benefits. More segmentation combined with the right tooling for the customers also brings down friction. Customers experience more personalized and flexible engagement options: from tailored payment plans to proactive financial advice, enhancing the sense of agency for customers. This empowerment not only meets digital-savvy expectations, but strikes upon a deep-seeded evolutionary part of who we are.

We should not be fighting to keep inefficient, highly-frustrating setups.