Covid loans readiness – 7 steps to ensure your operations are fully prepared
Reading Time 7 mins
Lenders have collectively provided more than £40bn of loans to small businesses in the UK as part of the Government-supported Bounce Back Loan (BBL) scheme. As public interest develops, and as the loans start to fall due for the first repayments, lenders are under intense scrutiny from both regulators and the U.K. Government, as well as the press and social media. Your credit and collections operations need to be ready, as does your leadership team in managing the reputation and regulatory issues that arise.
Not all of the BBL scheme loans fall within the full scope of FCA regulation. Whether regulated or not, in part due to the application of the Senior Manager Regime, the FCA expect lenders to treat all customers in line with stringent industry norms. This means lenders must understand the borrowers’ positions in order to offer an appropriate level of forbearance.
The public interest story around use, or misuse, of tax payers’ money during a crisis, and the involvement of the major UK banks, provides an undercurrent of press narrative that needs to be managed.
The Government still has to confirm what lenders will have to do to claim under the government guarantee. But with some estimates that 60% of the loans might never be repaid, it’s certain that lenders will be expected to do as much as they can to avoid the tax payer having to foot the bill. Not to do so would create another wave of mistrust of banks that the tax payer will have to once again bail out. And while the Government is underwriting the credit risk, the responsibility for Know Your Customer (KYC) and fraud checks falls fully on the lenders. It may be prudent not to expect any leniency. It’s key for lenders to ask themselves whether they can demonstrate that they’ve followed industry standards, and their own existing policies and procedures, in particular in addressing fraud risk.
Using the experience of the last financial crisis, we’ve put together some critical actions that we recommend you start implementing now, to give you and your teams the best chance to come out of this challenge with enhanced customer advocacy and trust.
Take the long view
Over and above the financial damage of the 2008 crisis, banks lost a key component of their competitiveness during the financial crisis: trust. To avoid undermining consumer trust further, banking operations’ leaders should review the decisions that they take today as if being judged on these in ten years’ time. You should therefore ask yourself how the decisions you made, and will make, will be viewed from a conduct and fairness perspective. To help you do so, use the spirit of the regulations rather than the rules to design your treatment strategies and processes.
In this new, uncertain context, it’s wise to assume that the regulator expects lenders to follow their existing practices. Customers - and the public in general - trust banks that have helped people with their finances. The purpose of your collections operations should therefore be, where possible, to help your business to thrive, rather than to reduce your short term exposure.
Train for empathy
Small business owners are suffering from the pandemic, and the associated lockdowns and financial hardship, both at a business and personal level. Indeed, Covid-19 has had a detrimental impact on mental health (eating and drinking disorders, domestic abuse), and your business owner clients will not be immune. This could lead to people finding the idea of contacting their banks when in difficulty to be too overwhelming a task.
Your teams need to be sensitive and aware, to adapt, find the right words and be able to support clients in these situations. In turn, you need to equip your people to address new types of vulnerability. Your job is to determine the capabilities that you need in the current context, and design a training plan to address and deliver the required skills. Use remote working best practices to deliver this training and maximise its impact.
Boost operational efficiency
You’ll likely need to improve operational efficiency in order to help you cope with increased demand from May onwards. Ensure that your operations managers are equipped with the skills and tools to plan and manage their resources adequately, and to manage demand and the daily work of their teams in a structured manner.
Use the next few weeks to re-validate your operating model. For instance, have you thought about using analytics to segment and better understand the potential case load, and effective planning to use your most experienced resources for the right cases?
It’s important for lenders to document how they’re making their collection/repayment decisions, and what data they’re basing their decisions on. Have you mapped out the process to deal with, examine and investigate suspicious and fraudulent cases? Have you prepared and established processes and resource to manage fraud cases referred to you from business agencies, law enforcement and similar? Relying on existing resource and methodologies may fall well short of what is needed, given the potential scale of fraud, and the time taken to properly investigate, report and resolve such cases.
Use friendly tech
Leverage technology that will make analysis of your data easier, and make conversations simpler for customers. Use digital tools to free up your people’s time, allowing them to dedicate that time to more complex conversations. Chatbots are proven to be easier to interact with for some customers in financial difficulties, as they are seen as less judgemental than human beings.
Engage with your customers now
Lenders will already have significant data on borrowers who were existing customers before the pandemic. But they need to gather data on new customers now, to be in a position to conduct the appropriate level of analysis to evaluate customer risk and ability to repay.
Proactively contact your customers, and use analytics to identify and then contact those who show signs of vulnerability. In all your interactions, ensure you communicate clearly. Use behavioural science to assess whether your contact strategy is going to yield the desired income. This will enable you to avoid adding to the ambiguity of the Covid situation, reduce future complaints, and mitigate reputational risk.
Some customers have exhibited, or will in coming weeks or months exhibit, indicators of financial distress and/or suspicious or fraudulent behaviour. These are not always easy to separate – the indications will become more obvious as you seek to recover funds, communicate and reach agreement. Processes, training and a well-constructed methodology will be needed to navigate these challenging situations.
Use scenario planning
The future of some sectors, such as hospitality, are still difficult to predict. You should model the impact of different scenarios on demand and resources, to ensure that you’re ready, no matter what happens between now and May. Consider: length of lockdown, government help, the vaccine/immunisation period, health related regulation and guidance, and recovery rules. Ensure you have a capacity plan for each of these scenarios, and incorporate them into your credit risk models. Flexibility and agility will be key in reacting to these changes successfully.
Assess the readiness of your third party suppliers
If you rely on suppliers to deal with collections, investigations, or managing your overflow, you should assess their readiness, and ensure consistency in customer treatment between in-house and outsourced interactions. If your capacity plans reveal that some scenarios might put a strain on your resources, consider using third parties to handle some activities, and engage them now as a precautionary measure.
In conclusion, both from a regulatory and a governmental perspective, and in particular given the huge public interest in this topic, the lenders’ ability to evidence robust decision making is key. In this respect it’s wise to consider implementing an independent review to challenge, and then develop and strengthen, those procedures and policies that you’re putting in place in advance of the May deadline.
Gobeyond Partners can help support you with developing your framework and implementing these techniques to ensure you’re prepared for any challenges. Act now and get in touch for more info.
This article is written jointly by Gobeyond Partners and Alvarez & Marsal. Both organisations have combined to provide clients with this objective view on some of the key challenges that have to be addressed in successfully resolving the collection of monies associated with BBLs – careful and considerate relationships with customers, and meeting the expectations of stakeholders, regulators, the government and the public. Our expert teams bring different skills to the challenge, and are ideally positioned to assist you in assessing your strategy and risk management, and in formulating and executing solutions that will navigate the reputational and regulatory risks presented.