Next-Best-Action Collections

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1 Next-Best-Action Collections INCREASING PROFITABILITY THROUGH INTELLIGENT DIALOGUE BETTER BUSINESS SOFTWARE FOR THE DIGITAL ENTERPRISE

2 2 Pegasystems transforms how enterprises use software to better engage customers, simplify operations, and Build for Change. Pega s Customer Engagement Solutions enable businesses to win, service, and retain customers.

3 Introduction Today, for the major service providers in banking, credit card, insurance, healthcare, and telco, overall consumer debt balances, having seen some stabilization in recent post crash years, remain at historically high levels. Regulation in the collections and default management functions has never been so onerous and with new regulation on the horizon older, legacy collections software is struggling to even remain compliant. This paper examines a new decision-based approach to collections, using a build for change technology, which can not only quickly evolve to meet changing regulations but also support innovation and preserve and maintain the critical customer relationship. While consumer debt has skyrocketed, innovation in the accounts receivable industry has also evolved significantly. Telephony options have grown with power dialers and inbound and outbound IVR s routinely deployed. Internet penetration, mobile technology innovations and cost challenges have driven increasing demands for self-service. Analytics and Big Data have created new opportunities. But given all of this change, it is remarkable how little has changed for the human being at the other end of the telephone. When presented with a chance to actually speak with a customer, an expensive and valuable opportunity, how far have service providers actually managed to evolve the conversations? Training can deliver some improvements, but it falls short in preparing collectors for the increasingly sophisticated and complicated job of recognizing and crafting the unique message that must be delivered to each individual to make the most of their customer experience, and using the opportunity in the interaction to collect. 3

4 Pegasystems transforms how enterprises use software to better engage customers, simplify operations, and Build for Change. Pega s Customer Engagement Solutions enable businesses to win, service, and retain customers. Pegasystems Collections Solution (Pega Collections) exploits all of our unique Customer Engagement innovation to drive the risk, marketing and revenue messaging, in real-time, as the collections conversation unfolds. So what is driving this interactive, optimized conversational guidance? Pegasystems has recognized that the decisions being made every day on the shop floor and in an omni channel environment are too important and too numerous to not both control and improve. Pega Collections has been designed from the ground up around a decisioning brain that gets to know each customer, learns how they respond to different payment arrangements and offers, and then tailors each payment strategy and interaction uniquely for maximum effectiveness. This strategy can be delivered in real-time and through any channel that you or the customer chooses. The Pega Collections Solution is Better Business Software TM that guides the collector through a set of intelligently loaded screens and process steps to ensure all regulatory steps are taken. Ultimately and where appropriate, the solution guides the collector to the core activity of the negotiated payment. At this point, analytics drives an optimal payment plan to the collector screen, taking into account all information gathered in real-time, such as Income and Expenditure details, and presents a set of optimized offers unique to that customer. With Next Best Action analytics delivering the payment offers, it is possible to build a mini business case at the individual customer level in real-time to determine the best offer to make. Sophisticated arbitration metrics can be used to balance insight into customer interests, risks, loyalty, etc., with corporate priorities, such as revenues, costs, and branding. The accounts receivable industry is now recognizing that while the company s overall goal is profitability, this does not mean that every interaction must be focused purely on collecting the debt. The better strategy is to continuously maximize the relationship throughout the customer lifecycle. For a very few customers, that may mean collecting as much as you can now as there will be little future for the relationship, but for most customers it means that every interaction, conducted through any channel, is an opportunity to nurture the relationship and increase long-term customer value. The end result is a stable increase in profitability and customer satisfaction. The point for collections is clear. Given the current dynamic economic and regulatory environment, the demands on possible treatments are more complex than ever. If I m a credit card company, I may have a good long-term customer who is experiencing significant and unpredictable short-term cash issues as they deal with dropping asset values so, assembling individual, timely decision-based treatments are critical. I need software that has the power to engage, simplify and change how business gets done. 4

5 The N-B-A model provides analytical support that guides each payment negotiation communication through every channel and line of business. This centralized decisioning capability ensures: Consistency across channels Collections optimization Cost alignment Optimization of interaction time Natural conversations Effective monitoring Compliance Consistency and Collections Optimization Across Channels Absolute consistency, across channels and over time, is achieved because the decision logic executes a complete strategy for each customer that recommends the best payment strategy in real-time, based on the most up-to-date information, which is happening during the customer interaction. For example, a customer who logs into a company s web site or is contacted through an outbound communication will receive the same recommended payment offers assuming of course that the channel is not a relevant factor in the decision. The advantage to this approach is that it offers opportunities to, where appropriate, engage the customer in marketing campaigns which can be inserted into collections by which the agent can offer cross sell/up-sell opportunities. For example, the message could include the suggestion that the customer may wish to purchase specific Payment Protection Insurance. With traditional legacy collections technology, marketing runs the risk of using inconsistent or confusing messages with the customer. Pega powers the digital enterprise with Better Business Software that replaces archaic programming with a comprehensive model built on visual metaphors that business people understand. The resulting digital enterprise engages customers, simplifies operations, and embraces change for competitive advantage. With Pega Collections, marketing can continue as the marketing message can be intelligently and consistently embedded within the collections conversation. The N-B-A model represents a single, continuous campaign that selects the optimal treatment, one step, or decision, at a time. 5

6 Cost Alignment Resources are scarce in every enterprise both in terms of time spent in communicating and money spent in negotiating terms or incentives to make customers agree to a payment offer or arrangement. The art in collections is still choosing where to spend scarce resources. N-B-A strategies and their underlying predictive models enable an organization to be discerning in its use of resources. Given the prediction of the customer s propensity to pay, minimal time can be justified in presenting complex or concession-laden offers to those very likely to pay if they are simply asked to. At the same time, more time and incentives can be justified for those less likely to pay unless they are persuaded. For those with an even lower propensity to pay, time is best spent not on selling the offer but on explaining it and increasing their intent to pay based on the consequences of not bringing the account in line. Finally those with a minimal propensity (a very high predicted write-off) may fall below a threshold for regular offers and only allow small settlements. In this event we collect the most possible in a short period of time with a recognition that the relationship with this customer will end. This hierarchy of strategies optimizes the use of scarce resources and aligns the cost of the effort to the likely value of the customer. The style of the relationship and the costs involved to both parties can be similarly managed and optimized based on business goals. For example, where a customer is of high value and lower risk the emphasis in the conversation may be on retaining that customer, despite significant possible arrears. Dialogue driven though Pega s intelligent UI will have a high customer service component with offers that are customer friendly. Where a customer is of low value, the dialogue will be more assertive, with a suite of less generous offers, where the focus will be on managing the relationship with a tighter set of cost and control parameters. Indeed these calls may even be channeled to lower cost mechanisms such as IVR or self-service via the web. The guided and analytics driven approach enables any and every aspect of the relationship to be explored and optimized, including the cost element of managing that relationship! Optimization of Interaction Time The value of an intelligently guided solution driving collections activities within the organization is that it can add value at both the customer and contact center level. One example of where this can add value to a collections call center is in the optimization of call duration based on the likely outcome of the call and the value the customer represents. While traditional call center metrics have always focused on managing the handle time for a call within a specific, undifferentiated time-period, with analytics driving intelligent dialogue the call duration can be longer or shorter based on the progress of the interaction and the value of the customer. There will be calls where the most profitable outcome necessitates a longer call duration. Pega Collections can optimize this call duration by controlling the conversation and the components of the offers made, including the cross sell and up-sell scripts. Conversely, the solution logic may determine that the customer, for example one submerged in deep chronic credit card debt, represents such low revenue potential that it will drive contacts (both inbound and outbound) through more cost effective channels such as inbound and outbound IVR s. It thus may quicken the pace of unprofitable discussions through very focused conversation management or a shortened account process. 6

7 Natural Conversations For both the customer and the service provider, achieving a natural conversation yields greater satisfaction, better use of time, and ultimately greater profits. It is also more conducive to having customers agree to an offer or arrangement because humans are accustomed to a give and take, interactive style of dialog. For example, achieving a natural conversation in a call center means recognizing the customer s context for the call and aligning the way the agent responds with the way the customer is thinking. Given the context of the interaction, the solution enables the best offers to be made and accepted or declined at an increasing level of specificity by initially offering the most relevant option and then refining it with additional components such as fee waivers and other incentives as driven by the interplay of the conversation and organization s policy guidelines. Therein lies the essential element of an effective negotiation, evolving towards a deal that is a win-win for both parties and a deal that will be kept until its completion. Fundamental to the N-B-A paradigm is the realization that there is no such thing as one-sizefits-all. This is particularly true of the way the relationship is conducted. According to research, customers feel comfortable discussing collections options with a representative, but more commonly through the web. Pegasystems Collections Solution can be used with great intelligence in a headless mode where the collections efforts are lights out. Simply program the rules and the collections strategies, and the system can run automatically in effect, in self-service mode. And of course, some customers still prefer to see their collection notices and payment solutions in writing via the mail. Some customers prefer to be presented with the relevant alternatives by an agent and reach a decision for themselves. Some prefer a consultative relationship in which they explain their circumstances and needs so that the organization can recommend the appropriate solution. Some desire a mutually managed relationship in which they negotiate everything the offer, the components it contains, the terms and the payment amount. A natural conversation will mean something different to each customer. Now that these kinds of complex interactions can be guided, consumer psychology can play an increasingly important role in designing the optimal customized customer experience. By continuously suggesting what to do next during the payment negotiation dialog, the N-B-A decision hub supports iterative and interactive forms of communication that customers recognize as natural. As a result, they know how to conduct their part of the communication and focus their attention on what is being offered rather than being distracted, confused, or annoyed by the process itself. As an example of the dialog which may be used, it may ask questions such as, If you indicated above that your household has a bill 30 or more days overdue, what would make your household more likely to pay the overdue bill? 7

8 Effective Monitoring Using Pega Collections the enterprise is in a position to automatically capture every decision and the basis on which it was made. In fact, this is both practical and affordable only with a central decisioning capability, as the impractical alternative is to trace all legacy rules and other logic that is embedded in numerous, different customer-facing applications and processes. When the effect of the decision becomes evident (perhaps immediately when the customer clicks a button; perhaps a year later when the customer repays the loan), it is then possible to judge and continually improve the performance of the strategies fed to the decision hub. Such a comprehensive monitoring environment plays three important roles as follows: It operates in real-time, giving management an up-to-date view with which to exercise total and immediate control over all aspects of customer interactions. It allows collections strategy analysts designing the customer experience to discover which elements of their strategies work and which do not. This becomes even more important when the decision hub is used, as it should be, for champion/ challenger analysis. Comprehensive monitoring stores each decision as well as the basis for that decision, allowing internal and external auditors to replay the interaction and assess the underlying policies and assumptions. For some areas of decisioning, this is becoming not only a best practice but a legal requirement as well. Maintaining visibility on customer balances has never been more important. Total Control Collections strategies defined within Pega Collections on the Build for Change platform provides a comprehensive and unified visual model to deliver enterprise software that results in business and IT collaboration. The advantage of this approach is that the company can adapt its strategies (and its profitability and operational control) on the fly. It is important to note that this ability does not mean strategies should be implemented casually. They will need to be tested before they go into production as in any normal business practice. However, with its intuitive design and development tools controlling UI, process flow, analytics, recommended payment plans and segmentation logic the business can claim total control over its own strategies. 8

9 Examples of control now in Business hands might be: Updates to regulatory statements due to a change in compliance Experiments have shown that a particular challenger strategy should be promoted to the default strategy. Agents in the call center complain about a conversational flow (script) that is not producing the desired effect and thus requires modification. The strategy needs to be changed in reaction to an action or a movement by a competitor and requires a same-day response. The benefits of the guided and N-B-A paradigm as discussed above are extremely valuable to any customer focused digital enterprise. Next-Best-Action solutions for collections represents a necessary paradigm shift for companies that hope to increase profitability while maintaining high levels of customer satisfaction. Technological advances in predictive analytics and interface presentation have enabled new levels of customer-centricity within an organization. Customers are more likely than ever to choose their own moment and their own channel to contact the company, then select, negotiate, and configure the product or service of their choice. Power has passed to the customer. N-B-A collections tools simply help the service provider listen, adapt, and equalize the balance of that new power. As Pega Collections adds value to every customer decision, its bottom line contribution goes up with both the number of interactions and their complexity. This solution will set the bar of performance for organizations that want to carefully control the customer experience, optimize revenue and resources, and fulfill their brand promise. 9

10 Conclusion Delinquency rates in both the Mortgage and Credit Card markets are low and stabilizing. But in the wake of the financial crisis that saw record high delinquencies and unprecedented forecloses the receivables management space is a different world. Regulation will continue to demand high quality processes and penalties will be severe. Financial and lending institutions will have to be able to change and evolve to meet new standards set by government, but also meet new standards expected by customers. The one size fits all is no longer acceptable by either government or customer. As stricter risk controls tighten the conditions under which new credit is extended the value of each customer must be protected as the costs to attract and onboard them can no longer be offset by new customer volumes. This means that when a customer does come into a collections environment the value they represent and the strategies for managing them must be extremely targeted and intelligent. And to meet regulatory requirements these strategies must also be thoroughly transparent and auditable. Legacy solutions which cannot evolve and cannot bring a new paradigm of intelligence to the interaction will simply fail. Pega transforms how digital enterprises use software to better engage customers, simplify operations and Build for Change. 10

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12 About Pegasystems Pegasystems Build for Change Platform is the heart of Better Business Software. It delivers business agility and empowers leading organizations to rapidly close execution gaps and seize new opportunities. Pegasystems leverages its recognized leadership in Business Process Management (BPM), Multi-Channel Customer Relationship Management (CRM), Business Rules, and Adaptive Analytics to uniquely give its clients the power to engage customers, simplify operations and Build For Change. For more information, please visit us at Copyright 2014 Pegasystems Inc. All rights reserved. All trademarks are the property of their respective owners. The information contained in this press release is not a commitment, promise, or legal obligation to deliver any material, code or functionality. The development, release and timing of any features or functionality described remains at the sole discretion of Pegasystems. Pegasystems specifically disclaims any liability with respect to this information