Loan Collections
Insights into the impact of festivals, lockdown and technology on collections, payment mechanisms and customer behaviour:
In earlier days, collection was largely dependent on physical visits of agents to the borrowers’ places. However, digitization in the BFSI domain has rendered the activity convenient for both the lenders and the customers. In these times of the pandemic, digitization has also lessened the impact on collections. What indeed hampers collections is the issue of cash flow as customers are severely affected by the lockdown leading to extreme levels of debt. Festivals too play a role in the lack of cash.
Fincare Small Finance Bank operates in 19 states of the country and each of these states has its own set of festivals and events. The bank follows a few simple steps to deal with disruptions to routine business activities. During festivals or known holidays, it prepones payments of EMI with the consent of the customer. As much as 80-90% of collections are done in advance. The bank passes on the benefit of interest to the customers for the period during which collections are made in advance and what makes the whole process simple is the digitization the bank has adopted.
Soham Shukla, Chief Operating Officer - Rural Banking at Fincare Small Finance, says the bank has been using cashless payment systems. “We have piloted the UPI mode of collection for our JLG customers. During the lockdown phase, the same was used to collect EMIs from customers. However, the percentage of customers who opted for this platform is relatively low, predominantly due to lack of awareness or apprehensions about digital transactions in rural and semiurban markets,” he adds.
U GRO Capital provides credit solely to the MSMEs. While occasions like bank strikes and festivals do not impact the businesses of its customers negatively, lockdowns have affected the operations of these entities gravely and this has naturally affected their operations directly impacting sales and cash flows. Naturally, this affects U GRO’s collection cycles.
Anuj Pandey, Chief Operating Officer at U GRO Capital, says: “For us, being nimble in these dynamic times has helped. We focused our attention towards understanding the problems faced by small businesses and worked towards devising pragmatic solutions to ease the situation for our customers.”
IMPACT OF OCCCASIONS
According to Vinod P, Director/CSO at Speridian Technologies, the regular stream collections from individuals gets affected by joyous occasions such as festivals, marriage, school opening, etc, or conditions such as lockdowns, death, illness, job loss, etc. Some instances can be known upfront and some cannot be predicted or quantified.
He says technology can deal with such situation. He points out that collection systems have become intelligent and can analyze patterns in transactions individually and collectively along with different attributes such as time, geography, sex, profession, or specific instances such as a lockdown. “AI/ML technology has grown and attained a good level of maturity and there is availability of more programmer-friendly tools that software houses are widely leveraging. Prediction of the occurrence, generating warning signals and self-learning capability have matured over a period of time. For confirmed occurrences such as festivals, there are mechanisms where the EMI or collection of that period can be preponed or postponed with the concurrence of the customer – so that he is prepared about this. This strategy can help customers to plan it properly well in advance and this approach has the benefit of providing better customer relations,” he says.
Speridian Technologies enables its customers to capture the responses of customers into the software during a telephonic call or direct visit or via any other channels to get more insights about the status of the customer and provide options for analysis and to device next steps.
“One of the leading NBFCs in South India which uses our core lending system for 3 years, has adopted our BEACON Smart collection system during the pandemic period and had a better collection outcome as compared to the previous year,” says Vinod.
LOCKDOWN AND COLLECTIONS
Vishal Jain, Head – Collections at Clix Capital, says MSMEs operating in nonessential items employ more personalized ways that helps customers to procure their mindshare to clear their obligation on time or predict the potential impact to have an alternate plan to compensate the shortfall and take precautionary measure in advance based on the customer response.
Anuj of U GRO Capital reveals that during the lockdown period, the company estimated the stress on its portfolio by using a combination of macroeconomic data on sectors, financial data from multiple sources and on-ground impact by way of collecting feedback directly from the customers using telephonic surveys. “We leveraged the insights gained from this exercise into portfolio management preparations and provision planning. We utilized the MSME restructuring scheme available to help our customers, who were impacted by the pandemic,” he says.
U GRO Capital implemented a mobile-based collection platform with the help of its fintech partners to enable realtime collection and receipt generation thereby rendering the entire collection process seamless and convenient for the involved stakeholders.
POPULAR PAYMENT MECHANISMS
As customers spend a lot of time with mobiles and the mobile screen time is increasing, digital marketing, online marketing, social media promotions, etc, are getting a lot of prominence. Studies reveal that an average person spends about 3 hours 15 minutes per day on their smartphone out of which 30% of the time is more than 2 minutes.
Vinod of Speridian Technologies says mobile-first should be the strategy that lenders should adopt and his company is enabling its customers in this regard, especially allowing customers to seamlessly make their payments. “What we do is we offer reminder escalations with embedded links to payments, enabling payments via UPI with Google Pay, PhonePe and all other leading UPI providers. Other than this, customers can use their mobile apps or web portals for IMPS/NEFT payments,” he says.
He maintains that analyzing the customer profile based on the customers’ various attributes, transactions and social media activities are another important capability that financial institutions are depending on apart from CIBIL and other scores. These give a lot of valuable insights about the customers and companies are making customized offers depending on customers’ financial performance. “The better your performance, the better will be your offers that you get from financial services providers,” he adds.
Digital payment methods have seen substantial development in the last 4 to 5 years and major changes are yet to come. Soham of Fincare Bank says as a country, India has made good progress in this direction. “However, the opportunity is large and there is lot of ground to cover. For us bank, cashless collection mode is 1% of the total collection,” he adds.
Payment gateways backed by BBPS are becoming popular as these can be customized with the customer’s necessary information and offer convenient tools for the customer in choosing a mode of payment like UPI, NEFT, RTGS, IMPS, wallets, etc. Vishal of Clix Capital says that over a period, these payment gateways can proactively initiate the payment transaction at a customer’s preferred time and date based on past payment behaviour. These features will increase the penetration exponentially, he adds.
According to Anuj, NACH and e-NACH have gained tremendous traction over the past year for repayment mechanisms. Their recurring payments facility covers the majority of his company’s customers and i n cases involving delayed payments, the company is observing a surge in the use of new-age payment gateways.