By Roy Urrico
The need to shore up collection departments may be emerging among credit unions and other financial institutions as delinquency rates on all types of loans (except student loans) rise. Integrated Financial Technologies (IFT), a provider of business process outsourcing (BPO) solutions for lenders including front- and back-office services to credit unions and other lenders, believes it has a quick-fix solution in the form of what IFT calls “smartsourcing.”
“Fundamentally smartsourcing means working with partners in a company like ours because we have a skill set that either improves upon the skill sets you already have, or brings in skill sets you do not have,” said IFT President Tod Chisholm, who discussed how credit unions can benefit from BPO smartsourcing with Finopotamus.
Chisholm described smartsourcing as a comprehensive discipline where credit unions can leverage a highly trained professional workforce who are well-versed in the challenges, regulations, workflows, member issues, and compliance factors that impact daily operations. This includes an assortment of departments such as sales, onboarding, compliance, loan management, member services, and collections. “Credit unions often need that additional operational support and knowledge. It really is the expertise that we bring to the table.”
Collections Becoming More Relevant
Collections is an example of a pressing operational need developing in the credit lending space.
· In February 2024, the Federal Reserve Bank of New York’s Center for Microeconomic Data in its Quarterly Report on Household Debt and Credit, revealed household debt increased by $212 billion (1.2%) in the fourth quarter of 2023, to $17.50 trillion with credit card and auto loan delinquencies still rising above pre-pandemic levels. Mortgage balances rose by $112 billion from the previous quarter and stood at $12.25 trillion at the end of December. Delinquency transition rates for mortgages increased by 0.2 percentage points yet remain low by historic standards.
· Equifax Canada’s Market Pulse Consumer Credit Trends and Insights report in March 2024 also revealed consumers’ struggle to make monthly credit payments. Delinquency rates for non-mortgage balances that are 90-plus days overdue went up from 1% in the fourth quarter of 2022 to 1.3% in fourth quarter of 2023, representing a 28.9% increase. Mortgage delinquency rates over the last 12 months saw a 52% from .09% to .14%.
“In North America, there's definitely some increased collection activities and delinquencies. But to recruit staff and use best practices and all the modern tools can be a lengthy process,” Chisholm told Finopotamus. “So, as an organization, we're trying to remind people that if you need immediate help, which a lot of organizations do right now, we're probably one of the fastest providers that you could work with to do all the integration stuff.”
Augmenting Staff and Improving Member Experience
“Your average CFO, CEO, COO, probably does not know BPO. They would just know it as outsourcing,” said Chisholm when asked by Finopotamus “Is BPO a term that most credit unions understand and know?”
BPO has long been used to augment staff on the member services side to supplement an organization’s contact center personnel, explained Chisholm. “However, BPO has evolved into a more comprehensive discipline called smartsourcing. He added, a combination of this deep expertise and state-of-the-art technology will help drive efficiencies through a range of departments at any lending company.
Chisholm said credit union members are looking for more seamless, rapid, and friction-free experiences than ever before. This is due to the increase in self-service models and instant transactions that permeate almost every interaction, from how people shop for household goods, to how they pay bills, to how they find dates.
“Smartsourcing can help credit unions enhance productivity to meet these raised consumer expectations in ways that go far beyond merely providing additional staff,” said Chisholm. This includes areas such as business development, marketing outreach, and “the all-important goal of delivering superior member service that will help differentiate a credit union from traditional banks.”
Leveraging Smartsourcing
Chisholm provided some examples of how credit unions can gain significant benefits from this outsourcing model.
Sales: Smartsourcing agents have deep industry expertise to fulfill brand-specific, outbound marketing campaigns. Once supplied with the specific details of the campaign, a smartsourcing provider can execute the program from start to finish. The team can initiate outbound communication, conduct outreach, prequalify interested respondents, and conduct loan management activities — without the need to hire additional staff or devote in-house resources.
Quality assurance: Advanced smartsourcing companies leverage AI-based tools to ensure that all regulatory and reporting requirements are recorded accurately and completely. The most sophisticated smartsourcing providers, Chisholm noted, have technology that provides detailed analyses and reporting functions in real-time, and can detect sentiment levels, such as whether a member was irate or dissatisfied. These insights can help companies improve member experiences while assuring their work was handled according to the credit union’s specifications.
Cost-Savings: Often, a financial institution identifies an in-house area that needs strengthening or a department where it is difficult to maintain staff. Rather than allocate resources to those areas, it can be more cost-effective to smartsource with a partner that has the appropriate expertise, explained Chisholm. “A well-trained smartsourcing provider can fill a gap in a sales, collections, member services, or marketing department. Additional cost-savings make it easier for credit unions to maintain competitive fees compared to conventional banks.”
Responsiveness: Real-time feedback from AI-based assessments can help organizations pivot their strategies. This intelligence helps credit unions make immediate adjustments to correct deficiencies or take advantage of emerging opportunities to expand their offerings. Chisholm explained IFT uses AI to monitor customer sentiment. “If a customer says good things or bad things or an agent gets off script, we're able to [perceive] that.” Plus, they can communicate via text messaging and emails and all the other components expected. “Many of those things are not easy to do in a legacy platform for credit unions or other financial institutions.”
Reallocation: Organizations can turn to smartsourcing partners to reallocate in-house staff to more critical needs requiring their expertise. This allows credit unions to use their seasoned personnel to address more strategic requirements, while ensuring that core business needs are professionally addressed. “Flexibility of this nature can also empower credit unions to use their personnel resources to innovate their own offerings and grow, while maintaining a superior service level with their existing member base,” said Chisholm.
Chisholm added smartsourcing has evolved to deliver a roster of benefits for credit unions, allowing them to leverage an intelligently-trained, outsourced staff to create efficiencies and improve services. “This is certainly a ‘smart’ way to manage total cost of ownership while supporting improved member relationships and fostering long-term growth.”
“We're able to deploy a full 100% quality assurance (QA) monitoring,” said Chisholm. “In the old school business process outsourcing or outsourcing methodology, you do a QA of five or 10%, and then you would give those results back to customers and to lenders. That leaves 90% 'unlistened' to and unmonitored. We do not have that environment. It is 100%, every transaction fully monitored. That is the benefit of artificial intelligence; it can do things at scale that a human simply could not do.”
Assessing the Need for Help
Chisholm said IFT’s smartsourcing services can be white labeled according to the credit union’s branding requirements, creating more professional and seamless lending experiences. He added, “What we find, particularly in the credit union space, it is a lot easier for them to edit our already tried and true practices than it is to create. We often will provide everything from the credit operation manuals to the support manuals, the workflow diagrams and all the things needed for business processes.
Chisholm said IFT continues to add credit union clients including First West Credit Union, which began working with IFT In 2021. “There's a bunch that are in process.”
Chisholm also hinted at a major announcement coming this fall that he described as a service for credit unions where they can provide funding. “Think of it as pooling, whether it is automotive, power sports equipment finance, even personal lending. They can fund this business within this broader ecosystem where we provide a full turnkey lending solution.”
He described it further. “Think of CUDL [an integrated financing platform assembled to connect dealerships to credit union lenders]. That same sort of setup only for these kinds of services. We are creating this specifically for credit unions, because they have capital to deploy, but they simply do not have the operational capacity to be able to do some of these things.”