In a previous post, Delinquency mitigation optimizes to reduce bad debt, the concept of collections personas was introduced. Personas are useful for determining the next best action for a customer in the initial delinquency stage of 1-29 days past due. Next best action is a term common in the world online product selling. It’s a different approach than applying the same tactics to every customer. Here’s how consultancy Deloitte describes the difference:
The Next Best Action capability enables organizations to shift from a product-centric view to a customer-centric focus. This means that product offerings are tailored for each customer, rather than single products being marketed through large-scale and costly outbound campaigns.
The concept applies to collections as well. In that prior post, we argued that collections groups must move to the next generation of tools. Rather than focus only on the daily cash collected, they can focus on the broader issue of reducing bad debt. That requires a more nuanced understanding of each customer and applying differentiated actions to minimize future bad debt.
Personas are a method of creating a fuller view of an individual, and understanding their characteristics. Using multiple dimensions, personas fill out a customer beyond a transactional account number. For collections personas, the BackOnTrackTM delinquency mitigation platform is a source for the 3 C’s of Collections: cause, capacity, control.
3 C’s of delinquency: cause, capacity, control
As consumers complete BackOnTrack, multiple data points are collected. Among these data points are three that measure the cause, capacity and control of the individual. With apologies to the venerated 5 C’s of Credit, these three dimensions represent the 3 C’s of Delinquency.
Cause: The collections customer writes out what has caused their delinquency. Their response is coded into one of seven reasons. These reasons can be plotted on a scale of severity.
Capacity: BackOnTrack completers are asked a question regarding their ability to address an emergency cash need. This response can be plotted on a scale of financial fragility.
Control: An important aspect of customer behavior is their own sense of control. When considering their ability to avoid delinquencies, customers communicate their sense of agency, their ability to effect changes.
Each delinquent customer falls somewhere along these three dimensions. Mapping their position along the three dimensions allows us to create delinquency personas. As you’ll see, these personas provide insight into subsequent payment behavior.
9 collections personas
We have identified nine collections personas in the table below. The personas and serious delinquency (90+ DPD) rates are based on 12,000 credit card accounts that were in the earliest stage of delinquency, 1-29 days. After completing BackOnTrack, we have payment performance data for these customers 4-11 months later.
The table below lists the collections personas and their serious delinquency rates.
|#||Persona||Dollar 90+ DPD rate||Pct total|
|1||“Financially secure” forgetter||5.0%||11%|
|2||“Will figure it out” forgetter||8.3%||17%|
|3||“Get through it” saver||9.9%||8%|
|6||“Scrambling after a setback” payer||19.8%||11%|
|8||“On the edge” payer||28.0%||12%|
|9||“Under an avalanche” payer||34.8%||16%|
Each of these collections personas are plotted on the three dimensions of cause, capacity, and control. Below, short descriptions of each persona bring them to life.
“Financially secure” forgetter: This customer entered delinquency after forgetting to make a payment. They have means and feel fully in control of fulfilling this payment obligations. Unsurprisingly, this persona has the lowest serious delinquency rate.
“Will figure it out” forgetter: Similar to the previous persona, this person forgot their payment. Forgetting is one of the easiest situations to manage for a household. The difference for this persona is their financial wherewithal. Rather than savings, they have to tap alternative methods to cover an emergency cash need. They do have a strong sense of control over their ability to make payments on time.
“Get through it” saver: This persona differs from the previous two in that the reason for the delinquency is not forgetting. Rather it’s somewhat temporary setback, such as car repairs or a death in the family. These shocks often do require cash. This situation is balanced by the household having good financial resources and a feeling of agency over their financial affairs.
“Scrappy” forgetter: These customers forgot to make their payments, ending up in the 1-29 DPD bucket. Forgetting is generally the easiest issue to address. However, what marks this persona is a high degree of financial fragility. They struggle to cover emergency cash needs. What saves them is a tenacity, a sense that they can prevent being late going forward.
“Resolute” payer: The driving force for this person’s performance is their own sense of control over their financial affairs. They’re unable to articulate why they were late, and do not the most reliable sources of funds for an emergency. Their sense of agency helps them figure out how to avoid serious delinquency.
“Scrambling after a setback” payer: This persona marks a decided difference in serious delinquencies from the personas above. This person has hit a temporary setback, one that disrupts the flow of their household. Compounding this issue that their sources for emergency cash are unstable. Helping this person is their own sense of control that they can prevent delinquencies going forward, but obviously it’s limited.
“Overwhelmed” payer: There is overlap in traits between this person and the previous one, “Scrambling after a setback” payer. The biggest difference? The sense of control over their financial health. This persona doesn’t possess a sense of agency of their own affairs, with worse payment performance following.
“On the edge” payer: The defining characteristics of this persona are their high financial fragility and no sense of control over their future financial health. These customers are experiencing temporary setbacks, but are ill-equipped to deal with them.
“Under an avalanche” payer: This persona unfortunately has the worst delinquency performance. These individual are experiencing a work-related disruption to their finances, often the loss of a job. Analysis shows work-related causes of delinquency are the most disruptive of all. They at best have access to unstable source of emergency cash, or none at all. And they feel a lack of control over their future financial health.
All of these personas are based on standardized input collected during BackOnTrack. While the fields are standardized, the values will vary by customer. This is scalable personalization that allows collections groups to apply next best actions, maximizing daily cash collected and minimizing future bad debt expense.
Click here to find out how our delinquency mitigation platform BackOnTrack reduces recidivism and enables personalization in the collections process.