Open Banking Solutions and Credit Union Collections

Open banking solutions fintech and credit union collections from cu 2.0

For several years throughout the pandemic, delinquency rates were low. And by low, we mean low low. However, in 2022, we’re starting to see signs that delinquencies are charge-offs are increasing.

Of course, there are numerous factors about why delinquencies are rising. And there are many ways that credit unions can support their members as they face mounting debt.

But in this blog, we’re going to discuss collections strategies that work for both the member and the credit union. Then, we’ll dive into what Open Banking Solutions cooked up for collections.

Rising Delinquencies, Rising Inflation

The macro forces at work are strong and many, and we can’t reasonably dive into all of them here. But, just to throw some general trends out there:

  • Auto loan debt is at an all-time high, thanks in part to rising car costs and pandemic spending;
  • Mortgage debt is at an all-time high, thanks in part rising housing costs and a real estate boom;
  • Credit card debt is nearing an all-time high, thanks in part to inflation and rising interest rates;
  • Inflation is at its highest levels in years, adding financial pressure to consumers;
  • Student loan repayments are set to resume; and
  • Delinquencies for loans made during the pandemic are higher than those made before it.

This paints an uncomfortable picture for both borrowers and lenders. All that pandemic spending and lending is turning into a liability.

It might be too early to talk about other macroeconomic forces, but…

There’s been an increase in layoffs, hiring freezes, spending freezes, and similar across many organizations. Surely, you’ve seen the uptick in #opentowork posts on LinkedIn lately?

If we’re in recession-land, we’ll see more delinquencies and charge-offs in the coming months. Likely, the massive increase in total consumer debt will come with some consequences.

Putting the Member First in Collections

Few things can sour a relationship between members and credit unions faster than trying to collect on money that isn’t there. And those few things include being persistent, rude, and inflexible about it.

When you’re out of money, it’s basically impossible to be unaware of it. And what little money you do have goes toward the basics first: food, shelter, etc. (Take it from someone who lived off of a $12k/yr Graduate Teaching Fellow stipend…)

But there’s a difference between persistence and staying top of mind. It’s possible to send gentle reminders without going over the edge. For example, push notifications typically do better than calls.

Similarly, the best way to avoid being rude—aside from not being too persistent—is to say the wrong thing. Live collections calls introduce that risk.

Also rude, but more inflexible, is a lack of understanding of the member’s situation or willingness to work with them to find the best path forward. Offering delays, payment plans, and other ways to keep the member in good standing and in charge is key.

Following the best practices above has shown better outcomes.

Introducing Open Banking Solutions

Open Banking Solutions does a lot more than collections. In fact, at CU 2.0, we say that Open Banking Solutions is tomorrow’s core, today. Open APIs, cloud native, fintech enabled… Say goodbye to 1972 once and for all!

But to get more in depth, Open Banking Solutions does mobile-first digital banking, a SaaS cloud-based core, and business intelligence and reporting. They also do AI-powered collections from the cloud. Here’s what that brings:

  • Automation
  • Reduced agent workload
  • Self-service capabilities
  • Payment plans
  • Agent empowerment and guidance

Ultimately, it’s more efficient, more compassionate collections that allow distressed members to feel like they’re still in control.

As we steer into uncertain financial times, better debt recovery will be key to both institutional success and to member financial wellness. If that collections solution fits into a greater ecosystem of cloud-based banking tech, well, all the better.

We should note here that Open Banking Solutions is also exploring a CUSO structure to better serve credit unions. We think it’s important to review tech vendors that feature credit unions prominently in their roadmap. Typically, we see CUSOs develop more CU-specific features and respond more quickly to credit union requests.

So, in an age of increasing debt and diminishing ability to pay, that CU- and member-centric collections strategy could be huge.

Additional Resources

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