Q&A: Democratising data to reduce credit losses

The coro­n­avirus pan­dem­ic and its destruc­tive impact on economies around the world is set to cause a sig­nif­i­cant surge in non-per­form­ing loans and debt. Though gov­ern­ments are doing what they can to lim­it dam­age, through unprece­dent­ed stim­u­lus pack­ages and job sup­port schemes, the sec­ond wave of the virus has all but elim­i­nat­ed the prospect of a swift eco­nom­ic rebound spar­ing a flood of default. More long-stand­ing high street brands are falling into admin­is­tra­tion and unem­ploy­ment rates con­tin­ue to grow.

There is no doubt that Euro­pean banks and cred­i­tors are enter­ing a peri­od of high cred­it loss­es, com­bined with a slow­ing of new busi­ness and com­pressed mar­gins. Espe­cial­ly in mar­kets where post-finan­cial cri­sis restruc­tur­ing was still ongo­ing, finan­cial ana­lysts expect many insti­tu­tions will be pushed into a lim­bo state with very weak returns, although not on the scale of the finan­cial cri­sis a decade ago.

Europe is already begin­ning to feel the effect of the out­put gap caused by the pan­dem­ic and gov­ern­ment-enforced lock­downs, and is enter­ing a dif­fi­cult win­ter with a fur­ther wave of defaults set to build through late-2020 and into 2021. The unique nature of the cri­sis presents par­tic­u­lar chal­lenges for banks, as cus­tomers who ordi­nar­i­ly always paid on time are now in high­ly stressed sit­u­a­tions. How can they under­stand behav­iour­al changes when such changes haven’t been seen before?

As a strate­gic part­ner to finan­cial insti­tu­tions and cred­i­tors, fin­tech com­pa­ny QUALCO plays an extreme­ly impor­tant role in the Euro­pean cred­it mar­ket by pro­vid­ing tools pow­ered by arti­fi­cial intel­li­gence (AI) that enable finan­cial insti­tu­tions to under­stand the behav­iours and chang­ing cir­cum­stances of their cus­tomers. Through these insights, organ­i­sa­tions can approach debt man­age­ment more fair­ly and trans­par­ent­ly, and meet cus­tomers through their pre­ferred chan­nels in an increas­ing­ly dig­i­tal and self-ser­vice world.

Spy­ros Ret­zekas, chief oper­at­ing offi­cer at QUALCO, explains why data democ­ra­ti­sa­tion is so impor­tant to achiev­ing this, and explains what banks and oth­er cred­i­tors need to do dif­fer­ent­ly through this eco­nom­ic cri­sis to mit­i­gate loss­es.

As some­one present dur­ing the euro­zone sov­er­eign debt cri­sis a decade ago, what are your thoughts on the pan­dem­ic eco­nom­ic fall­out and how are you respond­ing?

Rapid­ly accu­mu­lat­ing house­hold and cor­po­rate debt always presents a major risk to finan­cial and eco­nom­ic sta­bil­i­ty. This time around, job, income and busi­ness sup­port pack­ages from gov­ern­ments have been tru­ly unprece­dent­ed. Bring­ing mon­ey back to the real econ­o­my requires a data-dri­ven approach to debt man­age­ment that reacts care­ful­ly to eco­nom­ic pol­i­cy mea­sures. Fin­tech com­pa­nies such as QUALCO, in strate­gic part­ner­ship with finan­cial insti­tu­tions and cred­i­tors, are in a prime posi­tion to lead the new par­a­digm of debt man­age­ment by remov­ing the opaque­ness and bring­ing much more open­ness and trans­paren­cy to cus­tomers. Many peo­ple are cur­rent­ly in a high­ly vul­ner­a­ble sit­u­a­tion, through no fault of their own, and while vac­cines present a glim­mer of hope, there is still a long way to go until the econ­o­my will begin to recov­er. It is impor­tant for banks and cred­i­tors to under­stand and deal with their chang­ing cir­cum­stances in the fairest way.

Dig­i­tal­i­sa­tion has rev­o­lu­tionised mon­ey and pay­ments sys­tems. What impact has it had in the debt man­age­ment indus­try?

Dig­i­tal tech­nolo­gies have played a cru­cial role in keep­ing soci­ety func­tion­ing dur­ing the COVID-19 pan­dem­ic, whether by enabling remote work­ing, automat­ing process­es or facil­i­tat­ing vir­tu­al finan­cial trans­ac­tions. It goes with­out say­ing that cus­tomer rela­tion­ships are at the heart of cred­it man­age­ment, and it is now cer­tain, that cred­i­tors, who do not inte­grate dig­i­tal com­mu­ni­ca­tion and self-ser­vice chan­nels in their oper­a­tions will sim­ply not be able to ful­ly serve a sig­nif­i­cant por­tion of their cus­tomers. Through the savvy deploy­ment of tech­nol­o­gy, includ­ing AI and machine-learn­ing, they can opti­mise per­for­mance and increase trans­paren­cy, flex­i­bil­i­ty and con­sis­ten­cy, ulti­mate­ly enabling self-serve and offer­ing tai­lor-made prod­ucts that bet­ter reflect cus­tomer habits and needs. How­ev­er, dig­i­tal chan­nels are only one side of com­plete recov­er­ies automa­tion. An AI-dri­ven cus­tomer approach is the oth­er and more chal­leng­ing.

What are both the promis­es and the per­ils of big data and AI in receiv­ables man­age­ment?

Receiv­ables man­age­ment is start­ing to be dis­rupt­ed by AI and machine learn­ing due to the low cost of vast amounts of pro­cess­ing pow­er and the avail­abil­i­ty of mas­sive amounts of his­tor­i­cal records of cus­tomers in banks and oth­er finan­cial insti­tu­tions. Many of these organ­i­sa­tions are using AI to change the ways in which they opti­mise cap­i­tal, mod­el risks, assess afford­abil­i­ty and man­age their cus­tomer inter­ac­tions through the likes of ear­ly-warn­ing mech­a­nisms, self-cure strate­gies, per­son­al­i­sa­tion of cus­tomer inter­ac­tion and treat­ment, and pre­dic­tive mod­el­ling. There are many ben­e­fits of this, includ­ing improved cus­tomer expe­ri­ence, reduced loss­es and decreased bad debt, with explain­abil­i­ty, auditabil­i­ty and repro­ducibil­i­ty being the key to gov­ern­ing the use of AI in finance. We invest a lot in this area, but as the appli­ca­tions of AI con­tin­ue to grow, cred­i­tors seem to strug­gle to build the right cul­ture that is required to boost data democ­ra­ti­sa­tion with­in their busi­ness. AI and voice ana­lyt­ics are undoubt­ed­ly becom­ing very hot, but tech­nol­o­gy alone is not enough to dri­ve trans­for­ma­tion, peo­ple have to dri­ve it.

Indeed, data democ­ra­ti­sa­tion is a hot top­ic in board­room dis­cus­sions. How far is the debt man­age­ment sec­tor from becom­ing tru­ly data-dri­ven?

Dig­i­tal democ­ra­ti­sa­tion push­es organ­i­sa­tions to rethink how they man­age, dis­trib­ute and inter­pret data. That often means dri­ving a dra­mat­ic cul­tur­al change in the organ­i­sa­tion, free­ing infor­ma­tion from the silos cre­at­ed by inter­nal, cus­tomer and exter­nal data. This is where most of the com­pa­nies seem to fail. By enabling bet­ter deci­sion-mak­ing, QUALCO’s tech­nol­o­gy helps organ­i­sa­tions build a com­mon ana­lyt­ics lan­guage with­in the busi­ness. And by com­bin­ing those capa­bil­i­ties with our data gov­er­nance con­sult­ing ser­vices, our clients are able to con­nect the dots.

The cred­it industry’s growth is expect­ed to be lim­it­ed in the com­ing years. What should be done dif­fer­ent­ly to improve returns and mit­i­gate cred­it loss?

The indus­try needs to think out­side the box and the tra­di­tion­al mod­el, and ulti­mate­ly do more with less. Improved returns will need to come from reduc­ing cost, which means invest­ing in dig­i­tal trans­for­ma­tion and upgrad­ing the cus­tomer expe­ri­ence. By doing so, a new lev­el of ambi­tion can be set when it comes to oper­a­tional effi­cien­cy and cost-reduc­tions, but finan­cial insti­tu­tions must first leave lega­cy tech­nol­o­gy behind. They need to improve their project man­age­ment dis­ci­pline, par­tic­u­lar­ly around remote tech­nol­o­gy deliv­ery, and enable their busi­ness lines to work more close­ly with tech­nol­o­gy teams to sim­pli­fy and auto­mate recov­ery process­es, improve their work capac­i­ty and use data insights bet­ter.

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