Managing Credit Card Delinquency in Times of Consumer Angst

Economic prognosticators and financial institutions are anticipating an inevitable rise in credit card payment delinquencies and charge-offs due to the economic fallout of the COVID-19 pandemic. With no end in sight to the economic turbulence and uncertainty—writ large—permeating the financial landscape, financial institutions need credit card delinquency strategies that will work effectively amid that ongoing uncertainty.

With change a constant, what can financial institutions do to ensure credit card portfolio stability for the long term, in good times and bad?

An emphasis on professionalism, consumer empathy, and nurturing relationships is the most durable approach to maintain your front-of-mind and top-of-wallet card status, ensuring your portfolio performs and your consumers value their affiliation with you.

Maintain Professionalism

Making solid credit portfolio decisions for your consumers and for your business is a formidable task—even in normal economic times. And when the economy sours, that task becomes especially difficult.

Be steady. Be watchful. Most importantly, be professional by making sure you have the tools you need to derive insights that are essential to appropriately manage your credit card business.

Recent Fiserv research, our Expectation & Experiences quarterly consumer trends survey entitled COVID-19: Impacts on Consumer Finances, shows just how important the right strategy and tools can be. According to the survey, more than half of consumers report some recent employment change, with four in 10 reporting job loss or reduced hours in their household. The data also show 38% of banking consumers expect their 2020 income to be lower than in 2019; this figure rises to 65% among those who have experienced a job loss themselves or if their domestic partner has also experienced a job loss. Additionally, 24% of consumers report they have charged more on their credit cards since the onset of the COVID-19 pandemic.

These are significant and ominous economic indicators. Preparing for a wave of credit card delinquencies and charge-offs in this environment is not only prudent, it’s essential. But have you implemented any portfolio safeguards, including the implementation of delinquency management tools?

You may need to use predictive analytics tools that can help you determine the likelihood of an account becoming delinquent. Using these tools ensures you have access to thorough data you can carefully analyze to identify at-risk accounts and provide one-source, professional, discrete direction and insight to proactively salvage account balances and client relationships.

Deliver Empathetic Guidance

Additional Fiserv Expectation & Experiences research shows that more than half of Gen Z, millennials and Gen X report negative financial impacts due to COVID-19, with millennials at most risk for rent arrears or late mortgage payments. Among all consumers surveyed:

• 23% say they have chosen to pay some bills rather than others
• 18% are likely to miss a bill payment within the next three months
• 15% have missed a bill payment
• 9% needed to take out a loan

Your delinquency management approach should include hands-on, proactive management of at-risk credit card accounts. This strategic approach—empathetically delivered—can help reduce the risk of losses that could occur due to accounts being written off by signaling to you the right time to provide appropriate contact with your cardholders to bring their account current.

Consumers whose economic outlook is stark will appreciate a consumer-friendly touch that provides guidance and assistance that can help minimize the impact of any financial peril.

Determining the likelihood of a credit card account going delinquent will enable you to actively advise and assist your credit cardholders before they miss a payment. This approach will help preserve your relationship with your cardholders and favorably position you as a financial service partner and advisor rather than merely a debt collector.

Nurture Cardholder Relationships

Your consumers place enormous value on their relationship with you: With the COVID-19 pandemic, Fiserv research shows that 54% of consumers expected to return to in-branch banking within a month after reopening, second only to those who expressed a preference to return to work (64%). Of those indicating their preference for the personal touch by visiting inside a branch location, 23% said they’ll return immediately, 31% said within 30 days and 23% said in two to three months. Conversely, only 41% of consumers said they’ll return to retail shops, and 15% said they’ll never again go to a sporting event at a large stadium.

Your cardholders value and understand the importance of their financial relationship with you, and you are very well-situated to encourage them to rely on you for the products and services they’ll need over the course of their financial lives. The fact that they want to do this in person is a testament to the trust they have in you.

Remain forward-thinking. Collaborating with your at-risk credit card accountholders can preserve and solidify your relationships. Today’s economic turmoil will eventually be seen through your financial institution’s rear-view mirror. And when that happens, you’ll be thankful you’ve treated your members respectfully and positioned appropriately to take advantage of any economic uptick.

Going Forward

In the best of times or the worst of times, using the right tools and working collaboratively with your cardholders will contribute positively to your growth and success. My advice: As the economy finds its path forward, be sure you’ve done all you can to preserve and protect your credit card portfolio, made arrangements to ensure its viability, and addressed the long-term needs of your cardholders.

Twane Darby is director, product strategy for credit, Card Services at Fiserv, Brookfield, Wisconsin. Darby and his team partner with financial institutions to develop strategies to manage credit card risk and grow credit card portfolios.