Written by Andrew MacDowell, Managing Director, DecisivEdge™
I was listening to an interview with a person in the real estate industry this week. He talked about figuring out how to deal with the likelihood and difficulty of making eviction decisions resulting from people that can’t make their rent payments amidst this global crisis. This got me thinking about the impact that the crisis is having on lenders.
Governments and large institutions have some measure of flexibility to offer forbearance for a period of time, say thirty or sixty days. However, there are a lot smaller banks and non-bank financial companies that don’t have the wherewithal to make such offers. The financial packages currently being reviewed by Federal Governments in the United States and Canada may provide these smaller institutions with a backstop that may allow them to offer short-term assistance measures. However, should this crisis extend beyond a few weeks, as the experience in China and other countries suggests, all institutions, irrespective of the robustness of their balance sheets, will be challenged.
So, what can be done? As the cliché goes, there are no easy answers. The key is to find the balance between maintaining financial viability of your business while being understanding of the unprecedented circumstances your customers may be facing.
Here are five actions that lenders should consider right away:
Plan out probable scenarios – model at least three scenarios each with increasingly negative impact to capital markets. Having these models will give you a playbook that you can employ if and when a modeled scenario becomes reality.
Understand who is truly impacted by this – use the customer data you have to segment customers based on the level of impact the current crisis has had or is likely to have on their finances. This information along with the scenario models will allow you to create a more nuanced set of guidelines for each customer segment.
Be proactive / communicate early – communicate with your customers early. Demonstrate empathy, but also make them aware of your own reality and the measures that your organization might need to take. Offer options to your customers that helps to mitigate challenges on both sides. For example, lowering the interest rate for a period of time, suspending fees, or coming up with a payment plan that your customer can manage. These communications must be consistent and based on the customer segmentation and scenario work above.
Think through your financial options – proactively work through ways to shore up your balance sheet by negotiating access to additional funds that you can call upon should the need arise. Access may be harder and only available at steep terms once the crisis deepens. Having guaranteed access at pre-negotiated terms will put your business on a stronger footing should the crisis deepen.
Prepare your teams – operationalizing your measures is likely to be the most difficult step. A brilliant strategy can fall apart if a collections agent doesn’t know how to act on it. Internal communication and training plans that include an appropriate amount of detail and quality assurance measures to ensure your plans are being acted on properly are important measures to prepare for.
Scenario planning and prudent financial decisions can help sustain your business through this COVID-19 and beyond. An empathetic approach and consistent communication will help you navigate through this challenging time. Remember, consumer perception is everything. Being heavy-handed and inflexible may have damaging effects on your brand and your future.
About the Author:
Andrew MacDowell has over two decades of senior management experience in the credit card industry with Fortune 500 financial institutions such as MBNA Corporation and Bank of America.
Andrew has specific expertise in areas such as Business Development, Loyalty Marketing, Corporate Project Management, Bank Operations, Payments, and Fraud. Most notably, Andrew was a key founding stakeholder of MBNA Canada during its peak growth phase in the Canadian marketplace, which ultimately led to it becoming the largest MasterCard issuing bank in Canada.
Andrew is the product owner of Lending and Leasing as a Service (LLaaS), a DecisivEdge software solution built for small to medium sized lenders.
Andrew is a graduate of Georgian College where he holds a diploma in Business Administration and majored in Marketing Management.