Only Collect: Digital Solutions Make the Difficult Things Simple for FCA Bank

While the uptake of sweeping initiatives, such as SEPA Instant Credit Transfer (SCT Inst) and SWIFT gpi, tends to grab all the headlines, there remain a number of other pain points for banks and corporates that can be addressed only through close dialogue between both parties. Let’s take credit collection as an example. This is a key contributor to many businesses’ cash flows, yet the process itself can often be time-consuming and frustrating. This frustration was felt by FCA Bank – an equally held joint venture between Fiat Chrysler Automobiles Italy and Crédit Agricole Consumer Finance – as it sought a faster, more efficient and more transparent solution through UniCredit.

Fortunately, new digital solutions are emerging to streamline the process – ensuring payments are collected quicker, with added efficiency and convenience for all parties – thereby generating considerable cost savings for creditors.

Understanding the problem 

The credit collection process, through which a lender seeks to recover and reimburse a consumer’s unpaid credit loans, begins once a consumer’s payment is overdue. This is typically after 30 to 60 days have passed, although this can vary depending on the terms of a pre-agreed contract.

Once a past-due payment is listed on a lender’s balance sheet, it is marked as a financial loss, which leads to reduced income and, in some cases, negative cash flow. For this reason, a streamlined approach to credit collection remains a high priority for all lenders. However, the traditional collection process is hampered by cumbersome, paper-based protocols and a high probability of ‘false positives’ where payments are incorrectly logged as overdue as a result of delays in the reception of incoming funds or other non-controllable events.

FCA Bank, which provides finance and insurance services, as well as short- and long-term rental of cars, encountered a number of such challenges in recouping payments on its loans. The vehicles include models sold as partner of reference for Fiat Chrysler Automobiles brands, Fiat, Lancia, Alfa Romeo, Fiat Professional, Abarth, and Jeep; and those for the prestigious manufacturers Ferrari, Maserati, Jaguar Land Rover; for the Erwin Hymer Group; and, since 2018, for Dodge & RAM, Aston Martin Lagonda, Morgan Motor and MV Agusta. First, FCA Bank was frustrated by the workload and time taken to re-present direct debits that had failed on the first request – a situation not helped by the fact that many were false positives, wasting time for both its employees and its clients.

In addition, FCA Bank found the process to be particularly cumbersome and expensive when multiple unpaid instalments were due from the same client. In such cases the protocol is for a credit recovery officer to contact or meet the customer and agree on one or more collections to fully restore the position. However, officers usually receive a cheque, which must then be deposited and reconciled – thus slowing the collection process.

With these challenges in mind, FCA Bank was keen to increase its rate of recovery, while reducing the workload on its recovery and reconciliation teams and improving the experience for clients.

A composite solution

To solve this issue UniCredit’s team, supported by FCA Bank, made three quick changes to the process: supporting the initial credit collection process via direct debit; enhancing overdue credit collection (carried out by officers on the ground); and improving the reconciliation process where cheque collection is the only option.

Improving the initial credit collection process was relatively simple. Often the reason for non-payment was simply due to insufficient funds to fulfil the payment, for instance, because the customer had been paid later than expected) and, in many cases, the customer was not even aware of the problem. Rather than notifying them after the first failed collection, UniCredit and FCA Bank decided to introduce an automated re-presentation process for failed direct debits. The system waits five days before automatically reissuing the request for payment.

The approach also stipulated that the unpaid notification be provided to the customer only if the reason is other than insufficient funds. Where insufficient funds are the cause, UniCredit automatically resubmits the orders and reports the status only when it is final – that is, only after the second run has produced an outcome.

This approach was first trialled at the end of April 2019, with the initial submission leading to four subsequent credit collection runs based on the initial collection order. It proved significantly advantageous in terms of cash flow – with 30% of automatically re-presented direct debits resulting in a successful collection, Moreover, it also made for a far better customer experience and reduced the workload for the FCA Bank’s collection team.

Streamlining face-to-face collections

Of course, not all missed payments can be recovered so easily. In cases where it is necessary to send a collection agent to meet a customer, UniCredit and FCA Bank projected a streamlined means of payment to avoid reverting to slow cheque processes. FCA Bank’s recovery officers are equipped with a small PIN pad, coupled with a smartphone, which enables debit and credit card collections.

In some cases, where there is no signal or the customer doesn’t have their cards with them, cheque payments may be unavoidable, causing further issues for FCA Bank. Indeed, the delay of physically depositing the cheque is only part of the difficulty. The conflation of several instalments into a single cheque payment also complicates the reconciliation process, since the bank needs to reconcile a single transaction with multiple credits.

This challenge was solved by issuing recovery officers with deposit cards. These enable them to accelerate the process by depositing a cheque either at ATMs or at the counter. But, more importantly, each officer is identified by a specific collection code tied to their deposit card so that each transaction can be properly linked to the collection event, which simplifies reconciliation.

Not just a quick fix

Collectively, these solutions have helped significantly overhaul, digitise and improve FCA Bank’s collection process resulting in considerable cost savings. FCA Bank’s Credit Manager, Simone Lo Piccolo, commented: “The automatic re-presentation process alone increased the rate of successful collections for early overdue customers by 25% and reduced the workload of recovery agents accordingly.”

What’s more, these results were realised within a very short period of time and with minimal disruption. While similar projects can run for as long as six months to a year, these three solutions were implemented within three months, with results seen in just one.

The process was structured so as to maximise early outcomes and minimise inconvenience during the process, with much of the work being carried out by UniCredit behind the scenes to build the system for automating reconciliation and representation.

There are also plans to simplify the process further for customers. For instance, one solution, pay-by-link, involves sending an email to the debtor with a link to a secure payment site, where the account can be settled online.

Quick and cost-effective solutions such as these not only reduce direct and indirect costs, they are a vital component in the transformation of FCA Bank’s collection processes – driving efficiency, improving liquidity and elevating the customer experience.