Credit & Risk Management Trends

How the COVID-19 pandemic has fundamentally shaken up the way companies do business.

6 Mins

Among the factors that have created changes and challenges for businesses are the ongoing effects of the pandemic, global business trends such as inflation and climate objectives, the rise of emerging economies, trade conflicts, the challenging position of the Eurozone and the economic uncertainty caused by the Brexit.

We are in a persistent period of doubt and in a renewed playing field for Risk Management with new and changing elements. Your current risk management policy is up for renewal and new risk calculations need to be made this year. Risk analyses need to be expanded with a greater reliance on the availability of new data, more indepth judgements and the benefit of experience.

To support Risk & Credit management teams, we have listed the main topics and trends they need to be aware of from 2022 onwards and which need to be addressed in order to stay ahead in this constantly evolving market.

Chapter 1

The increasing vigilance of governments

Once the dust settles, what can we expect?

Although the amount, duration and effectiveness of the support provided to companies have been remarkable, we can expect a gradual increase in the number of companies in financial difficulties later on, which will eventually lead to a longer period of higher defaults, outstanding debts, cash shortages, bankruptcies and terminations.

Covid-19 has led to governments taking over control of the economy. 

Despite our firm belief in a liberal economy, we do see that the market fails 4 out of 5 times in periods of major (global) crises. Therefore, the support of governments is essential to ensure that companies can continue to operate and survive.  

As a result of previous crises and the COVID-19 pandemic, governments have realised that they can be an important and powerful body in the economic sphere. Therefore, it is a trend to keep an eye on. 

The support of governments is essential to ensure that companies can continue to operate and survive.

It would not be surprising if, in the future, governments were to take more and more control. 

A (new) crisis is already on the way: the climate crisis.
Here too, there is a real chance that governments will take the lead in imposing regulations, obligations and expectations for companies ("Being compliant, as we say."). In case of non-compliance and the introduction of new laws and regulations, governments may take measures in the (near) future that will certainly influence the market.

Chapter 1

There is no escaping it: the ongoing progress of Digital

There are currently more than six billion mobile phones in the world. This not only means that this technology has become indispensable, it also means that this has become an important target group, both for commercial opportunities, as well as an increasing risk of fraud and cybercrime.

The COVID-19 pandemic has dramatically changed our consumer behaviour. There has been an increase of more than 20% in mobile (or digital) purchases, compared to pre-COVID-19 times. Cash in the wallet is fading away and digital payment channels are taking its place.

The mobile device has become the connector between the digital world and the real world. The 'social' aspect has ensured that we are subjected to global news that corresponds to our preferences, that we are (even) more closely connected with each other and that the community feeling - with the right to speak your mind - has become stronger than ever. There are many reasons for this: personalisation, preferences, news topics that impact our emotional intelligence, a customised customer experience, "living a brand" to socio-economic reasons.

The digital medium is a better way to provide a personalised service and stay in close contact with the end customer. It also provides a wealth of information and data that can be used for many other purposes, from offering customised products and services to reducing fraud through biometric security measures.

The digital medium is a better way to provide a personalised service and stay in close contact with the end customer. It also provides a wealth of information and data that can be used for many other purposes, from offering customised products and services to reducing fraud through biometric security measures.

The business trend here? 

A greater wealth of data and behavioural patterns are being collected, analysed and re-used to provide a personalised and unique experience. 

The purpose of this is to generate better revenue margins, create a healthier cash flow, combined with an even greater and more sensitive risk of fraud and phishing.

Chapter 1

Data Automation, Artificial Intelligence & Machine Learning

Credit & Risk Management teams have expanded their analytical toolbox in extraordinary ways, with cloud computing, risk data, machine learning and artificial intelligence enabling new ways of measuring and managing risk. 

AI and smart, data-driven technologies are proving to be an increasingly important tool in automating repetitive business processes, workflows, risk assessments, fraud prevention and strategic business decisions. During the pandemic, almost half of us radically changed the way we do business as a result of Covid-19. This means that, in 2022, we will see an increase in automated data solutions to understand and respond to changing customer behavior.

Such technologies will also be further implied in customer due diligence of business relationships, transaction processing and fraud detection. Compliance data and algorithms will be used more efficiently throughout the "KYC" or "know-your-customer" process, by auditing and assessing the reliability and legitimacy of business relationships. This will ensure that correct decisions, automated or otherwise, can be made based on objective data elements and inputs. 

So the trend is two-fold because of COVID-19:

On the one hand, the automation of processes and business workflows, by integrating data, will play an increasingly crucial role (and even dominate) in the proper functioning of the organisation, as it increases organisational productivity, reduces operational costs, allows profit margins to increase, objectively supports strategic business decisions and drastically reduces the risk of human error. 

On the other hand, as a result of the pandemic, companies are increasingly looking for appropriate additional compliance solutions. Reputational risk is an ongoing risk that must always be taken seriously. While on the surface a business may appear to be well managed, on closer inspection it may suffer from inappropriate incentives - which can be made worse by poor processes and checks.

On the one hand, the automation of processes and business workflows, by integrating data, will play an increasingly crucial role (and even dominate) in the proper functioning of the organisation

To protect their reputation, Risk Managers need to monitor fraud, cyber threats and misconduct more closely. 

Those who have not begun to investigate the reliability of their business relations, risk damaging their reputation with disastrous consequences. Corruption, fraud, money laundering and even financing of terrorism lead to large financial losses for the organisation that is the victim of such practices.

Chapter 1

Significant credit management trends

As we mentioned above, as a result of the COVID-19 pandemic, digital banking is growing exponentially.

This trend will only increase in 2022, which means, in theory, that fewer people will be inclined to contact their debtors by telephone. It is therefore an important fact that credit management, credit control and/or debt collection departments must focus on and engage with such payment mediums, in order to meet the changing expectations of customers. A digital-first customer experience and service is certainly in demand and should certainly be a focus point for the risk and/or credit manager. 

A data-driven Customer Self-service portal

Did you know that the number of payments made digitally reduces the debt collection costs of an organisation by an average of 15%? 

Precisely because customers opt for a self-service platform, they also retain control over the payment process somewhere (in accordance with the credit management policy). This way, debtors have 24/7 access to the platform, without always being bothered with phone calls at inconvenient moments. Debtors are more likely to opt for (automated) personal e-mails and/or in-app notifications that remind them of outstanding amounts and payments, in a soft and gentle way. Such solutions help customers, as well as organisations, to maintain an overview of payment schedules, history and past due or outstanding amounts.

For credit management departments, this means more autonomy, a better customer experience and relationship, and a new source of information - which also translates positively into better and faster payment processing of debtors.

To build such a successful digital contact strategy, you need a solution that combines three things: infrastructure, data and automation.

  1. Infrastructure: the IT environment or infrastructure includes the physical traffic infrastructure for the smooth processing of collected digital data points, in order to be able to analyse, share, use and offer the collected information. 

  2. Data: without data you cannot roll out your policy, experience and strategy on credit management. For example, via an API link, company information can be entered in advance and you can be sure that it is correct and up-to-date. If you then automate credit scores and credit limits, for example, you can check them against your policy on the one hand and against the debtors' payment terms on the other.

    It's about using the various data sources to get a complete picture of your customer, so that you can tailor the service and communication to each individual. Moreover, you can use the data collected about customers to improve decision-making processes.

  3. Automation: this goes without saying. By automating this process, you ensure that payments can be streamlined, credit policies are automatically processed at a personalised profile level, company data is kept up-to-date, the human error rate is reduced and teams can focus on other credit & risk core tasks.

Data Analytics

Data Analytics also opens the way to personalised automation. By segmenting customers based on specific criteria, you can speed up communication at scale without losing the human touch. Credit control can work more efficiently and will be able to target high-risk or defaulting debtors.

With a data analysis solution, you can identify customers with a higher probability of default based on their credit risk, debt history and operational situation. You can then use the insights to create customised payment strategies that include the number of installments and the payment period according to the debtor's risk profile.

Do you want to obtain more information about automated data solutions?

Whether you are looking for a broader spectrum of data input, or you are in an exploratory phase towards data solutions for your organisation because of the pandemic; Creditsafe can and will support you in your project. 

From automated data flows to implementing a data driven decision model, we support today more than 550.000 credit & risk professionals in making 450.000 business decisions on a daily basis. 

Please fill in your professional details via the following link, so that our consultants can contact you without any obligation and inform you about the various data challenges, insights and solutions.

With a data analysis solution, you can identify customers with a higher probability of default based on their credit risk, debt history and operational situation.