Why business should care about their customers’ financial fitness

Why is financial literacy important?

Financial knowledge is important for everyone, no matter their level of income or where they live. An understanding of finance means people can make informed decisions about how they spend and save their money, and this can have a huge impact on their standard of living. A lack of financial knowledge means people can more easily get into debt and this may lead to situations such as bankruptcy. Being declared bankrupt can have major repercussions on someone’s life, including the effect on their credit rating, which could limit their ability to get themselves back on track financially.

Financial literacy is also important because of the growing digitisation of financial products and the move towards customers wanting to self-serve through apps and online services. While this is a positive for organisations as they don’t need to spend as much on sales representatives or support, it does increase the responsibility on customers to make the most appropriate financial decisions for their needs. Not making appropriate financial decisions can soon lead to overdue payments. One missed transaction can quickly become the tip of a financial iceberg for some customers. Being behind with one organisation could easily escalate into being behind with several others and a vicious spiral of unpaid debts can result.

A University of Melbourne study found that while there’s no straightforward relationship between low financial literacy and severity of financial hardship, lower literacy levels may reduce a customer’s ability to avoid some of the more serious consequences of default, particularly if it’s coupled with overconfidence about an ability to manage their spending.

Those who are financially savvy are more likely to make smarter financial decisions, therefore less likely to default on loans or not pay their debts.

Why organisations’ should care about their customers’ financial fitness

Customers deal with many types of debt daily, from mortgages, student or personal loans, to credit card and buy now, pay later repayments. Having the financial knowledge to deal with these debts is important, as unpaid or overdue debts leads to financial stress. Long-term financial stress is increasingly recognised around the world for its impact on happiness and productivity. A report that examined the impact of financial stress found money worries affected mental and physical health, as well as productivity levels and social engagement.

An increase in levels of financial literacy means customers can make more informed decisions around their spending and repayments. Understanding that being in debt can affect factors such as their credit rating can have a major influence on ensuring debts are paid.

No matter where organisations are based in the world, they need loyal customers. Customers that remain affiliated with their brand return to make additional purchases or continue to use their financial products or services. Therefore, helping customers become more financially fit is in every organisation’s best interests – not only from a socially responsible point of view, but also a business perspective.

Customers who feel they are looked after by their organisations are more loyal, increasingly important at a time when it’s so easy to switch between providers. More loyal customers are a key way for businesses to secure long-term and stable revenue. Concepts such as personalization are used to deliver relevant product or service information, which develops deeper relationships with customers that result in greater trust.

Developing financial literacy skills

Organisations also want to help their customers avoid getting into debt in the first place and one way to do this is to help them improve their financial literacy skills. Educational programs or messages that focus on financial knowledge are some of the more common approaches that can help achieve this.

Customers who have poor financial literacy are said to spend more, especially on credit and end up paying more in fees and fines. This results in lower levels of overall wealth. Good financial education helps with making better financial decisions and better choices, which can improve customers’ ability to save and invest, enhancing financial well-being.

Good financial literacy also benefits organisations as their customers are more likely to pay on time, are less likely to default on their payments or enter into bankruptcy. Not only does this reduce the burden on their customer service departments but will improve their bottom line as more of their debts are recovered.

How going digital deepens relationships

Another way organisations can help improve their customers’ financial fitness is through the digital tools they use. Customers increasingly operate in digital environments and the way they use and handle money has changed dramatically.

This use of digital infrastructure also needs to be extended to collections. If a business knows their customers prefer to self-serve, then it’s likely they prefer to deal with debt collectors in the same way. This is where intelligent debt collection agencies, such as InDebted, come into their own.

InDebted Chief Financial Officer Lachlan Heussler believes a debt collection agency is integral to helping customers become financially fit. “In every aspect of a customer’s life, achieving fitness is considered beneficial,” he says. “The same applies to being financially fit.”

Heussler says while people can fall behind on their payment obligations, InDebted’s goal is to provide the tools and processes for them to better understand and resolve their situation.

“This also helps our businesses – the organisations who have customers with late payments – to not only improve their bottom line but to also build stronger relationships with them.”

How intelligent debt collection builds financial fitness

As more customers prefer to deal with organisations that use digital channels, it makes sense that when it comes to using a debt collection agency, it should be one that is also digital. Digital-first debt collection agencies contact customers about their overdue debts through channels, such as email, SMS or WhatsApp. Customers can then resolve their debt digitally and this removes any need to talk to a person unless they want to, in turn reducing the risk of human errors such as being given the wrong information.

Opportunity to educate customers

There is a key role for debt collection agencies when it comes to helping businesses improve the financial fitness of their customers. It’s important to remember that financial stress is a worldwide issue that affects all organisations if handled incorrectly. When debts are referred to it for collection, it’s an opportunity to help educate customers about their finances.

“The majority of our businesses’ customers self-serve,” InDebted CEO Josh Foreman says. “And because we have a digital-first model, those customers are better able to control how they deal with their liabilities. Our philosophy when it comes to the collections business is less about collecting and more about developing financial fitness for those customers.”

Unfortunately, the pandemic means more customers are likely to fall behind in their debt payments, Foreman says. “This is why the more traditional method of debt collecting doesn’t work; having a debt collector on the phone chasing down debts and harassing people to pay only exacerbates the situation.”

InDebted’s product, Collect, offers flexibility around payment options. “Having flexibility gives customers time to reassess their situation and plan for how they want to act based on what is the best solution for their needs,” he says.

Providing payment solutions increases confidence

While it is preferable to pay an overdue debt off in full, this isn’t always possible. “Our customer service team works with our businesses’ customers to help them find solutions to their payment issues,” Foreman says. “Once the financial goal of paying a debt is achieved, then they’re able to move towards their next goal, which may be to boost their savings.”

This process of delivering positive customer experiences that improves financial fitness results in more loyal customers and an improved bottom line to businesses, as customers better manage their finances.

InDebted’s intelligent product also means customers don’t need to spend as much time and effort resolving their accounts. “Our businesses ultimately benefit because their customers are less stressed and their financial fitness is improved. We believe debt collection is not about cost savings but implementing efficiencies that allow our businesses to recover more – and only intelligent collections like ours has the technology to deliver.”

Benefits of a digital approach

The COVID-19 pandemic has increased the amount of global debt by $US24 trillion over the past year. This puts the debt level at a record $US281 trillion while the worldwide debt-to-GDP ratio stands at 355%.

Borrowing levels are expected to continue to be high as countries around the world move into recovery mode. Household debt levels are also higher as customers borrow more to cope in times of reduced work or redundancies. It’s never been more important for organisations to prioritise the welfare of their customers who may be struggling with their payments. Increasingly, this help comes through providing more options and support around debts.

Digital-first collections are the only viable solution. Taking this approach not only improves customers’ financial fitness but also benefits organisations through:

• Helping customers stay loyal
• Higher recovery rates which boost commercial outcomes
• Mitigating compliance risks