All signals are on red in the debt sector[1]. The sector is all about people in often difficult situations. More than 2,5 million Dutch households suffer from late payments[2]. About half of those households have structural debt problems. Due to the impact of COVID-19, the number of indebted households is predicted to increase significantly[3]. With digitalisation the more important focus in the debt market is inevitable. Preventing people to obtain income on alternative matters. More cost-efficient administration and focus on the root cause of debt, the household in debt. Digitalisation of the financial administration processes can let the sector undergo a metamorphosis into a person-oriented approach. The ingredients are there.
Social impact and growth potential of the sector The impact of debt is considerable: for the debtor, creditors, and society at large. The Dutch government wants more people to get out of a hopeless debt situation and gives high priority to this[4]. A rough estimation is that the debt sector in the Netherlands costs the society € 11 billion a year (BKR, 2014)[5].
What is remarkable about the sector figures is a significant increase in the number of administrations compared to debt assistance, which puts considerable extra pressure on the legal system. Households with debts need the right support. Getting the right support is not easy according the National Ombudsman[6]. It takes an average of eleven days to get in contact with the municipality. The intake asks a lot of trust from people with debts, to share all information and their terse situation. Social and culture believes can make the step towards asking for help even harder.
The causes of debts are a combination of factors and in most times multicomplex circumstances:
Environmental factors (economic situation, complexity of society, structural poverty).
Conscious and unconscious behaviour (motivation, financial knowledge, and skills, but also a feeling: doing what others are doing and unconscious psychological processes).
Unexpected events (life-events such as divorce, unemployment, disability, bankruptcy, etc.).
Personal factors (addictions, mild intellectual disability, psychiatric problems).
What strikes is that the root causes of debt are all social economical and psychological. The current debt assistance and administration is mainly focussing on the financial administration to get control on the settlement and prevention of debt.
Sector growth demands digitalisation to get focus on personal debt causes Working in the current debt administration sector is tough work. The work mostly consists of mail handling, communication, and financial administration. All this to relieve the ones with debts or to handle their financial administration. Until the debts are settled, someone is tied to the debt relief, and a calculated amount of income to live on each week (VTLB in Dutch). On a high level, debt assistance is characterized by three different phases:
The experience of IG&H in the sector is that a return on investment of less than a year is many times possible. Combining sector initiatives and the current possibilities of technology can change debt assistance significantly. Based on IG&H experiences the intake of the debt process can be up to more than 60% more efficient due the several sector initiatives. A more efficient administrational intake process results in more time to understand the cause and situation of the household in debt.
Examples for the intake part of the process are:
The law entry of debt assistance and data exchange, which is going into force on January 1st, 2021, will give debt controllers access to all necessary personal data. Making the intake a lot easier for people in debt and will increase data quality and security. Technology to connect is highly mature technology, on the government side as well on the commercial side with solutions as the ‘Makelaarsuite’ of PinkRoccade Local Government.
With PSD2 and solutions as Budlr, Ockto and Buddy Payments the setup of a budget plan and allocating the financial administration can be digitised and set up automatically.
Early signalling of debt is trending and as of January 1st, 2021 a duty of municipalities by law. The ‘Dutch association for debt assistance, social banking, and administration (NVVK)’ developed a debt hub to exchange debt data of households. The hub has great potential to have insight into debts and to reach mutual agreements, restructuring or prioritisation.
CDD (Customer Due Diligence) or KYC (Know Your Customer) in the debt sector is not as mature as in the banking sector who invest fully in this lately. Aligning with banks in this process to allocated accounts faster and more secure, the improvement can be made on both sides making the client process more trustful. Digital identification and fraud prevention solutions as Slimmer.ai, Hawk.ai, hellosoda.com, and IDNow.io can improve this process easily. The above-mentioned law entry makes the use of DigiD and eID for highly reliable identification an even better solution. Digital identification is the essential start for data interaction.
The main part of the debt process can be much more efficient and as much automated with the following examples. Resulting in a game changer of the debt sector with a focus to coach and support clients on the causes and making them more self-sufficient in their personal household finances.
The use of low coding increases the execution, adaptability, and deployment of the debt operation. Low code as OutSystems makes it possible to adapt quickly and have a release and multi-platform application ready in short release phases.
Chatbots and AI can support easily in customer contact for most common questions and intelligent dashboarding towards the debt counsellor and customer. Microsoft and OutSystems have mature configurable chatbots available and they are getting better each day.
The debt data hub of the NVVK can assist debt mediation and rescheduling, reducing postal mailings significantly.
The use of AI in postal mail recognition can relieve the operations work even more. Solutions as Anntac will recognise postal mails after scanning up to 90%.
Bank account batching for new accounts and API transaction data for instant payments make payments better and faster for all parties. Solutions as Cashfac with the Ebury bank are there already, filling the gap traditional banks lacks.
Most important is an intuitive app and portal for the customer in debt. With the use of AI and a task manager the process can be less complex and faster. Increasing self-sufficiency of the client which is mainly the most important goal of debt assistance.
Restructuring loans are trending. Especially with the low ECB-interest a great opportunity to lower and simplify the debt at once for all debtors and creditors for parties with a banking license or partnership with such a party. Last year the amount of restructuring loans increased with 16% to 8.952[7].
The outflow is most important for a sustainable financial future. The earlier mentioned reasons of debt are different. For a large group of households’ financial stability remains difficult. Monitoring and signalling support of AI, and in second phase personal coaching, can be the needed support.
There are several examples available to improve the last part of the debt process:
Financial insights are the base for self-sufficiency after the debts. AI and an easy UX makes the adoption and assist of clients very supportive.
The early signalling process will keep an eye on new debt risks and can be made into automatic insights and signals towards the client.
Financial coaching should be part of a portal and app for clients. Goal is to increase the financial capabilities and decrease any stress factor on finance. Preventing clients to return into the debt processes. There are a lot of solutions on this topic like mijnsofie.nl, samapp.nl and wijgaanhetfikksen.nl and can support clients very well.
Bringing the change together towards a people-oriented approach It is only symptom control if the main part of the time within debt assistance and administration focusses on operation. There are multiple and easy to implement solutions to digitize the operation. Given that, the focus needs to be on a person-, and situation-oriented approach. The expertise of the debt assistants and administrators changes almost completely towards a people- and cause oriented expertise. In such the debt sector can be more tailormade, fitting in a multidisciplinary approach with different professionals suitable for the cause. Let us innovate and help people.
Contact Gerwin woelders E: gerwin.woelders@igh.com
[1] https://nos.nl/artikel/2333348-zorgen-over-oplopende-armoede-door-corona-alle-seinen-staan-op-rood.html [2] https://www.nibud.nl/beroepsmatig/financiele-problemen/ [3] https://www.rijksoverheid.nl/documenten/kamerstukken/2020/06/08/beantwoording-kamervragen-over-oplopende-armoede-door-coronacrisis [4] https://www.rijksoverheid.nl/binaries/rijksoverheid/documenten/kamerstukken/2018/05/23/kamerbrief-brede-schuldenaanpak/kamerbrief-brede-schuldenaanpak.pdf [5] https://www.bkr.nl/home/zakelijk/nieuwsbrieven/nieuwsbrief-december-2014/schulden-kosten-jaarlijks-11-miljard/ [6] https://www.nationaleombudsman.nl/nieuws/2020/toegang-tot-wet-schuldsanering-is-een-hindernisbaan-zonder-finish [7] https://jaarverslag.nvvk.eu/2019/toelichting-cijfers/index.html