2023: The Honeymoon May Be Over. How Will Lenders Prevail?

2023 will be the year we’ve been predicting since the pandemic. See why your focus should be on strategies for both opportunity and risk.

At the height of the pandemic, it seemed as if every other email, article, and ad began with, “in these challenging times…”  While we did share some very real challenges (ranging from personal health concerns to the massive lift to process PPP Loans and the unanticipated digital acceleration of financial services), part of what made these past few years so difficult was the prospect of what was to come financially.  Widespread concerns of a global recession, its resulting economic upheaval from pandemic-related job losses, and the anticipated plunge in consumer income and spending dominated many of the conversations in the financial services sector.

As we look back on 2022, we can collectively agree that, not only did the financial downturn concerns fail to materialize, but that (until the fall at least) the opposite occurred.  2022 brought us a red-hot labor market and an unrelenting rise in consumer income and spending, all accompanied by commensurate inflationary effects. In fact, it wasn’t until September that we finally saw some cooling of the job market. 2023 promises to be a different story. For banks and other lending organizations, that presents both opportunity and risk.

2023: The Consumer Honeymoon is Over

2023 will be the year that the unintended effects of the pandemic (a competitive job market, higher consumer savings and income, and the resulting inflation) will finally have their day.

Consumers will continue to spend during the holidays (Black Friday spending hit $9.12B this year). However, with prices up 7.7% (average for all consumer measures) compared to last year, many consumers will take a deeper hit to the pocketbook. That, alongside higher use of Buy Now Play Later, will drive up consumer borrowing and debt to levels that we haven’t seen yet.

In early 2023, we can also expect a cooling job market to round off the massive layoffs we saw in late 2022 (DoorDash, Twitter, Carvana, Amazon, Snapchat and Meta alone laid off nearly 30,000 workers by November) coupled with high interest rates and inflation.

Ultimately, there will be too many stressors for consumers to be as insulated as they have been in the past few years. As a recent Axios article noted, “The worry is that savings will dry up just as the full effect of the Fed’s interest rate increases hit economic activity, creating a double-whammy that hits growth in 2023.”

When you add these trends to the rise in delinquencies that we’re already beginning to see—this will spell trouble for lenders who are not prepared. For those who are, however, these challenges also bring opportunity.

Strategy Alignment is the (New) Name of the Game

As you well know, the projected increase in consumer borrowing in 2023 will result in a greater volume of interactions with consumers—the majority of which will take place digitally. That should be no surprise to you—virtually all lenders are already communicating and engaging on multiple platforms with their customers.

So, what is the game changer to the digital dynamic in 2023? How you engage on digital.

Today’s consumers expect more transparency, immediacy, and higher quality communications everywhere, including from lenders. For lenders serving customers across the credit lifecycle who use multi-channel digital communication, this presents greater opportunities to meet customers’ expectations and engage with them more effectively. For most banks, the challenge lies in successfully managing the growing complexity and consistency of those digital interactions (for example, SMS and more sophisticated mobile banking).

Map Cross-platform Strategies with Customers and Controls in Mind

The answer—and the opportunity—to this complexity is to provide a consistent customer journey that is both a comprehensively mapped strategy and has the right controls in place to coordinate and monitor communication across all platforms.

Case in point? Imagine receiving an offer for a reduced payment via text, and then an email or agent call with a different offer amount. If you’re a consumer receiving those conflicting messages, you’ll not only be confused—you’ll likely contact your lender for clarification. Now multiply that confusion by the rising tide of delinquencies and greater volume of interactions that 2023 is likely to bring us. If you don’t like that scenario, then consider digital strategy alignment as the key to avoiding it.

Further, because debt collection regulations apply to communications across all platforms combined, having a strategy that aligns across all platforms ensures that you have the right controls in place to stay in compliance. As important, it also ensures that your customer has a consistent experience across all the channels in which they interact with you.

Moving “Digital” Beyond Customer Service

While “digital” generally creates efficiency in financial services, until recently responding via digital channels has been primarily geared to customer service, not collections. Moving forward, however, digital response in collections will be a consumer requirement. For it to work effectively, it must be “smart,” relevant to the consumer’s issue and aligned with your collections strategy.

In short, “please call us for further information” or “contact us for more details on X plan” will no longer hit the mark. That’s because lenders will simply not have the resources to answer those queries given the rise in volume that we’re expecting. Better yet, given the expected increase in financial vulnerability that consumers will experience, your digital communications shouldn’t wait for missed payments—you should engage these individuals proactively to mitigate delinquencies.

As a lender, make it your 2023 resolution to ensure that your outreach strategies are fully aligned with one another.  Why?  Because as delinquency rates rise (which they have already started to do), lenders will need to activate all digital channels to effectively reach their customers. Care for your customers with preemptive support aimed at those who are exhibiting signs of financial stress but who haven’t yet missed a payment with you (as they may have with other lenders).

Deliver a Responsive and Consistent Digital Experience in 2023

If your collections strategy is not aligned across channels, your customers will be confused and unhappy. With the perfect storm of increased borrowing, job cuts, and reduced personal income, it’s a safe bet that customers will demand (and respond to) lenders who are prepared to deliver a responsive, consistent, and effective digital experience that meets them where they are.

Lenders and consumers have endured a lot of uncertainty over these past few years. For the most part, the degree to which we have all adapted is remarkable. As we head into 2023, aligning that change into a coordinated and cohesive strategy will make the tough times we face better for us—and our customers.