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This is a transcript of our interview with John McMahon, C&R Thought Leader at FICO

You can watch the original video interview here

Hello ladies and gentlemen and welcome to our Risk Management Show. In this episode we are talking with John McMahon, collections and recovery thought leader at FICO. Our guest today has committed the last 25 years of his career to collections and recoveries where he is now recognized as a key thought leader. He has led many successful cultural and technical transformation journeys for a number of key clients including Commonwealth Bank of Australia, Barclays, and MBNA.

Throughout his career, he has worked at over 40 different financial institutions across more than 30 countries and developed in-country cultural knowledge from time living in the UK, Spain, and Australia. More recently he was inspirational in developing new change methodologies focusing on appreciative inquiry, lean, agile delivery across Barclays within the UK, Iberia, South Africa U.S.

 

John, welcome to our show today.

  

John:  Thank you, Boris. I'm really excited to be here so I'm looking forward to hopefully sharing some really great insight.

Boris: I really appreciate your time and look forward to our conversation. John, could you tell us a short story about FICO, and what are you guys up to these days?

  

John: Yes, we're really helping our clients develop their vision and transformation across collections and recoveries. We obviously have analytics at our heartbeat, you know the company was founded by analytical guys that have developed some fantastic models that are driving many different scenarios across the credit life cycle globally and if we focus in on collections and credit risks that we're going to do today and we have a number of different tools and products and services where we help global clients virtually in every country around the world to focus in on their debt recovery and to really drive fantastic customer outcomes.

  

You know we've developed our product suite over the last number of years to really enhance the different parts of what I would call a C&R landscape and if you think of those building blocks of a landscape and a journey that you should have across collections. It would contain your data insights and analytics, it would have things there where you can really focus in on your strategies and develop your strategies further and at the heartbeat of it, you would have some sort of collections and recovery system and be able to communicate with your customers through an omnichannel platform.

So through FICO we've developed this C&R landscape over the last number of years where we take the insight that we see from our clients and help other clients build that out all right. 

Listen and subscribe to our RISK Management SHOW, available on major podcast apps and via the link below  - Listen to the Last Interview with John McMahon, C&R Thought Leader at FICO

  

Boris. How are you different from other providers in the space and what specifically you are you doing in collections and recovery space?

  

John.  The differences I would say is that FICO has really taken a fantastic stance around thought leadership and really started to attract market experts to come into the organization who've lived and breathed the same as our clients. We've walked in our client's shoes, we understand our clients' challenges. They've very complex matrix organizations that they work in from the major financial institutions and through to the telcos and the utilities and the government organizations that we work with and also the global DCAs and we understand how our clients feel and we understand what they're moving through within their transformational journeys.

  

So FICO is really taking the step of around thought leadership which is a great insight to really help our clients. So they've invested in people like myself and allow me to work across our strategic clients across EMEA -  Europe, Middle East, and Africa and allow me to work with the senior leaders in those organizations.

  

I get the privilege to work alongside these leaders to really help and transform their businesses so that step that some other organizations don't do, FICO does that really really well and we're seeing the fantastic response from our clients accordingly.  We get to work with our clients over a number of years and to really establish what they need and sometimes that involves FICO's products and services and sometimes it doesn't. It just involves our thought leadership and our experience. 

  

That allows our clients than to develop and really drive value back into their shareholders and enhance that customer journey that they're really focused on and underpinned by that experience is obviously our product suite. And even if I think of our small team that we have in collections and recoveries in EMEA, the experience across those nine or ten people runs into the hundreds of years whether that is focused on the technology where we've got experts that drive out or that manage the platform and that know the platform literally inside out and not only know the platform but have actually implemented that platform in many different organizations which is phenomenal.

  

We've then got other guys in the team that really focus in on the technical aspects of collections and the technical aspects of the technology and really understand not just how to implement it but how to ensure that you get the best out of that piece of software that you've just bought.  And then there's another guy like myself who works alongside the senior leaders in the organization. 

  

So that breadth of knowledge runs into the hundreds of years and just in quite a small team to enable our clients to be better to drive better value. 

  

Boris. Fantastic and what changes are you seeing in the market especially now in the COVID era? Can you tell us how your clients are impacted by the crisis and what organizations will need to do in order to adapt?

  

John.  That's a great question Boris, thank you and do you know what's really interesting? I'm very passionate about collections and recoveries and you know it's been part of my career for such a long time and I think if we're all honest, within the collections recovery sector we're probably been lagging behind other parts of the credit life cycle.  

You know there are some great examples where some organizations, you know I'm a Sterling bank customer and that you can open a Sterling bank account with a fingerprint and a selfie, it's phenomenal and you've got a line of credit within two minutes.  

  

All these things that are just absolutely brilliant and in Collections we've still got a lot of organizations that have really basic segmentation and send a letter and still use that either to do that and it's really been far behind as a sector.

Now what we've seen from COVID is a phenomenal change and a shift I would say in four key areas that I've seen and I've been working across our senior clients in the last nearly six months now. 

 

I would say there are four key items and the first one I've seen is the real focus on digital collections now this is where if we're all honest within the sector you know I can probably count on one hand the number of clients globally that really do drive digital collections to the next level.  I'm talking about they've got app first information, they're using the self-service channels that they've got, they're making use of things like open banking and driving that data and they've got all those avenues open across all their channels like website through the app, through SMS, through two-way SMS's, through video messaging they're doing that on a consistent basis and driving to the next agenda literally one or two or three on one hand.

 

So what's happened through COVID is obviously the huge demand that's been put on operational areas that blew them out the water. We're talking about clients that are receiving a month's worth of calls in a day and the demand from when the chancellor made changes and announced them within 24 hours that the banks had to react and they were just inundated with from a supply perspective and at the same time their operations were not allowed into the buildings.

 

How to set up themselves working from home that they'd never done before so again from a personal point of view working in a call center and all of a sudden you're working from home?  The banks and some other financial services or creditors had to understand how they were going to work with their individual operators and from a cultural point of view that's really difficult to manage and so the scenario presented itself with that the sector had to move more into digital collections. And we're seeing the demand now of how that can work. 

  

So that was a real big one and it's starting to change the sector for the better and FICO has driven out a great partnership with it with an open bank provider called OpenWrks and they're a market leader in the UK right now and soon to be further afield as well. We'll really focus on the utilization of open banking and what that does is it creates an app and the app is really cool it's called My Budget and it drives out an affordability assessment for the customer utilizing open banking that is fully integrated across FICO's credit suite into that manager. 

 

So between the collector and the customer, they get a fantastic journey and it takes probably about five to ten minutes and if you take that phone call and put that phone call into an operation that takes about 45 minutes to an hour so a significant saving for the credit issuer and a much better journey for the customer.

So we've seen these things start to come to life which has been great. 

 

So that's one and two is if you think about the digital collections it's the focus on the agility to change your pace and you know again things were forced upon the creditors through COVID and with the chancellor standing up in the UK you're making these changes on a daily basis and the banks had to change the financial services and the utilities and the telcos and the car leasing organizations. 

  

They had to change literally within 24 hours and what that's done is it's really put a focus on collections change and from the senior table, right up at the board level. I've really started to focus on how we can change collections for the better because unfortunately a lot across all I would say of upwards of 80 percent of the organizations we work with they have huge legacy platforms and these legacy platforms aren't available to change quickly.

 

There's a smaller percentage who have moved away from that and really focused on cloud-based solutions that allow very simple changes to be done by the business and the business team and FICO start manager supports that. Within that platform those organizations that have done that and really made those changes were at the forefront of being able to handle what their customers need and when the customers are demanding different changes then the bank or the financial services creditor issuer, credit grantor had to be available to make those changes rapidly. And there are different scenarios to do that, so there's two. 

  

The third one is absolutely the focus on the customer and that's never changed across many organizations and many countries across our region and the customer being at the forefront of the issuer's mind to be able to make the right decision, to drive the right outcome for that individual customer. 

What's fantastic about that is it's great to be able to stand up in front of a sector of collections and recoveries and sometimes people think we're the bad guys here and there but it's unbelievable when you see the focus on the customer through collections and how they drive brilliant outcomes and to ensure that the customer is getting the right satisfaction and the right service.

 

If you go across some of the organizations I work with the NPS or the Net Promoter Score is actually one of the key drivers in collections and I challenge an awful lot of people and within say a banking organization that collections are normally the number one in NPS because you're really driving an emotional connection with the customer and helping that customer through there and through their unfortunate journey that they're in.

 

 And you know FICO's products within debt manager and C&Rs, our collections communications service allows better outcomes to be driven for the customer to get the right outcome.

 

And then the last one is collections analytics. Again if you look at digital collections and in the past who was good at that how many people, how many credit issues issuers have I come across that are leading the way in collections analytics and optimization again probably limited to be fair and that shouldn't be the case.  

 

If you move into the DCA (debt collection agency) world some of those guys are fantastic at driving out. So revenue models and cost per collected models and they're fantastic at that and some of the other issuers across the utilities and the telcos and into the financial services and probably have that high, medium and low risk models that everyone's had for the last 25 years.  

 

But are they really driving optimization? Through analytics, through COVID we're starting to see a big switch in that as well and this is the fourth element of it.

 

And what we're seeing is, because of the volumes and demands the operations can't handle it even if they have got the digital collections in place. So they've got to be able to identify the customers who are going to be at risk moving through collections in the next few months comparable to the ones that aren't.  

 

And also then understanding that the customers coming through from COVID aren't standard collections of customers no they've probably never been in arrears before. We saw this back in 2008 through the global financial crisis. These are good customers who have just fallen on hard times and unbelievable circumstances. 

 

 

They might have lost the job or whatever is being involved what's been the compelling event for them to move into collections can be quite varied and having the analytical models to be able to segment these customers and take different actions on them is absolutely imperative for the credit issuer to ensure that they drive the right outcome for the customer.

 So those four key things Boris -  being agile to change your pace, digital collections, analytics and absolutely the focus on the customer 

 

Boris. I believe also there have been a lot of payment holidays granted due to the various COVID programs and what is the impact on financial organization and what tools do they have to handle this.

 

John.  Yes, it's an interesting one, isn't it? Payment deferrals or payment holidays has been that big thing that's been mentioned right across the globe.

 

I think virtually every country that we've got information for, brought in the payment deferrals and the organizations had to change quickly. And it's an interesting one because putting the customer at the heartbeat of this.  If the interest was still being accrued on the accounts and in some cases from a collections point of view that may increase their balances and we've seen some organizations around the globe in South Africa there's a great one in Capitec that has actually refunded that interest to the customer and again think about that really putting the customer at the heartbeat and proving that customer is at the forefront of that decision.

 

It has been a phenomenal move, especially in that marketplace and when you look at the deferrals that were put in place really quickly what we're starting to see now is different cycles of customers that are rolling off those payment deferrals and we're seeing some results coming out and Lloyds, HSBC, and Barclays in the UK have produced some really interesting half-year stats that have been released recently.

 

You can see that a number of these payment deferrals are back on normal payments which is great but a lot of them are rolling them further and rolling them out in the UK you can extend them to the 31st of October and they're starting to send those out now and because the stability of the market isn't quite there.

 

So we're starting to see that movement and what that's doing is it's obviously building a stockpile of accounts that aren't quite in collections yet, they are higher risk and are going to need some attention and to ensure that customer is on the right solution for that individual customer and obviously all the customers' needs and financial impacts are different and so the payment deferral is quite a generic tool to use. 

 

However, what we're starting to see now is the major organizations reviewing those payment deferrals to ensure that customers are on the right solution. And that's really interesting but we've seen a different response from many different marketplaces and especially because there were huge volumes involved and setting these payment deferrals up and payment holidays upon the accounts and they really fell into most of the back office organizations within collections and we've seen that manual increase of manual demand goes through the roof and with significant volumes of additional people being called in.

 

I'm seeing some numbers floating around anywhere between we need an extra 400 FTEs and we need an extra two and a half thousand FTEs which are just mind-blowing numbers when you think about the collections operations globally.  The cost of those people being pulled in is absolutely significant, we're talking about increasing your cost base by upwards of 100 million pounds which again you can't get your mind around that to say is that going to be the demand? 

 

We're not sure yet and the way to move forward from that is to ensure that you have got those four things in place actually that I've just mentioned. The digital collection should be able to take that volume away so you don't have to go out and recruit those bums on seats you've got the analytics to really drive the right outcomes and you can do that at a pace to focus on the right customer satisfaction as well. So yes it's been a really interesting time Boris.

   

Boris.  Fantastic.  I'd like to ask you for a personal opinion. What is the commonly held belief as it relates to the collections and recoveries that you passionately disagree with?

 

John. Do you know what I think, I've just touched on it. It's the focus on the customer and absolutely a lot of people have a perception of the marketplace whether that is from the financial services through to DCA's (debt collection agencies) to through to debt purchases any of that space where let's say over I would say 10 or 15 years ago the focus was about collecting money and it was absolutely that focus and the drive and the behaviors at the time probably created an unfair perception of the marketplace and ever call it that.  

 

And in the last 10 or 15 years the whole industry in the sector has changed massively with the customer being at the forefront of every decision that the organizations make, the credit issuer makes. We see slogans like it's our ambition to keep people in their houses and so repossessing someone's home through collections and through nonpayment is probably the most emotional thing that you could do to an individual human really based on that emphasis.

 

What we see is we see organizations with visions about keeping customers in their homes, if it's in their car leasing to ensure that we keep the customer in their car is at the forefront of what they do.  That wouldn't have been the same 10 or 15 years ago.  But now it's the focus really is on the customer to ensure that customers getting the right service and satisfaction and achieving the right outcomes.

 

It is absolutely balanced because we are instilling collections about ensuring that we collect some money and ensuring that our good customers can still get a fair price you know you've got to have that balance out and but when you work across the utilities and some of these guys are doing phenomenal things where in the UK as great example water is deemed an essential service by the government so the service it can never be cut off.

 

So the utilities when you work with these guys that are doing unbelievable things from a customer point of view to really focus on the customer to get the customer paying to ensure that a customer carries on making payments but they're doing everything in the right way and whereas years ago they would have disconnected the supply but they can't do that anymore so they're hamstrung by doing that but what they've done to it to make it more effective is offering fantastic customer service.

 

 And what you see is the customers then start paying. So that switching mindset across the last 10 or 15 years from the credit issuer through into the marketplace through from a regulatory point of view it's been absolutely on the customer so I would disagree with someone that says in collections you can't offer great customer service.  

 

I think you offer the best customer service across the credit life cycle because you're really attaching to a customer emotionally as well as through their financial means.

 

Boris.  That's a great point. I used to be a risk consultant as I told you before and I remember working on a debtor management system about 20 years ago for a large automotive company.  I wonder, what tips do you have for risk managers to help their organizations to stay on course during this crisis. For example, what's something that they should start doing right now that they are not doing or another way around what they should stop doing that they're doing now.

 

John. What's interesting about that is what they should start doing and I'm hoping they start to do this already is capture the data especially from a COVID point of view to really understand the customers that are being put on these payments deferrals. And understand how that customer is actually made up so when you're having the conversation with the customer right at the front end you know why do you need the payment deferral and have you been furloughed in the UK, what is your actual job role at the moment and what is your actual annual salary.  

 

Having those conversations with the customer because that is going to be so important for you to start to understand as the customer rolls through, a timeline not a throwing collection it's just a timeline of being on the payment deferral and before they actually roll into collections if they do.

 

Because it's really important to understand the makeup of that customer and have that opportunity to do that so absolutely start capturing the data when you have that conversation and whether you've created that payment deferral online through some sort of web form or through a conversation. However, you've done it to ensure that you're capturing that data is absolutely important, especially then when you think about if that customer is them to roll into collections what sort of risk are they and how are you going to assess that risk when you've never really had this grouping of customers coming before. And we're going to start seeing that more from an analytical point of view. 

 

So understanding organizations are already starting to adjust their models because the models that they've got in place today haven't ever seen the volumes that we're going to start to see coming through. But they haven't seen the profile of these customers coming through before as well unless some organization has still got a model in place from 2008 which could be typical of the market but it'd be interesting to understand how they're going to do that because the profile of these customers are dramatically different to what we've seen before.

 

I would say stop doing and this is really understanding where you are today because when people say we're moving into this big crisis that is coming up with the volumes that we're going to get through. We've already spoken to a number of leaders who have said things like you know what John, I wish we'd made these changes two years ago and we didn't and we wish we had gone on that transformation that we should have done.

Because these transformations that we would have seen if these organizations would have made these changes a couple of years ago they would have the levers to pull in the operation right now that they haven't got, they would have you know the end-to-end customer landscape built out that they haven't got.

 

Instead of trying to build things themselves, utilize vendors to be able to bring their expertise to the table. 

Many organizations that I've worked with have said: we're okay or actually I've worked at myself who have said no it's okay we're going to build this out ourselves.

 

But you're a bank or utility, you're not a software expert but you are going to build out your own collection system. 

Okay, and they've started to do that and then what we've seen is a number of those organizations never get there and they move into this complex environment where they haven't been able to build out that collection system and they're still in that position five, ten years later regardless of how much money they've spent in that time frame.

Boris. Absolutely fantastic. I just wanted to mention that FICO has its own user community which is located on the following site https://community.fico.com/s/collections-and-recovery 

What should we expect from you guys in the future, what is going on in your industry and what are the major trends, can you summarize in a few words?

 

John. You mentioned something that is quite close to my heart as a thought leader, it's great to share that insight and you need a vehicle to be able to do that, so we've created this community Collections and Recoveries group and it's a great idea by a guy that works for us, Charles. He's come out with this fantastic initiative to really drive collateral into a group where people can gain access to. And it's not a salesy thing, it's absolutely thought leadership and it's absolutely insightful from what we're seeing across with the clients.

 

What was seen in the marketplace, it will drive fantastic conversations between leaders and obviously similar to what you guys at Global Risk Community are doing and we pull together this partnership to really ensure that our clients can see case studies and understand product information and they can see the latest and future versions of technology software and issues and insights within the market.

 

So all our insights and development of that will go into that group and it's been developed now and over the last 18 months and we're seeing some fantastic uplift in that. So I would drive it to ensure that people gained access to that and really have a look at what some of the insightful information is from some of the leaders across FICO.

 

Boris. So summarizing, if someone who is listening to this interview would like to walk away with one or two major takeaways what would it be. 

 

John.  Focusing on your transformation, really think about what your vision is going to be.  A wise man said to me a long time ago you can underachieve what you think you can do in five years but you can overachieve what you can think you can do in three. Really focus on an effort to get somewhere and within collections, transformation focusing on your analytical mindset, and let's try to change the business areas focusing on analytics. Develop your digital collections and ensure that you've got a platform in place that can make changes at a pace and that can be driven by the business and not by IT.

 

Boris. All right, thank you, John. it was a fantastic interview. I wish you great success with driving thought leadership in your company and I hope as a person I see that you are a Liverpool fan and I wish great success with your team's journey in the Champion League and success in many years to come.

 

John. That's right Boris we can't get much better than what we've had this year. Over the last couple years it's been phenomenal, so yes let's just hope that success continues.  Bye-bye