The Sunday Times QA: Data democratisation to reduce credit losses
December 20, 2020
Spyros Retzekas, Chief Operating Officer at QUALCO, gives an interview on The Sunday Times, about the ways that banks and creditors can improve returns and mitigate losses through technology and data democratization.
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Democratising data to reduce credit losses
The coronavirus pandemic and its destructive impact on economies around the world is set to cause a significant surge in non-performing loans and debt. Though governments are doing what they can to limit damage, through unprecedented stimulus packages and job support schemes, the second wave of the virus has all but eliminated the prospect of a swift economic rebound sparing a flood of default. More long-standing high street brands are falling into administration and unemployment rates continue to grow.
There is no doubt that European banks and creditors are entering a period of high credit losses, combined with a slowing of new business and compressed margins. Especially in markets where post-financial crisis restructuring was still ongoing, financial analysts expect many institutions will be pushed into a limbo state with very weak returns, although not on the scale of the financial crisis a decade ago.
Europe is already beginning to feel the effect of the output gap caused by the pandemic and government-enforced lockdowns, and is entering a difficult winter with a further wave of defaults set to build through late-2020 and into 2021. The unique nature of the crisis presents particular challenges for banks, as customers who ordinarily always paid on time are now in highly stressed situations. How can they understand behavioural changes when such changes haven’t been seen before?
As a strategic partner to financial institutions and creditors, fintech company QUALCO plays an extremely important role in the European credit market by providing tools powered by artificial intelligence (AI) that enable financial institutions to understand the behaviours and changing circumstances of their customers. Through these insights, organisations can approach debt management more fairly and transparently, and meet customers through their preferred channels in an increasingly digital and self-service world.
Spyros Retzekas, chief operating officer at QUALCO, explains why data democratisation is so important to achieving this, and explains what banks and other creditors need to do differently through this economic crisis to mitigate losses.
As someone present during the eurozone sovereign debt crisis a decade ago, what are your thoughts on the pandemic economic fallout and how are you responding?
''Rapidly accumulating household and corporate debt always presents a major risk to financial and economic stability. This time around, job, income and business support packages from governments have been truly unprecedented. Bringing money back to the real economy requires a data-driven approach to debt management that reacts carefully to economic policy measures.
Fintech companies such as QUALCO, in strategic partnership with financial institutions and creditors, are in a prime position to lead the new paradigm of debt management by removing the opaqueness and bringing much more openness and transparency to customers. Many people are currently in a highly vulnerable situation, through no fault of their own, and while vaccines present a glimmer of hope, there is still a long way to go until the economy will begin to recover. It is important for banks and creditors to understand and deal with their changing circumstances in the fairest way.''
Digitalisation has revolutionised money and payments systems. What impact has it had in the debt management industry?
''Digital technologies have played a crucial role in keeping society functioning during the COVID-19 pandemic, whether by enabling remote working, automating processes or facilitating virtual financial transactions. It goes without saying that customer relationships are at the heart of credit management, and it is now certain, that creditors, who do not integrate digital communication and self-service channels in their operations will simply not be able to fully serve a significant portion of their customers.
Through the savvy deployment of technology, including AI and machine-learning, they can optimise performance and increase transparency, flexibility and consistency, ultimately enabling self-serve and offering tailor-made products that better reflect customer habits and needs. However, digital channels are only one side of complete recoveries automation. An AI-driven customer approach is the other and more challenging.''
What are both the promises and the perils of big data and AI in receivables management?
''Receivables management is starting to be disrupted by AI and machine learning due to the low cost of vast amounts of processing power and the availability of massive amounts of historical records of customers in banks and other financial institutions. Many of these organisations are using AI to change the ways in which they optimise capital, model risks, 'assess affordability and manage their customer interactions through the likes of early-warning mechanisms, self-cure strategies, personalisation of customer interaction and treatment, and predictive modelling.
There are many benefits of this, including improved customer experience, reduced losses and decreased bad debt, with explainability, auditability and reproducibility being the key to governing the use of AI in finance. We invest a lot in this area, but as the applications of AI continue to grow, creditors seem to struggle to build the right culture that is required to boost data democratisation within their business. AI and voice analytics are undoubtedly becoming very hot, but technology alone is not enough to drive transformation, people have to drive it.''
Indeed, data democratisation is a hot topic in boardroom discussions. How far is the debt management sector from becoming truly data-driven?
''Digital democratisation pushes organisations to rethink how they manage, distribute and interpret data. That often means driving a dramatic cultural change in the organisation, freeing information from the silos created by internal, customer and external data. This is where most of the companies seem to fail. By enabling better decision-making, QUALCO’s technology helps organisations build a common analytics language within the business. And by combining those capabilities with our data governance consulting services, our clients are able to connect the dots.''
The credit industry’s growth is expected to be limited in the coming years. What should be done differently to improve returns and mitigate credit loss?
''The industry needs to think outside the box and the traditional model, and ultimately do more with less. Improved returns will need to come from reducing cost, which means investing in digital transformation and upgrading the customer experience. By doing so, a new level of ambition can be set when it comes to operational efficiency and cost-reductions, but financial institutions must first leave legacy technology behind. They need to improve their project management discipline, particularly around remote technology delivery, and enable their business lines to work more closely with technology teams to simplify and automate recovery processes, improve their work capacity and use data insights better.''