A 4-Step Plan to Reduce Declines Using Data

A 4-Step Plan to Reduce Declines Using Data

Auto dealers can sit back and wait for payment declines to mount, or they can use a data-driven approach to identify at-risk payers and implement interventions before things get beyond repair.

Persistent inflation has put consumers on their back foot when it comes to paying bills each month, including their auto loans. In a recent consumer survey, 74% of respondents said inflation has impacted their ability to pay bills, and 13% said they are worried about defaulting on their car loan if a recession occurs.

Auto dealers can sit back and wait for payment declines to mount, or they can use a data-driven approach to identify at-risk payers and implement interventions before things get beyond repair. A payments platform provider that is committed to democratizing data — making it available to all stakeholders who need it — can use its vast storehouse of data to give your dealership vital information and analysis to guide decision-making.

Here’s a four-step plan to put that data to work:

Step 1: Set a baseline level of expected decline rates.

Declines are not always avoidable, and even your most reliable customers will occasionally make a data entry mistake or could encounter a problem on the biller’s side. That’s why it’s important to establish “normal” decline rates for your payers as individuals and as a group, as well as across the auto industry. A payments provider that has its data consolidated in a data warehouse can easily help you identify those baseline decline rates. Those are the numbers you must keep in mind to prevent either an overreaction or underreaction as you start to encounter anomalies in decline rates.

Step 2: Identify trends in decline activity through data analysis.

Once you have your business and industry baselines, you can ask your payments provider to measure the data at regular intervals and track deviations that indicate a positive or negative trend pattern. Your provider should be able to do the analysis and provide you with month-by-month reports, or supply you with raw data for you to run the analysis in-house. This step answers the questions: How are payers behaving now compared to the past, and does that behavior over time indicate a trend or an anomaly?

Step 3: Use data to predict declines.

Having a snapshot in time of payment patterns is helpful, but what if you could predict which customers’ payment patterns will lead to declines or default? Machine learning makes that type of prediction possible by using mathematical models to identify behaviors or patterns associated with loan default and then training the models to make small adaptations over time as more data is gathered. Sound high-tech? It is, but some payments providers are beginning to offer that level of analytics and business rules, allowing you to identify your most at-risk payers before they fall hazardously behind on their payments.

Your payments provider may even be able to incorporate third-party data that can further serve as a predictor of declines. For instance, government data on the consumer price index, employment or GDP can help identify areas of the country where payers may be struggling.

Step 4: Implement strategies to prevent declines and default.

With predictive data in hand, you can take steps with your payments provider to help at-risk payers prevent declines and reduce their risk of default. The payments provider may even be able to automate these steps using AI, to save you time and effort.

For example, you can request that an automated change to business rules take place when a customer hits a particular milestone, such as two or more declines in less than six months. In such a case, the rules would allow only specific low-risk payment methods, such as cash or debit cards.

The payments provider can also create an AI application that sends automated messaging to payers after their second declined payment, offering them options like setting a new payment date that better corresponds to their cash flow or breaking one monthly payment into two smaller payments.

The important thing to remember is that your payments provider should be your dealership’s ally throughout these four steps by sharing data, analyzing and benchmarking data against automotive industry trends, and utilizing technology like AI and ML to automate solutions. If that’s not available with your current provider, you may want to consider a change.

When you put automotive payments data to work, you gain the insights necessary to boost bill payment success and prevent expensive and time-consuming declines, even in a down economy.

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