05 Dec Why Adding Visibility to Customer Repayments Matters
Why Adding Visibility to Customer Repayments Matters
Noah Fitzgerald, CPP
Businesses that extend credit or terms to their customers take on an inherent risk. You provide a service, loan, product or goods without getting partial or complete payment at time of delivery with the expectation that the customer will pay you on time in the future. The reality is, when a business extends credit to a consumer they are investing in that consumer’s ability to repay for the service or product they received.
This model of extending credit has been around for years, but over the past decade the rate of repayment defaults has climbed sharply. Today, the average repayment default on a payday loan is over 20%, 50% on high interest online installment loans, upwards of 33% on vehicle title loans, and 12% on high risk vehicle loans. These payment defaults not only cost the business loss of revenue and operational expenses, but have significant impacts to the consumer. In a recent study performed by the CFPB, the average default customer incurs total fees of over $185 in bank penalties, of which 36% have their bank accounts closed by the depository institution. In these scenarios, both the customer and the business lose. The customer loses their access to banking services while the business loses their principal and interest revenue with no ability to collect.
Thus, there have been several rules put forth from multiple regulatory bodies. NACHA (the governing body of the ACH network) has tightened the limits on acceptable ACH returns and most recently, the CFPB (Consumer Financial Protection Bureau) has placed strong regulations on financial service providers focused on repayments. These rules and regulations are intended to place the onus on the business to reduce the negative impact on consumers. So, how can a business counteract payment default losses, reduce the effect on consumers, and protect their investment, while fully complying with regulations?
Today, there are a wide range of financial technologies (fintech) which provide companies access to data that can potentially eliminate these issues. At Merchant Boost, we have stayed at the forefront of this fintech revolution, packaging a suite of services, called Repayment Boost. With this suite we are able to provide businesses with visibility into a consumer’s available bank account balance in real-time. Merchant Boost’s COO, Jesse Berger stated, “This technology enables businesses to verify funds availability prior to submitting payment, to mitigate NSF issues. This allows the business to better service their customer, reduce payment performance issues, like ACH Returns or rejected payments, improve regulation compliance, and ultimately sustain the profitability of each customer.”
please visit: https://www.merchantboost.com