Today, CROs face a wide variety of threats to their company’s existence—and to its profits.
COVID-19 presented a risk to both people’s lives as well as to their livelihoods. As companies shut down and layoffs became commonplace, consumer credit risk increased. Businesses that survived were forced to embrace remote working. Despite its many benefits, this also opened the door to increased cybersecurity risks. And, of course, climate change continues to reshape the world around us at an increasingly alarming pace.
Consider the following statistics, taken from EY survey:
98% of CROs are worried about credit risk;
80% are worried about cybersecurity;
49% have concerns surrounding the impact of climate change;
33% consider the transition to digital strategies/processes to be risky business;
While 33% are preoccupied with operational resilience.
This article will examine the 5 major risks listed above that all CROs need to address going forward. It will delve into what those risks are, why they are causes for concern, and how CROs operating in the collections industry can mitigate these risks.
1. Credit risk
The COVID-19 pandemic, rising inflation, historically high energy prices, and supply chain crises are all having a devastating impact on consumer credit.
VISA reported that “The COVID-19 crisis represents one of the biggest disruptions in the 80-year history of the credit card sector”, with 66% of consumers in the developed market and 88% in the developing market concerned about their ability to pay bills and loans.
In addition, inflation has reached unprecedented levels in recent months. In the UK, The Consumer Prices Index (CPI) rose 5.5% in 12 months, the highest inflation rate on record. Eurozone inflation has risen by a record 5.8%, while US inflation has climbed by an eye-watering 7.5%. The impending energy crisis has played a large role in this increase, while supply chain pressures have also had a significant impact on inflation.
The above issues all add up to increased credit risk in general.
2. Cyber risk
Cyber risk has always been a major concern for CROs. However, over the past two years, cybersecurity has become even more critical. Remote working opened the doors for potential cyber breaches, with employees now working on confidential tasks outside their business’s highly secured firewall.
According to a research, businesses suffered a staggering 50% more cyberattack attempts per week in 2021 than in 2020. Hence, more than 1 in 4 executives are planning on increasing their cybersecurity budgets by double digits this year. Beyond simply safeguarding their own networks, however, companies must also make sure to partner with software vendors that prioritise cybersecurity.
Not sure how to assess a company’s cybersecurity approach? Check out these 7 data security questions to ask enterprise software vendors.
3. Climate change
Climate change is an important topic that will affect all of us—and companies are therefore incredibly wary of its impact. The Intergovernmental Panel on Climate Change recently released a report stating that time is running out to prevent an irreversible climate disaster. Unsurprisingly, climate change has topped the list in the Global Risks Report 2022.
Last year, we saw just how devastating climate change can be. Germany experienced deadly levels of flooding, while Australia and California suffered from catastrophic forest fires.
Moving forward, climate change is only going to become more of a concern—both for individuals as well as for businesses.
4. Transition to digital processes
Many companies have recognised the need to digitally transform their businesses before and during the COVID pandemic. 60% of executives believe that digital transformation (DX) will be their key growth driver in 2022, with total global DX spending set to reach $2.8T in 2025.
However, digital transformation is far from easy, and this process carries significant risks. Companies may lose money on unsuccessful projects. Their efforts might cause delays in production or even downtime, which may lead to customer churn.
Nevertheless, the benefits of digitisation outweigh the challenges. Relying on outdated technology is far riskier than making the plunge and adopting future-proof replacements—hence increased investment in artificial intelligence (AI), machine learning (ML), and similar innovations is necessary.
5. Operational resilience/Operational risk
Operational resilience and operational risks threaten every aspect of a company’s operations. These risks can involve ineffective/failed processes, outdated systems, manual errors, regulatory compliance issues, or customer behaviour changes.
For example, Amazon was fined €746M in 2021 due to GDPR violations. While it’s large enough to survive such a huge fine, this just goes to show the staggering cost of non-compliance. Using outdated technology (instead of upgrading to new systems) also costs businesses significantly more than it saves. This is because traditional approaches don’t adequately take customers’ behavioural changes, and the impact of technological innovation, into consideration.
Companies must therefore ensure every single aspect of their operations are up to date and up to scratch. By doing so, they can avoid—or mitigate—the impact of operational risks.
How CROs can mitigate risks in the collections industry
The COVID-19 pandemic, rising inflation and many other factors have increased the financial pressure on consumers, as well as on financial institutions themselves. So how can CROs mitigate the risks of collecting all that they are owed?
By leveraging a cloud-native collections software with prudent data security protocols, credit scoring capabilities, and advanced AI and ML capabilities. This will allow CROs to detect high-risk customers earlier, analyse their customers’ behavioural insights, optimise collections performance, and reduce their carbon footprint.