Modernising debt collections tech and customer service

Can an investment in tech and customer service save collections from the COVID debt tsunami?

To say 2020 and 2021 have been years of pivots and challenges might be something of an understatement. The COVID-19 pandemic has impacted the collections sector as dramatically as it’s affected any other sector, though in this case, the effects are perhaps a little more direct and immediately noticeable.

Balances declined by more than $8 billion between the end of 2019 and the middle of 2020 and while third-party activity has increased in 2021 (picking up the slack left by overworked and understaffed banks), the number of third-party collection firms is expected to shrink by 15% to 6,699 companies this year.

The overall disruption caused by the pandemic is going to have a major long-term impact too. This is perhaps going to become even more apparent in a few months when the various economic stabilisation programmes, grants and initiatives put in place by every government under the sun begin to wind down.

If the industry wants to survive this disruption and emerge on the other side of it even stronger, it’s going to have to come up with new and better ways to communicate with its customers.

The customer is always right

Nobody likes getting a phone call from a debt collection agency and during a pandemic, when customers are more likely to already be in dire straits, that phone call becomes an even tougher one to bear. At a fundamental level, what’s required is a change in how collections teams approach and relate to their debtors; a shift away from functional and authoritative and towards emotional and supportive.

For agencies that might have built their entire brand identities around the formal and the functional, this might prove difficult. But it can be made a lot easier with a more organic adoption of digital technologies. Better technology will always deliver a better experience for the customer.

One UK bank, for example, utilises real-time sentiment analysis to interpret the language and emotions of debtors during conversations (both online and over the phone). This way, lenders can alter their language accordingly, reacting to customer emotions naturally and cultivating a much deeper emotional connection. In fact, it might be possible for this to be done automatically by a chatbot, given enough time and resources.

Because, at the end of the day, the lenders that can deliver the best customer service are always going to be the lenders that get paid first. You’ll want to ensure, however, that you choose the right software for your needs.

Click here for more on how the EXUS Financial Suite could help future proof your debt collections practices

Digital transformation in the debt collections sector

Investing in a modern debt collections software platform is the obvious first step here. It’s predicted that the total number of online and mobile banking users will exceed 3.6 billion by 2024. That’s almost half the population of the planet. If debt collections is still stuck in the doldrums of phone calls and intimidating chase-up letters then there really is no hope.

The debt collections software market is set to be worth $4.49 billion by 2026, so things are obviously moving in the right direction. Investing in the right software, however, should just be the foundational step of a wider movement to modernise debt collections. This is going to involve lenders becoming more sympathetic and emotionally invested in their debtors and investing more heavily in customer-first initiatives.

The best digital debt collections solutions are flexible, able to analyse and segment customers effectively and have built-in self-service functionality. Debt collections software exists to automate certain jobs, make other jobs easier and allow customers to access their account from any location at any time.

Debt collections software is also an investment that will allow lenders to make more informed decisions about their collections. By using machine learning algorithms, intelligent recommendations can be made that inform lenders how and when to act which makes it easier to choose the right tactics and communications channels for the right customers.

These techniques have been used by the marketing sector for years now and they can be used to inform not only collections but lender decisions too.

The AI impact

Artificial or augmented intelligence has been helping the financial sector not only automate services but to make better and more informed decisions. The collections sector is a natural fit for this technology, as analytics can be used to make the collections process smarter and drive strategy. An algorithm could be used, for example, to ascertain which debtor is more likely to pay first or which channel to contact that debtor through that would be most likely to get their attention.

Analytics can also be used to dynamically reset collections strategies. If a lender needs to focus on high-risk customers for a certain period, for example, it could pivot the system to develop specific strategies for customers in hard-hit areas. It’s an incredibly flexible technology that is always improving and collectors would be very unwise indeed not to heed the call of machine learning sooner rather than later.

Modernising the tsunami

Ultimately, the modernisation of collections practices becoming the norm amongst lenders of all sizes is going to be one of the few positives drawn from 2020.

There is still a long way to go, as globally, more traditional channels were still cited as the most effective way of communicating with customers. Indeed, 44% still cite manual telephone calls as the most effective method and while there is an expectation for the greater adoption of texting and AI solutions in coming years, 93% of collectors are still using physical letters.

But even in countries that are slow to adapt, there are seeds of change being sown. The Asia-Pacific region, for example, is expected to exhibit the highest growth rate in the debt collection software market between now and 2027 due to digital transformation and an increase in the willingness of consumers to adopt new technologies; a willingness no doubt largely catalysed by COVID.

Perhaps the shining beacon we should all be looking towards, however, is the United States, where the CFPB has set new consumer credit guidelines that mandate the sector needs to modernise its practices. Once the larger firms start adopting their practices accordingly, it should create a trickle-down effect that will impact the entire sector.

However, US institutions have tended to focus more on recoveries than customer experience over the course of the pandemic, so there’s no one country or agency “doing it 100% right,” just lots of individual agencies and countries that can and should be learning from each other.

Ultimately, however, it’s going to be up to individual lenders and agencies to double down on these changes. They just have to remember to do so while keeping the customer at the heart of every move they make. Because after the year (or two) we’ve all had, it’s compassion, transparency and humility that are going to win friends and influence people in the uncertain months ahead.