Exus Blog Article
How will cryptocurrency impact the future of debt collection?
Even a few years ago, the idea of cryptocurrency was still one very much consigned to the bedrooms and boardrooms of “those in the know.” The tech wizards and financial gurus that constantly keep their ears to the ground might have invested in Bitcoin and made a tidy sum out of it but it was still seen as very niche.
In recent years, however, the cryptocurrency star has risen to the extent that even commercial banks are starting to take notice. In part, this is due to the media attention afforded crypto fans such as billionaire tycoon Elon Musk but in the wake of the pandemic, Brexit, and the war in Ukraine, it could also be finding its place in a world of great volatility.
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What is cryptocurrency?
In essence, cryptocurrency is a decentralized digital currency that belongs to no set government or regulatory body. The key to truly understanding cryptocurrency, however, is in breaking it down into two words - crypto and currency. The first word refers to the cryptography used to secure the second, with a complex, decentralized system used to ensure the digital currency is completely safe and verifiable.
The unregulated currency is underpinned by blockchain technology, which is a type of database that exists as a public ledger distributed across several computers. This means it’s almost impossible to tamper with and is technically far more secure than any traditional payment mechanism.
Rather than existing as a physical stack of coins or notes, cryptocurrency is 100% digital and exists as virtual tokens with a value determined by the market. They can be bought with traditional cash and can be used to purchase an increasing number of goods and services. Perhaps the most exciting aspect of any cryptocurrency is that it’s worth the same in every country, which makes an international payment more straightforward. In that respect, you could almost refer to them as digital gold reserves.
The current cryptocurrency market
The market for cryptocurrency has never been more tempting for many investors, as they see it as a strong hedge against monetary and market risks in a global environment that’s becoming increasingly unstable. There are numerous examples of investment firms going all-in on Bitcoin, such as Ruffer, which spent £550 million on it last year. Granted that’s still only around 2.5% of their overall investment portfolio but it’s still significant.
Bitcoin is comfortably the most well-known and successful cryptocurrency to date, though there are dozens of smaller currencies making waves in the market such as Tether, XRP, and the notorious Dogecoin, Bitcoin is the market leader by some margin. In fact, at the time of writing, 1 Bitcoin is worth over $20,000.
Granted it was worth almost $70,000 last November so a 70% fall is quite sobering but those talking about a crypto crash are surely thinking short-term. Because, in the long-term, many of the more exciting opportunities offered by cryptocurrency are still in their infancy, with an exciting wave of new startups leveraging its unique properties for a range of products and services while building the foundations for an entirely new financial system.
Read more on the future of debt collections and new trends in customer service
Cryptocurrency and debt collection
So, how are cryptocurrency and its inevitable rise going to affect the world of debt collection? As more banks and companies begin to accept cryptocurrency payments, the eventuality that they start to displace more traditional forms of payment is surely on the horizon. In such an environment, lenders are going to need to completely shift the way they operate their collections practices and invest even more heavily in digital transformation. Because you can’t physically collect Bitcoin.
While it is still a rather niche concern in many regards, there is a definite rise in the use of crypto credit that’s been seen in recent years as individuals with massive holdings of existing cryptocurrencies begin to realise the robustness of existing crypto lending mechanisms.
As cryptocurrency becomes a legitimate cash alternative and as more lenders start to offer lines of crypto credit, the entire process is going to become more heavily automated and bots will take on a more significant role in the debt collection process. This is, thankfully, already something that many lenders are accustomed to but with fully digital currencies, there is an even larger role for AI to play.
For those working in debt collection, this means their roles might need to shift in the coming years as the old ways of physical collection slowly become obsolete. We’re not saying it’s going to happen in the next few years but certainly within the next decade or so. That’s not to say robots will be replacing human debt collectors; simply making their jobs easier by taking on more of the busy work and doing it more reliably.
Why cryptocurrency is a good thing for debt collections
Ultimately, the more options debtors have, the more likely they are to make their payments and feel as if they have agency over their debts. A greater emphasis on automation also means that bots will collect debts automatically, forcing consumers and businesses to be more self-conscious about their debts.
For borrowers, it’s going to mean more choice and for lenders, it’s going to mean more assets to potentially claim. A win-win solution then but for those lenders still on the fence, it’s time to invest in digital debt collection solutions and prepare for the coming crypto revolution.
Contact us at EXUS today for more information on our industry-leading debt collections solutions