Digitizing debt collections: Driving personalization for better results

Published on Tuesday, March 19, 2019 | 05:45am

Debt collection has gone digital and for good reason. Today’s digitally savvy consumers expect a seamless collection process that they can control with just a few clicks on a mobile screen or by negotiating with a chatbot – just like shopping, buying movie tickets or booking flights. As debt levels go up, lenders are increasingly digitizing their collection processes to cater to the changing customer demand and improve collection outcomes. Digest this – Indian households’ consumer debt doubled in FY 2017-18, the highest in seven years, spurred by banks’ increased focus on retail and easy lending. Personal loans and credit cards dominate volumes while mortgages account for the highest outstanding debt value.

Growing digitization of lending and debt collection

Digital lending is set to become a USD 1 trillion worth market in the next five years. In India, factors such as low penetration of credit, growth of eCommerce, and the surge in smartphone usage are driving the shift towards digital lending. It not only enables lenders to drive greater consumer uptake, but also empowers millions of consumers to enjoy credit to fund a lifestyle of their choice. Even as lending becomes quick and accessible, debt collection remains a challenge. Traditionally, collection agents call customers repeatedly to retrieve debts. Unsurprisingly, consumers often stop taking calls from debtors and sometimes, even block emails and texts. Moreover, as the number of consumers taking loans and ending up in debt increases, banks and FIs find it extremely expensive to hire call center agents and collectors for recovery.

Forward looking FIs understand that it is time to reimagine the debt collection experience to make it more scalable, cost-effective, and consumer-centric – at par with what other industries such as retail and telecom offer.

How personalization helps fast-track debt collection

Borrowers are often in the dark about their repayment options. They need be provided with a steady and personalized stream of consistent communication of the best repayment options in order to nurture them through the payment process. Empathetic hand-holding has been found to be more effective when it comes to debt recovery as opposed to persistent follow up. Consumers end up paying faster and consistently when they are sent personalized communication that helps tailor their debt repayment plans according to their life stage.  Here’s where digital technologies such as Artificial Intelligence (AI), Machine Learning (ML), and digital first systems add value by helping banks and FIs do just that.

ML systems can mine humongous amount of historical and current financial data such as transaction history, payment behavior and integrate it with data from external sources such as social media to personalize both:

  • Contact strategy – Time, frequency, usage of words, tone of voice, etc.
  • Payment strategy – Length of payment plan, percentage of interest, partial waiver, etc.

The added advantage of these digitally-driven intelligent debt collection systems is that when a debtor opts for one of the given options, the system self-learns, automatically triggering the next best action. AI and ML driven debt collection solutions can also enhance efficiency of human agents by supplying real-time insights. This can enable collectors to steer the conversation with debtors in the right direction, improve relationships, and even accelerate the payment process.

AI-driven virtual assistants and chatbots can also manage outbound calling, gather debtors’ payment information and set up and automate payment arrangements, leaving human agents free to focus on the more value-driven tasks. ICICI bank, for instance, leveraged a personalized debt collection approach by leveraging business intelligence and analytics to achieve 50% increase in debt collection – all while using 80% less manpower and reducing allocation TAT from five to six days to three to four hours.

On the road to smarter and more effective debt collections

According to the International Debt Collections Handbook, the estimated success rate of collections in India – between January 2014 and December 2016 – was 17.3%. Digitizing debt collection is a win-win solution for both lenders and borrowers that can significantly improve the collection success rate. On the one hand, digitization offers lenders an opportunity to redesign their collections process to drive efficient, personalized and customer centric operations. On the other, digital technologies empower consumers to play an active role in managing their own debt, leading to faster repayment and superior customer satisfaction.