Lending among cash-strapped Americans has dramatically grown since the COVID-19 outbreak started. Experian data show that in the two short years between 2019 and 2021, U.S. consumer debt increased by more than one trillion dollars, reaching $15.3 trillion.
The market for debt collection is therefore only anticipated to expand. According to Marketdata, the market would grow 2.8% yearly between 2022 and 2025, reaching $16.7 billion. This creates remarkable potential and challenges in the intensely competitive field of debt collecting. Debt collection agencies are using digitalization and other important changes to collect debt in an effort to compete.
What kinds of debt do consumers have?
The Urban Institute estimates that in 2022, 28% of Americans had at least one debt that was being collected. Some of the principal sources of debt include the following:
- Mortgages: As of right now, $11.2 trillion is owed by American homeowners.
- Auto loans: According to Consumer Finance, Americans owe $1.4 trillion in auto loans.
- Medical debt: According to Stanford University, Americans have $140 billion in unpaid medical debt.
- School loans: The $1.6 trillion in outstanding school debt owed by Americans.
- Credit cards: The combined credit card balances of all Americans are currently $890 billion.
Debt collection agencies are now looking into more effective and creative ways to recover past-due payments as a result of the source variation and overall rise in consumer debt over time.
The Case for digital debt recovery
Prior to the COVID-19 epidemic in 2019, the average collection rate was under 20%, which, according to Ernst and Young, was the lowest level in 25 years.
While still effective, traditional debt collection methods like phone calls and letters are getting a boost from digital initiatives. Experian, a company that provides consumer credit reports, believes that 52% of people who visit a digital site at the request of a collection agency agree to pay what they owe.
The following techniques and tools have a lot of potential for enhancing collections digitally.
Automation
Even while calling debtors on the phone is still necessary for debt collection, automating procedures can save time and increase precision. Third-party debt collection agencies collect debts using automated channels and make the collection process much easier for businesses. Virtual assistants enable businesses to respond to consumer inquiries around-the-clock, every day of the week. Process automation has also been shown to increase
compliance. According to a Forbes article, the usage of automated processes “…may prevent various legal difficulties from developing and restrict liabilities. The Telephone Consumer Protection Act and the Fair Debt Collection Practices Act both allow for the limitation of responsibility in collector processes. This can entail automating some processes that a single collector can’t get around, avoiding any potential legal blunders.
Increased reliance on digital channels
According to J.D. Power’s 2021 U.S. Retail Banking Satisfaction Study, 41% of U.S. retail bank clients now only use digital channels. The study also showed that high levels of digital interaction result in higher consumer satisfaction. Due to restrictions banning excessive phone calls, digital channels will continue to gain prominence as a means of debt collection. According to one rule outlined in the Telephone Consumer Protection Act (TCPA), for instance, a debt collection agency cannot call a borrower again for a week after speaking with them. The use of digital technology allows debt collectors to contact people in new ways.
Increased use of self-service options to boost efficiency
According to a report titled Redefining Customer Service for the Future by Boston Consulting Group (BCG), the adoption of self-service digital channels in banking grew by 20% in the early months of the epidemic and is happening at “unprecedented” rates. Self-service options are readily available to both clients and agents around-the-clock and can eliminate the need for lengthy talks. Because individuals preferred paying on their own time with a single click, early users of a self-service collections portal during the epidemic, according to BCG, were very successful.
Collectors should consider how to offer self-pay choices through a variety of channels. For instance, a link or QR code in an SMS or email could direct a customer to a payment platform or help page. Customers may also be given the option to set up autopay through an online self-service channel by businesses.
AI, machine learning, and analytics in predictions
The ability of machine learning and artificial intelligence (AI) to make predictions has revolutionized the debt collection industry. For instance, by recognizing people who answer slowly, AI might spot patterns and distinguish possible defaulters. Debt collection companies can take the proper steps for hazardous accounts by using predictive modeling.
Based on client behavior, AI may gather data and advise debt collectors when and how to contact customers. Additionally, it can be used to evaluate the performance of a text message, email, or payment landing page. Do they have an email open? Did a nudge get their attention? AI has the solution.
The value of working with a knowledgeable outsourced third-party debt collection agency
Consider collaborating with a partner who has experience in payment recovery strategies as you build your collections approach. By doing this, you’ll have more time to devote to
developing other areas of your company. Ensure that the company you select has the experience, a track record of success, and a team of experts that is qualified to perform customized, outsourced collections.
About Author
