According to McKinsey 2020 reportthe international has faced many challenges, despite the fact that several industries depend on their expertise to recover debts from customers.
The report further highlighted that many debt collection agencies were only able to recover $ 40 billion from $ 150 billion in 2010. The industry’s average collection rate was only 20 percent.
Heavy Trust to Lenders
Many industry experts predict that the high losses are due to the heavy reliance of lenders and debt agencies on conventional systems that do not utilize modern technologies or tools for this purpose.
The report also highlighted that when debt collection agencies switched to digital collection techniques, it increased the recovery rate by 65 percent. The article shows the effectiveness and importance of using digital channels for debt collection.
What is a Digital Debt Collection?
Digital debt collection refers to a practice in which debt collectors or lenders exploit the power of high-tech or modern tools, such as machine learning and artificial intelligence, to develop contact strategies to approach borrowers.
These strategies may include text messaging, email, and other online tools. Note that using effective contact strategies through digital means can reduce the risk of customer delinquency. In addition, it can help businesses generate a positive cash flow from operations.
What Are Some Common Challenges Debt Collectors Face
Before discussing how modern technology can help lenders and banks effectively recover debts, understanding their challenges is essential.
There is now a collective consensus of banks, lenders and debtors that traditional methods of recovery are not effective enough. These conventional methods are automated calls, letters, aggressive agents, and dispute resolution.
Frustration Among Borrowers
Most of these strategies often cause frustration among borrowers. As a result, it has an effect on debt recovery. McKinney’s latest report also indicated that many issuers still practice traditional strategies for contacting customers based on their risk profiles, balance and average delinquent days.
Some publishers have recently begun to integrate behavioral segmentation and contact preferences into the models.
However, there is a long list of lenders who use digital channels such as text and email in the early stages, but often abandon them after a month. Most of them switch to traditional channels, including letters and phone calls.
Although broadcasters like to return to conventional channels, their clientele shows a preference for modern digital contacts, especially emails and text messages, regardless of prevailing delinquency. That is, customers with low balances prefer digital channels for debt collection.
How Digital Collections Help Banks and Lenders
Using digital debt collection can dramatically improve and simplify repayment. You can credit the main proponents of the success to the many benefits of high-tech debt collection methodologies.
Advanced Analysis and Data Collection
Using digital collection methods or strategies to contact customers allows lenders or collectors to obtain multiple borrowing signals at once. It doesn’t end there because they can segment them automatically using advanced algorithms. It’s a great way to develop a lot of custom contact strategies based on the profile of borrowers.
In addition, collectors can rely on prior data to develop a high-profile profile of borrowers using predictive analytics to predict future repayments and the risk of delinquency. These skills are a great way to reduce the risk of crime and enable them to prepare for the challenges of the future.
Optimized Customer Communication
Digital collection processes further enable collectors to optimize and improve communication across all channels. It also helps lenders shift the focus from standard scripts to offering customers customer-centric access.
Utilizing the profiles of pre-configured borrowers to get to know the customers helps lenders understand their mindset. Lenders can bring an active change in communication that incorporates empathic concerns rather than just passively-aggressive debt collection notices.
This feature of digital debt methods has benefited many lenders working around the world. This is because the strategy enables lenders to reduce the risk of spam and improve effective communication.
Insight-led Solutions
Digital collection strategies and methods are a great way to strengthen the system that captures comprehensive information about the customers. An increased amount of data helps collectors better understand the behavior of borrowers. In addition, it creates an understanding-guided approach that allows them to use previous data to anticipate future changes.
Digital tools such as unobtrusive borrowing panels and advanced custom analysis help borrowers manage customer portfolios. It reduces exposure to risk while improving cash flow.
How Does Digital Debt Collection Drive Success?
In short, a digitally enabled environment not only improves compliance but also addresses the evolving demand of customers. It has become a proven way to optimize and contextualize interaction and communication with customers.
Some of the most important benefits that lenders get when they deploy digital debt solutions that can lead to success are:
- Business results include high collection liquidity rates and lower collection cost
- Compliance
- Better customer experience
Some of the traits that lead to success include:
- Customer eccentric collection
- Maintains regulatory and standard compliance
- Identifies customer needs and preferences to optimize collection effort using the best channels with holistic access
- Personalized understanding-guided solutions
- Develop compliant communication to comply with the requirement of debt collection regulations
- 360-degree view of customer behavior and actions in one panel to implement recommended plans, repayments, and simplify communication for better customer retention.
In short
Debt collection agencies and lenders need to harness the power of modern tools, such as Artificial Intelligence (AI), to collect debt. These modern digital tools allow creditors and customers to reap several benefits.
Image credit: Mikhail Nilov; Pixels; Thank you!
Source
Lyle Solomon