Trends Shaping the Debt Collection Industry

Evolutionary information and communications technologies have revolutionized the way information, content and experiences are created and consumed. India has witnessed massive changes in all sectors due to digitalization. While the financial services industry has always been an avid adopter of technology, the same has not always been the case with the debt collection industry.

Digitization in the debt collection industry has gained momentum after the pandemic. According to a survey75% of customers who used digital channels for the first time during the Covid-19 lockdown said they would continue to use digital tools even when things return to normal.

We observe the following trends in the debt collection industry:

  • Multi-channel digital communications

Businesses communicate with their customers through multiple digital channels – SMS, email, IVR, WhatsApp, among others. It is important that financial institutions understand this and formulate a communication strategy for each channel. A customer should enjoy the same high level of service regardless of the communication channel.

This multi-channel approach extends widely to the debt collection space where customers prefer to be contacted via text or email rather than phone or mail. Debt collection processes should take the multi-channel approach and reach the customer based on their channel preference.

  • Client-centric approach

Customers are accustomed to personalized service and offers when accessing products and services. A one-size-fits-all approach is no longer optimal and can potentially scare away customers. Also, it is important that customers benefit from the self-service option. According to our survey, 57% of people prefer self-service channels. Customer self-service options along with empathy are paramount in building customer-centric journeys for debt collection. Delinquent borrowers can use a channel of their choice to resolve their debt issues.

  • Machine learning and data analysis

Digitization was an important trend before the pandemic. This trend has strengthened over the past two years. Financial institutions have plenty of high-quality, actionable customer data that they can use to serve customers. This is even more important in debt collections where machine learning algorithms analyze customer demographics and financial history to create various delinquency management options.

The debt collection industry has traditionally used heavy-handed tactics to resolve outstanding payments. Regulators want debt collectors to be more empathetic to customers in terms of the language they use, communication channels and contact strategy. This is why the Reserve Bank of India has put in place strict customer-centric regulations. Digital debt collections help financial institutions and debt collectors meet all of these regulations. By building guardrails into their communication strategy, financial institutions can rest easy knowing that they are algorithmically complying with regulations.

  1. Multilingual communication

Taking a nuanced approach to reaching all sections of society is a crucial step for financial institutions towards financial inclusion. In debt collection, communicating with customers in the language of their choice helps customers better understand their obligations, which in turn ensures timely payments.



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Disclaimer

The opinions expressed above are those of the author.



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