Debt Collection in the New Normal: Top 3 Emerging Trends + Bonus
The collection industry is at a watershed moment. Lenders and agencies providing debt recovery services are navigating an industry facing a plethora of shifts in federal regulations and the collection processes. Exacerbating the situation are changes in customer behavior, temporary restrictions to debt collection, and industry-specific moratoriums.
To stay in the game, debt collectors will need to adapt quickly to emerging trends. This article explains three recent trends that have the potential to change the collections landscape forever.
#1: The Demand for Omnichannel Collections is Increasing
The efficacy of outbound calling was on the decline since before the pandemic. Most delinquent customers preferred to communicate and pay through channels they were comfortable with. However, credit issuers continued to use traditional contact strategies which consisted primarily of calling their contacts. For them, a text message or an email was okay in early delinquency, but too passive after 30 days of delay.
In the new normal, customers should be given the power to choose their medium of communication and payment. Issuers should also provide self-service portals where customers can complete low-complexity and high volume tasks like repayment.
#2: Smarter Allocation of Trained Agents Is Required
Tech-savvy customers may be rising in numbers, but a sizable population still prefers live agents, especially during a crisis. During the height of the pandemic, some banks reported a 400% increase in services requests and walkthroughs. However, 45% of the call time was “dead air” (the time duration where the agent searched for information, while the caller was on hold or waiting to be transferred).
To increase agent efficiency, issuers will need better segmentation and smarter resource allocation strategies. Companies should create a streamlined process where trained agents are only assigned to customers that face complex issues. There should also be a means to segregate customers that are coping with financial or emotional challenges through behavior analysis.
#3: Collectors Can Expect Closer Federal & State Scrutiny
Collecting debts from customers has always been a highly regulated process. However, with new leadership at the Consumer Financial Protection Bureau (CFPB) and increased state regulatory powers, the rules are going to be more stringent.
The CFPB has already issued the final debt collection rule that will take effect on November 30, 2021. And while the rule’s impact on segments like first-party collectors remains unclear, the level of scrutiny is predicted to sky-rocket.
Several states are also bringing in their own laws to protect their consumers and increase the powers of the compliance monitoring system. For example, California has already imposed new licensing requirements for both first-party and third-party debt collectors. The rules still apply, even if the debt collector is working remotely and is collecting from a California resident.
Bonus: Advanced Analytics Will Become Mandatory
With service automation becoming a cornerstone to better collections, advanced data analysis will be crucial to getting the process flow correct. According to a McKinsey report, “Lenders are using the least effective rather than the most effective channels.” One of the biggest reasons for continuing to use ineffective channels is the lack of contact segregation based on user behavior.
It is crucial to understanding customer spending habits, patterns of repayment, and the tendency to take loans. For example, customers that choose the digital-first are 12% more likely to repay their loans. In late delinquency, the chances of repayment increase to 30%, when contacted through a digital medium of their choice. However, digital-first customers are likely to pay in installments, while borrowers who prefer phone calls are likely to pay in full. Contacting the customers through the wrong channels means a dip in collection numbers and damage to relationships.
Adopting a data-centric approach will also help in avoiding harassment complaints and compliance breaches. Since 2012, lenders have been extra cautious of their contact frequency. The increase in regulatory pressure and scrutiny have exacerbated the reluctance of lenders to call delinquent contacts. As a result, lenders (especially banks) have imposed internal limitations to their contact frequency. However, according to the US Consumer Financial Protection Bureau’s research, most lenders fall short of their targets due to self-imposed caps.
Using advanced analytics, collectors will need to strike a balance between compliance curbs and contact rates. Not only will it solve the dilemma of “which account to process” it will also give collectors clear insight into the permissible frequency and medium.
Prioritize & Act Immediately
The smartest way to prepare for the “new normal” is to prioritize future goals. No one can predict when the global economy will stabilize. It is recovering faster than expected, but as famed epidemiologist Larry Brilliant commented, “The world is nowhere near the end of the Covid pandemic.” For collectors and lenders, this spells an uncertain future. They will need to upgrade to a workflow that can promise business resilience and higher collections.
To accelerate their modernization efforts, lenders are turning towards outsourcing companies. The high ROI potential is an offer no organization can refuse; but it comes with high risks. Most outsourcing partners do only collections. They have limited potential when it comes to compliance monitoring and providing strategies that increase customer satisfaction. Such collection partners can seldom mirror business values and end up doing more harm than good.
For a successful business transformation, tie-up with a trustworthy debt recovery agency that has expertise in compliance, customer experience management, and a proven track record of increasing collection numbers without hampering customer relationships.
Allsec offers cradle-grave Debt Recovery Services that deliver higher hit rates, better compliance, and an overall increase in customer retention. Contact us to know more.