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5 Manual Collections Processes That Can Be Optimised Through Digitalisation

5 Manual Collections Processes That Can Be Optimised Through Digitalisation

In the midst of a financial landscape fraught with economic uncertainty, businesses across virtually all sectors are in search of ways to increase process efficiency and yield greater returns on investment. Collections departments are no exception to these stresses, and increased lending is leading to higher rates of loan delinquency and greater recovery challenges for lenders. 

The following key statistics outline the current state of lending and the increasing impact digital solutions are having on the collections industry:

  • In Greece, consumer debt accounted for a third of household NPLs in the first quarter of 2022.
  • Total household debt in the US reached $16.51 trillion in Q3 2022.
  • The global debt collection software industry is set to increase at a compound annual growth rate of 9.6% in the next two years, from $2.9 billion in 2019 to $4.6 billion in 2024. 

These numbers underscore the scale of mounting consumer debt and the growing need for robust solutions to improve rates of recovery. 

Fortunately, collections professionals can leverage the usability benefits of digital-first solutions to increase efficiencies across a large number of tasks and yield more collections success quickly.

Increasing process efficiency through digitalisation

To help your business improve your recoveries without the roadblocks created by manual collections tasks, here are some key process transformations to consider:

1) Moving on from snail mail

While digital transformations are a common practice in many industries and businesses, generally speaking, debt collection processes have largely been outsourced and remain highly manual processes, even in 2022.

In most cases, banks and other lenders work with debt collection agencies (DCAs) as servicers to operate collections of claims. The processes in place are often rudimentary. Sending letters and making phone calls are still common communication practices in debt recovery. But without the option to track open rates and easily send en masse, snail mail falls far short of emails as a means of effective customer contact. 

Email communication is a pivotal tool for collections departments. By adding personalisation and tracking performance, lenders are armed with insights to measure and improve engagement. Taking a digital approach to payment reminders also provides vital data about customer groups and gives lenders the opportunity to enhance the customer experience. 

Principally, there are 5 major process capabilities that make email communication stand above simple letter-sending. To learn more, read our blog: Best Practices for Debt Recovery Emails 

2) A transition from call-centric collections to customer empowerment through self-service 

As outlined, phone calls are still a common practice for many collections teams. But with statistics indicating that nearly 90% of customers will no longer answer phone calls from businesses and unknown numbers, switching to alternative communications channels has become essential.  

Further, by adopting the use of social media channels and other messaging platforms, lenders can provide links to payment landing pages to their customers, enabling consumers to repay in a pressure-free environment. This shift in approach can reduce debtor anxiety and increase the likelihood of repayment. And since a growing number of borrowers perform transactions online and expedite the process with auto-fill forms and quick-logins, the process of manually providing account information is removed. 

Estimated share of illiquid and distressed Euro area households per income quintile
Estimated share of illiquid and distressed Euro area households per income quintile Source: Household inequality and financial stability risks: exploring the impact of changes in consumer prices and interest rates

3. Eliminating system incompatibility by choosing an all-in-one dashboard

The defining factor of a scalable debt management system is the emphasis on capturing all of the data surrounding a claim, which allows for digitalising and automating collections processes as early as possible. Further, the collections platform needs to reach beyond the boundaries of the originator’s business. Both the servicers (the debt collection agencies) and the investors on the non-performing loan (NPL) side need access to the same data points. To make this possible, data hygiene must be driven across the value chain, which can be facilitated through unified systems, such as cloud-native solutions. 

Inevitably, data hygiene can be difficult to maintain when multiple platforms are being used by several stakeholders. Frequently, formatting errors and cross-platform compatibility issues can make it difficult to accurately record historical interactions, segment customer groups, understand behaviours and correctly asses customers risk. 

By adopting a cloud-native solution, however, stakeholders can benefit from a unilateral view of relevant user data in one place, with updates and new records propagating across all company user accounts instantly.

4. Replacing manual segmentation and messaging with automated solutions

Just as gathering, updating and transferring data can be incredibly time-consuming and labour-intensive, the process of analysing and understanding data trends is often challenging. Principally, manually identifying customer segments requires collections to accurately identify relevant data points to segment groups – before tailored messages can be sent. 

An automated solution expedites segmentation processes, and strategy builders facilitate rule-based auto-segmentation and workflows. This ensures customer segments are created and updated dynamically, with the most relevant, best-performing messaging being sent.

5. From A/B testing to the multi-armed bandit approach

A/B testing is a research methodology used to compare 2 (or, in some cases, more) page elements to analyse which option shows increased user responses.

While A/B testing can be made easier through the use of digital systems like email, in reality, the process generally requires the manual effort of selecting a useful segmentation criteria and understanding the findings thereafter. When data sets are small, it’s usefully difficult to asses the relevance and accuracy of results and yield actionable insights. But when data is large, testers are often left with the issue of not fully understanding which variants are actually proving effective.

Further, A/B testing is typically a stop-start process, meaning tests generally must be run to completion before results are analysed and findings put into action in a new test. This prevents opportunities to implement new insights earlier and create shorter collections cycles.

An alternative to conventional A/B testing, a multi-armed bandit solution analyses results in the first instance and uses machine learning to dynamically assign traffic to well-performing variations (for example, dunning email templates), while allocating less traffic to those underperforming.

By leveraging the power to test, refine and and allocate traffic to multiple strategies concurrently, increased efficiency, improved rates of recovery and better resource allocation is achieved.

Learn more about the multi-armed bandit solution and its role in boosting recovery rates by reading our blog: How the Multi-Armed Bandit Algorithm fuels Collections Success

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