How To Recover Your Debts Using Technology

Collections departments are under pressure right now. Consumers worldwide are feeling the pinch due to rising costs of living, leaving many unable to repay their debts. Consider the following statistics:

1. Inflation has skyrocketed over the past year. In the US, it has increased roughly 7 percentage points (from around 1.5% to near 8.5%.) EU area inflation has risen 6.1% in the past year, with similar increases in Latin America.  
2. Conflict in Europe has also added pressure to household spending. Russia has threatened to shut off the energy supply to its European neighbours, causing energy prices to increase drastically. 
3. UK banks have responded to the rising cost of living by cutting mortgage lending due to fears that borrowers will soon begin to default on their debts. 

Collections teams must employ the latest, most innovative technology to prevent loans from becoming non-performing. Below, we explain how they can do this. 

Why did you collect less than you could have?

Generally speaking, financial institutions drastically underestimate the value of debt collection. They continue to use outdated strategies that are ineffective and inefficient, meaning they only collect a fraction of what consumers owe them.

So, how exactly do financial institutions currently approach debt collection—and why do these strategies perform so poorly? 

1. Lack of transparency

Most collections departments operate in the dark. They might know who their customers are, but they don’t know how they like to behave or their preferred methods of communication.

Worse still, there’s no transparency when it comes to the collections processes themselves. For example, financial institutions that send direct mail have no idea if consumers opened their letters. Therefore, they have no idea which strategies are/aren’t working for which segments of their consumer base—meaning they can’t optimise their current approach. 

2. Lack of digitisation 

Digital technology has redefined modern life, so why do many financial institutions still rely on manual processes? Entering data manually into spreadsheets, sending snail mail, and calling customers on the phone are time-consuming and unsuccessful dunning strategies.

3. Lack of customisation 

Consumers now expect customisation at all turns. The most successful companies go beyond simply including consumers’ names—they personalise the messaging, the channels they use, and the time they send out their messages.

Many collections teams nowadays still rely heavily on the IT department to tweak dunning messaging for them. Unfortunately, however, their needs often are not prioritised.

4. No capabilities collecting debts in-house

Some financial institutions lack the knowledge required to successfully collect debts themselves, meaning they have to turn elsewhere for help, outsourcing their collections operations by partnering with a debt collection agency (DCA). 

This approach has several pitfalls. First, DCAs take a cut of what they collect. Second, financial organisations lose control of valuable collections data, which they could analyse and predict required provisions. Third, DCAs aggressive tactics often harm the financial institution’s reputation and customer experience.

The ultimate guide for collections success

By applying digital technologies, leveraging artificial intelligence (AI) and machine learning (ML), and employing a data-driven approach, collections teams can maximise their chances for success. 

Here are some of the recommended toolkits:

1. Online self-service repayment page

Past-due customers are often not willing to speak about their money issues with strangers and prefer to handle their financial affairs themselves. By letting past-due customers self-serve via online repayment pages, they can avoid having to speak to another person to repay their debts. In turn, this will increase repayment rates.

2. Drag-and-drop content builder

Drag-and-drop content builders allow agents to create, modify, and send personalised messaging templates without having to ask the IT department for help. This improves agents' productivity, while personalised messaging also increases the chances that collections messages will be successful in getting past-due customers to repay what they owe. 

3. Customisable workflows 

Collections teams should set up customisable workflows based on ‘if-then’ conditions. For example, if a customer opens an email and clicks through on the link to your repayment landing page but doesn’t pay, you can send them an automated follow-up email the next day. Customisable workflows allow agents to adapt their strategy according to their customers’ behaviour. 

4. Real-time repayment reporting 

Real-time repayment reporting allows collections managers to monitor who has paid back what they owe and when. Therefore, collections teams can directly track how successful their dunning approaches have been and can take action if needed. For example, if no part-due customers have repaid their debts, they know their recent messages have been unsuccessful—so they need to try another strategy. 

5. Smart algorithm

The best collections departments use AI to automatically improve their dunning approaches on an ongoing basis. For example, the multi-armed bandit (MAB) algorithm automatically prioritises sending out messaging templates that have been most successful. Collections teams can send out different options knowing that the highest-performing template will be used going forward. 

Leverage technology to optimise your results

Collections teams need to use all the technology at their disposal: data analytics, AI, ML, and automated workflows. Organosations refuse to embrace evolutions in technology, mindset or customer behaviour will quickly fall behind competitors.