The debt collection industry has demonstrated steady growth in the last few years. From $11.5 billion in 2018 to $18.6 billion in 2021. In other words, the market size of the Debt Collection industry in the U.S. has risen 2.6% per year on average between 2017 and 2022.
The statistics mentioned above prove that there's been a massive demand for debt collection services in recent years. Yet another statistic only reinforces this, approximately 28% of Americans have at least one debt in collections.
State of Consumer Debt
A habitual dependence on credit card usage, advanced student tuition costs, and the ongoing lack of affordable healthcare raise delinquent debt, thus causing more people to go into collections.
With these statistics in mind, the industry will likely experience constant growth in the foreseeable future.
An important consideration to make here would be to assess the sources of the growth from consumer debt which are:
- Credit Card Debt: Research reveals that an average American household has about $15,654 in credit card debt.
- Student Loans: In 2019 alone, nearly 500,000 new student loans were initiated, marking a total of $6.6 billion borrowed.
- Medical Bills: Most working Americans are currently paying off medical debt. Thus, 52% of all debt collections involve medical debts.
Mortgages: The average mortgage debt in the U.S. ranges from about $150,000 per household. In April 2019, 640,714 mortgages originated, comprising $179 billion in the total mortgage lending volume. This is about a 6.5% increase in year-over-year mortgage loan originations.
Why CX must be at the heart of your Debt Collection Strategy?
Research reveals that 8 in 10 Americans carry debt, a segment of that population in a constant state of at-risk or delinquency. However, the pandemic & high inflation increase the odds of your customers falling into delinquent status during their customer lifecycle with your organization. The way you treat customers & their experience with your organization during debt delinquency significantly impact not only collection rates but also your success during the retention and loyalty/advocacy stages.
A regular thing to hear is that charge-offs are increasing, and organizations are struggling to keep up with the credit loss. This is because debt-collecting organizations have been using the same debt-collection strategy they've used for years.
When businesses or consumers fail to repay a loan, the creditor organization or collection agency aggressively contacts them via different channels to obtain repayment while giving the customer experience for the debtor the least priority.
Modern financial organizations have been building acquisition and customer experience management strategies targeted at individuals, so why do you think the collection process should be any different?
The challenge lies in keeping the customer at the heart of the process while managing the potential increases in delinquencies. This holistic approach may be a bit more complex, but technology and analytics simplify the process and create a more engaging customer experience.
The Power of Technology & Data
In this digital age, leveraging data to your advantage is more imperative than relying on the same obsolete collections approach resulting in uncomfortable exchanges with very little chance of repayment.
The usage of data and technology enables us to make more informed decisions, including the most effective communication channel to reach the defaulting customer, how often they need to be contacted & the adequate time to reach them.
Technology has already transformed the collections landscape by facilitating the following functionalities:
- Automated Correspondence
- Centralized Data Repository
- Reporting and Analytics
- Integrated Dispute Management
- Prioritized Collections Worklist
- Email Templates
- Centralized Collaboration History
- Cash Flow Projection
Moreover, trending technologies like Machine Learning and Artificial Intelligence allow collections teams to leverage a proactive collections approach to enable faster collections. State-of-the-art features such as invoice-level payment date prediction and segmentation based on dynamic customer behavior would give collectors a microscopic view of customer payment behavior.
AI also has the potential to transform collection calls by helping the collector with communication, understanding the customer sentiments, determining the probability of the customer keeping the payment commitment and differentiating between false excuses and genuine issues. Research reveals that using AI for predictive analytics, risk estimation, and fraud prevention can reverse your fortunes, thus helping boost profits by up to 38%.
Thus, catering to the customer's preferences leads to a positive experience. The results are decreased charge-off debt, increased customer satisfaction, and a stronger relationship.
Debt Collection Challenges
The collections industry faces many challenges with rapidly shifting technology, rules, regulations, and demographics. In today's highly-mobile era, debtors are more challenging to locate than ever. Although a surplus of information is available on individual debtors, it can be nearly impossible to sort through it effectively. The following are the significant challenges debt-collecting organizations face:
- Delinquency is rising, even for those rarely at risk or delinquent.
- The prolonged economic boom translated into underinvestment, leading to a lack of focus on debt collection.
- Increased regulation puts restrictions on debt collection activity.
- Despite an accelerated shift to digital channels, many organizations still revert to outdated collection strategies.
- There is no clear way to differentiate approaches for the first time vs. chronic delinquency.
- It is challenging to balance support and empathy with action rates.
- There exist limited agent resources and skill sets for debt collection.
- Poor connection rates lead to poor collection rates.
Strategies to Maximize Collection Rates
The debt collection statistics reveal that the debt collection statistics show a 20% recovery rate on all debt. Some organizations will have a higher recovery rate, whereas others will have a relatively lower one. The average recovery rate declined from 30% just a few decades ago.
Apart from capitalizing on digital channels, leveraging an omnichannel approach, and engaging with empathy to cultivate better relationships, below are a few strategies to boost the collection rates:
Personalize & Increase Debt Collection Rates With Built-in CDP
A Customer Data Platform (CDP) is a database that unifies all your data sources, thus giving agents a real-time view of demographic, behavioral, transactional, and engagement customer data.
This real-time view gives debt collection reps up-to-date information on action rates and accurate information. An in-built CDP captures context, payment history, and customer sentiment and is pushed to the agent. Moreover, the customer's promise to pay is captured & the following best action is chained for follow-up.
Boost Efficiency With Analytics & AI-based Collection
Cutting-edge solutions driven by analytics and AI improve contact & collection rates by generating robust predictions & uncovering actionable insights such as payment probability, expected amount, target date & recommended reminders.
Ensure Compliance to Increase Privacy & Collection Regulations
Outbound cold calling of customers for debt collection or any other business reason opens organizations up to the risk of heavy fines. Fair Debt Collection Practices Act (FDCPA), Telephone Consumer Protection Act (TCPA), and Fair Credit Reporting Act (FCRA) are some of the critical regulations for debt collection.
An ideal option is to use outbound engagement solutions integrated within core conversational engagement platforms. The ability to configure regulations & policies in real-time based on compliance checks and run them on autopilot enables laser focus on proactive debt collection engagement and payment action rather than worrying about statutory regulations and regional-specific regulatory adherence or soft compliance issues.
Giving Customers Digital Channel Preference Increase Payment Action
Research by McKinsey reveals that after being contacted on digital channels, 12-35% of delinquent consumers take payment action. Thus, handling channel preference is a significant driver of successful debt collection outcomes.
Create a Unified Debt Collection Strategy
It is not money but customers who must be at the heart of every debt collection strategy. The outdated strategy of mass phone calls to debtors made consumers unhappy, embarrassed, and resentful. Modern debt collection comes down to a basic philosophy of treating customers individually rather than as a portfolio profile.
At Convin, we understand the debt collection challenges. Research reveals that Convin allows organizations to improve debt collection rates by 17% with digital & scalable communications.
We aim to help debt collection agencies reach out to the right customers at the right time and in the right channel to enable them to solve problems automatically.
Results first, payment later.