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A McKinsey 2020 report found that the international was facing many challenges, despite the fact, the industry relies on it to recover customers’ debts.
Further, the report highlighted that only $40 billion of $150 billion was recovered by debt collection agencies in 2010. The industry average collection rate was just 20 percent.
Heavy Reliance on Lenders
Many industry experts believe that high losses can be attributed to lenders and collection agencies relying on traditional systems that don’t use modern technology or tools.
It was also noted that digital collection techniques have increased the recovery rate of debt collectors by 65 percent. This article highlights the importance and effectiveness of digital channels for debt collection.
What is Digital Debt Collection?
Digital debt collection is a method by which lenders or debt collectors use the power of modern technology, such as machine learning or artificial intelligence, to create contact strategies to approach borrowers.
These strategies include email, text messaging, and other online tools. Effective contact strategies can be used digitally to reduce customer delinquency. It can also help businesses generate positive cash flows from operations.
What Are Some Common Challenges Debt Collectors Face
Understanding their problems is crucial before we discuss how modern tech can help banks recover debts effectively.
Banks, lenders, and collectors have come to the conclusion that traditional methods of recovering debt are ineffective. These traditional methods include automated calls, letters, and aggressive agents.
Frustration Among Borrowers
These strategies can often lead to frustration for borrowers. It can also impact debt recovery rates. McKinney’s latest report also revealed that many issuers continue to use traditional strategies to contact customers, based on customer risk profiles, balance, and average days delinquent.
Some issuers are just starting to integrate behavioral segmentation as well as contact preferences into their models.
There are many lenders who use email and text in the initial stages of a loan, but then abandon them after a few months. Many of them move to traditional channels such as letters or phone calls.
Although issuers love to return to traditional channels, clients prefer modern digital contact, especially emails and text messages. This is regardless of the level of delinquency. Customers with low debt balances prefer digital channels to collect their debts.
How can Digital Collections Help Banks and Lenders?
Digital debt collection can dramatically improve repayment collection efficiency and reduce costs. The many benefits of high-tech debt collection methods are the main reason for the success of this project.
Advanced Analytics and Data Collection
Lenders and collectors can obtain multiple borrower signals simultaneously by using digital collection strategies or methods to contact customers. They can also segment them using advanced algorithms. This is a great way of creating custom contact strategies based on the borrower’s profile.
Collectors can also use previous data to build a profile of borrowers and leverage predictive analytics to predict future repayments. These capabilities are a great way to lower the risk of delinquency and to help borrowers prepare for future challenges.
Optimized Customer Communication
Collectors can also use the digital collection to improve communication across all channels. This helps lenders shift their focus away from standard scripts and offer customers a customer-centric approach.
Lenders can use preconfigured profiles of borrowers to get to know their customers. Lenders can make an active effort to change communication by including empathetic concerns and not just passive-aggressive notices of debt collection.
Many leaders around the world have benefited from this feature of digital debt collection methods. This is because it allows lenders to reduce spamming risk and improve communication.
Insight-led Solutions
Digital collection strategies and methods can be a great way to improve the system that collects detailed information about customers. Collectors can better understand the behavior of borrowers by having more data. It also creates an insight-led approach that allows collectors to use past data to predict future changes.
Debt collectors can use digital tools like single view borrower dashboards or advanced custom analytics to manage customer portfolios. This reduces risk and improves cash flow.
How Digital Debt Collection drives Success?
A digitally enabled environment improves compliance and addresses customer demand. It is a proven method to optimize and contextualize communication and interaction with customers.
There are several advantages that lenders have when they use digital debt collection tools that can help them achieve success.
- High collection rates and lower collection costs are two of the business outcomes
- Compliance
- Better customer experience
These are some of the key features that will lead to success:
- Customer-eccentric collection
- Maintains regulatory and standard compliance
- To optimize collection efforts, identify the needs and preferences of customers in order to use the most effective
- channels using a holistic approach
- Customized insight-led solutions
- To meet the requirements of debt collection regulations, you must develop compliant communication
- One dashboard that shows 360° customer behavior and actions. It allows you to make recommendations, repay
- options, and streamline communication. This will help you retain customers better
Summing Up
Lenders and debt collection agencies need to harness modern tools such as Artificial Intelligence (AI) for collecting debts. This modern digital tool allows clients and creditors to reap many benefits.
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