Consumer debt in the US has reached it’s highest-ever levels in 2024. Economists aren’t panicking, but there are still some concerns that make me think twice. Increased debt, along with rising debt servicing costs and increased new delinquency rates spell trouble for companies trying to collect consumer debt. With a tight digital labor market, a complicated regulatory landscape, and a rocky road ahead, there’s an urgent need to rethink their collection processes or risk the future of your business.
We’re facing 1.13 trillion in debt
The shifting tides in the collection market are threatening to overwhelm unprepared companies. Credit card debt has reached a sky-high $1.13 trillion. Meanwhile, Americans are saving less and less money. According to a Wells Fargo economist interviewed in a CNN article, this trend leaves them “vulnerable to a downturn because it means they are much more dependent on their income.” Even households with low savings aren’t slowing down on purchasing: the CNN interview also noted that “they’re pulling out money from other assets such as retirement accounts, we’ve seen a pickup in Buy Now Pay Later, we’ve continued to see a pickup in credit card usage.” I encourage keeping a close eye on this kind of financial vulnerability because it means more chances for a missed paycheck or an emergency spending situation to cause a customer to default on a loan.
There are some more warning signs that I want to highlight for companies that deal with consumer debt collections. Each of these stats is a potential pitfall:
- Delinquencies are increasing across all age groups, but borrowers ages 30-39 are missing payments at especially fast rates
- Gen Z’s credit card debt is increasing the fastest, but Gen X is holding the most debt
- High interest rates make paying off debt harder and harder, and some experts warn of a “cascading scenario”
- delinquencies are the highest they’ve been in more than a decade
- The strong May jobs report was a good sign for the labor market, but a bad sign for those hoping for a cut in interest rates
For companies already facing the usual challenges of collections, like hiring the right customer-facing employees, keeping track of customer data, and navigating complex regulations, these statistics should be worrying. But I’m not just keeping an eye on challenges: I’m watching out for solutions.
Firstsource is seeing incredible results from our implementation of collections as a service across industries. Our customers are finding impacts like: 50% increase in collections performance, $7M in student loan debt recovered, a 70% reduction in cost to collect, and 99.5% CSAT scores.
We find that 92% of customers self-serve and make payments when offered the chance– thanks to our hyper-personalized strategies that include 7000+ individual customer profiles and 200+ email and SMS templates. But for many companies, results like these seem impossible to achieve, because they’re still stuck with an outdated collections process. That’s why digitization is the first step in the transformation process.
Digital debt collections: the answer to collections challenges?
Recently, I attended a credit union conference. One big topic of conversation was about the volume of customers that have completely shifted to digital banking. Despite this surge, banks and credit unions have been extraordinarily slow to provide digital collections servicing and digital delinquent account servicing to customers. Everyone prefers to bank digitally, and they want to pay their debts digitally as well.
Our data shows that there is an almost even split between customers who would prefer to communicate with customer service on the phone vs online chat. Across all demographics, customers want tailored, personalized interactions. And despite public perception of digital preference being for the younger generations, Boomers and Gen Xers are also major users of digital banking today. These are the users who hold most of your debt: why not meet them where they are? Because it seems hard, expensive, and will take years to implement.
That’s where a digital debt collection process comes in.
Firstsource’s digital collections processes embrace end-to-end, omni-channel solutions that are customizable to any business need. Transparent processes de-risk your business, letting you seamlessly navigate regulatory and compliance issues, while still finding debt resolution with customers in every lifecycle stage.
Digitized, but with a human touch
Finding better engagement from customers and decreasing delinquencies are only the tip of the iceberg. Companies need to manage those processes while reducing churn and keeping positive customer relationships. The key: seamless experiences and an empathetic human touch.
The first challenge is younger consumers, who are less loyal to their banks and more likely to switch providers– unless they find a seamless, integrated, and intelligent experience across all banking processes. Digital tools enable more personalized, data-driven interactions that keep a customer engaged across all parts of the banking process.
The second challenge is the core of collections itself: empathy. Collections can be a tense process. Customers in debt can be resistant to interruptive calls, frustrated by explaining situations over and over, or avoidant because they can’t pay in full. That’s why empathy, personalization, and a human touch have to run through every part of a digital collections process – or what we’re calling “collections as a service.” Make empathetic human agents available in touchy situations, while letting personalized automated communications lead the way early on. Don’t send out cookie-cutter messages. Take advantage of Firstsource’s 200+ email and SMS templates, built for over 7000 customer profiles– and find 99.5% CSAT scores. Set up opportunities for self-service for customers on the right channels at the right times, empowering customers to take control of their debt on their own terms while delivering the results you need. Our results show that customers will grab these opportunities: 92% self-serve and make payments when given the option.
Intelligent automation enables this kind of empathetic digitization. It’s the power of bringing in automated processes, AI, and data-driven decision-making to give employees more time to make an impact in situations where empathy matters deeply – like collections conversations.
The results
It’s time to completely re-think the collections process. The answer to rising debt and delinquency is Firstsource’s collections as a service, bringing 50% increase in collections performance and a 70% reduction in cost to collect for our clients. We make stronger returns happen, even in a troubling collections market.
