Six use cases for reducing debt avoidance and driving financial fitness
Amid a globally uncertain business environment and heightened regulatory scrutiny, banks, fintechs, and other lenders are facing relentless pressure to improve debt collections, without escalating recovery costs and time. Current debt recovery processes still rely largely on manual processes, even as the traditional call to collect model is fast losing its relevance in today’s increasingly digitalized world.
Digest this – 66% of contacts with delinquent customers are still initiated via traditional channels despite poor response rates. Fortunately, Artificial Intelligence (AI) driven automation is changing this equation.
The debt collection software market size is expected to grow to USD 4.6 billion by 2024, at a robust CAGR of 9.6% from 2019 to 2024. AI automation has a powerful benefit for both fintechs and their customers – it paves the way to financial fitness – helping lower the ‘avoiders’ and enabling people to maintain a healthy credit profile. Let’s deep dive into how this plays out.
Six ways AI-driven automation helps fintechs reduce debt avoidance
High collection success rates are driving increased adoption of AI tools such as conversational chatbots, voice systems, text messaging, and more among fintechs.
For instance, using even a one-dimensional automated business model, like emailing a customer, has demonstrated favorable results and outperformed traditional call-and-respond collections models. Here are six ways that AI-driven automation helps fintechs reduce debt avoidance:
- Mitigate risks: By combining insights gleaned from customers’ accounts and their online and social activities, fintech collectors can identify potential instances of default and initiate action before it actually occurs. Bots built using Machine Learning (ML) and Natural Language Processing (NLP) technologies can be used to analyze customers’ digital interactions throughout their journey. If a customer encounters a sudden financial issue such as a job loss, these AI tools can alert collectors to proactively reach out to at-risk customers and offer credit counseling support, restructured payment plans, etc.
- Enhance responsiveness: Automation allows customer service associates to access more data and respond to customers’ queries in a time-efficient manner through automated outbound calling and live chatbots.
- Automated payment reminders through text messaging garner engagement rates of over 68%. Collectors can even experiment with automation to improve response rates. According to recent research, minor modifications of automated phone prompts prove to be an inexpensive way for companies to drive deeper mental engagement, nudging customers to remember their intentions. For instance, adding an interactive menu that asks call recipients to select a concrete payment timeframe during the ensuing three days: “If you are going to pay within the next 24 hours, press 1” and so on, continuing through 36, 48, and 72 hours. Such automated intervention also reduces the need to employ more FTEs for follow-ups, and offloads existing resources of routine tasks, freeing them for more value-added work.
- Optimize resource allocation: AI tools can analyze collection trends and patterns to identify which employees are good at collecting which kind of accounts and determine the amount of time spent on individual accounts. This enables the quick resolution of many accounts and helps fintechs sharpen focus on accounts that will benefit most from human interaction. For instance, Lowell – The UK’s leading debt collection firm, was able to save over 12,000 hours’ worth of time by implementing RPA collection bots and significantly reduce staff turnover by enabling them to take on more fulfilling tasks.
- Improve collections: The days of defining collection strategies based on customer segments are over. Automation is making mass personalization a reality in the default management space. AI tools deliver the right collection strategy for each customer, by evaluating past repayment behavior, strategies that worked, as well as those that have failed. This data helps fintechs build predictive models based on persona segmentation. As the market and customer dynamics change, these prediction models can be modified on an ongoing basis to account for critical new factors and tweak the weightages assigned to existing factors. The result: accurate prediction of the best possible collection methods to reduce avoidance and improve collection productivity.
- Future-proof legal compliance: Compliance issues hurting debt collections are not uncommon for fintechs. Automation of debt collection procedures helps limit liabilities under the Fair Debt Collection Practices Act, Telephone Consumer Protection Act, GDPR, and numerous other applicable regulations. Amid an ever-tightening regulatory landscape, automation can significantly help fintechs eliminate chances of legal, reputational and financial losses that may arise out of non-compliance.
- Drive greater customer-centricity: Automated tools can collect data on users’ preferences related to channel of contact, time, tone of voice, etc., creating customized messaging for improved response and recovery. What’s more – dynamic automation can help fintechs build reactive collections strategies. add/drop strategies based on changing consumer behaviors, life events, etc.
Non-intrusive debt collection is the new way forward
The transformational potential of automation in debt collections and recovery is yet to be harnessed by the fintech industry at scale. Being a non-intrusive method that takes away the pain and shame associated with debt to a large extent, automation is the answer to effectively reduce avoidance and bring delinquent customers back into the mainstream. It also helps fintechs meet their customers wherever they are, enabling a better customer experience and a personalized approach to collections. More than improving recovery, automated debt collections will be a key differentiator in future for fintechs looking to reimagine the customer experience and generate exponential value.
Explore Firstsource’s Digital Collections platform underpinned by our ‘Digital First, Digital Now’ approach that leverages diverse technologies including automation, AI/ML, and cloud-based services through a people and technology transformation framework for decoding your customer interactions and personas, reducing your cost of collections to as low as 3% and delivering better recovery rates for you.
Download our eBook ‘How Digitalizing Debt Collection Can Transform Results for Lenders’ for insights on the factors driving the shift towards digitized, customer-centric and self-serve collections.