Unlock value with technology shifts in digital collections
Debt collection goes as far back in time as the history of debt. The earliest records of regulations around commercial debt collection come from ancient Babylon – a society that protected debtors’ rights but also allowed creditors to recover delinquent accounts. Over the centuries, the process has transformed, from debtors’ prisons and specialized collections agencies to a call-and-collect collection process. This method worked quite well until recently, when technology disruptions and digitalization rendered it inefficient. Today, when people use self-serve digital channels for most things, phone calls are not the most reliable or effective channel to reach customers. In fact, according to Hiya’s 2021 State of the Call report on global data from more than 150 billion calls processed in 2020, 94% of unknown calls went unanswered. Imagine the number of calls a collections representative would need to make periodically to establish contact with a customer!
As of December 2020, there were nearly 7,000 collection agencies in the US, and the industry’s annual revenue stood at more than US$10 billion. Further, according to a Consumer Financial Protection Bureau (CFPB) survey, approximately one-third of customers with a credit bureau file reported being contacted by at least one creditor or debt collector for one or more debts in the previous year. Clearly, the scale of collections operations is vast and vital for lenders.
With recent disruptions in other aspects of lending, such as onboarding and servicing, there is an increasing need to adopt some of these disruptions in the collections space. Both lenders and collectors stand to gain from an efficient, optimized, and hybrid (digital and call/collect) approach to debt recovery.
In this study, we explore the current state of the collections process, examine the challenges of the traditional collections process, and the imperative need to evolve. We also recommend a framework for the collections process of the future and action steps on how to achieve it.