RP Sanjiv Goenka Group

Power to the people – Introducing a positive approach to post-pandemic debt collection

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There are several harmful myths surrounding debt. Some think the borrower is at fault, others that it has some bearing on your character. But sometimes circumstances are beyond our control. Bills skyrocket, the car breaks down at the absolute worst moment, or any number of other unexpected life expenses crop up.

The pandemic disrupted careers, businesses, and whole industries. Citizens’ Advice – an independent organisation specialising in advising and assisting people with problems including debt – estimated that by mid-2021, 1.5 million UK households were at risk of unpaid, or ‘problem debt’. This figure was an increase of almost 50% from before the pandemic.

Support for those in debt is available from a range of sources – Martin Lewis’ Money Saving Expert, Citizens’ Advice and debt focussed charities like the Money Advice Trust. But the stigma surrounding debt has stopped many from seeking the help they need.

The evolution of the collections industry is a chance to combat this. The industry has emerged from the pandemic into an advanced digital landscape and society where there is a keener understanding of the importance of mental health and the need for supportive and unintrusive consumer engagement. Firstsource has been a vanguard of this charge, exploring new methods of collection that are conducive to the post-pandemic environment.

An empathetic approach to debt collection

Throughout our two decades of experience, we have found that empathy is increasingly proving to be one of the most effective tools creditors have available. When people feel valued, they are far more likely to work with their collection agency to resolve their debts. But treating each case with the required human touch has traditionally been too complex a task, and collectors have opted for a ‘one-size-fits-all’ approach.

But, the evolution of digital collection solutions is changing the entire industry. Not only can collection agencies offer personalised correspondence, but each borrower’s repayment plan can be tailored to their individual needs.

How does digital debt collection work?

Digital debt collection focuses on a customer-centric approach. The clear power imbalance between the two parties has always been detrimental to the debt collection process, but the fact that the borrower faces far worse consequences for non-repayment than the creditor is unavoidable. Digital debt collection eschews traditional methods and seeks to use technology to find ways of addressing this disparity, empowering people to repay their debt in the most personally convenient way.

The most prominent and widely used tool in digital debt collection is the personalisation of correspondence. Customers can choose the type of electronic communication they want to receive, and these messages are sent out with personalised subjects and details about the customer and their repayment plan.

Digital debt collection agencies have also incorporated machine learning into their processes. Using technology to analyse each individual borrower’s habits and financial situation has allowed them to create tailored repayment plans complemented by rich, nuanced journeys in line with customer needs. Collection rates significantly improve when payment plans are based on individual borrowers’ ability to repay.

These correspondences and plans are then communicated to the customer via automation. Many debt collection agencies still offer a 24/7 helpline for their customers but being able to contact borrowers without even picking up a phone and at the touch of a button has vastly improved agencies’ productivity.

With the ability to choose where, when and how they manage their debt, customers have better management of their financial health, which leads to stronger returns for the lender. We’ve seen clients report resolution rates improving by up to 400%, and collection costs drop by 3-4%. This has resulted in over $250 million dollars collected every year and 800,000 accounts saved from delinquency each month.

Today’s digital collection solutions technology conveniently plugs into your existing stack for quick deployment, alleviating in-house resource demands. Extensive experience in the market, including regulatory know-how, also means the provision of a fully configurable and compliant system. The result is complete control over workflow, processes and communications and mitigation of compliance and operational risks.

There’s no going back

The blame culture surrounding debt has long permeated the industry itself, its overall progression been hindered by the traditional approach to debt collection. Borrowers simply weren’t made to feel valued or cared for. Instead, collection agencies got in their own way, and their methods resulted in a perpetuation of the long-held negative opinion of debt collection.

There is a certain irony that it took a combination of technologies – machine learning, automation, personalised electronic messages – to bring the human touch to debt collection. The industry has grown to fit in with the post-pandemic, increasingly consumer-friendly environment, partly through embracing digital adoption. This modernisation has only served to enhance the industry, not only aligning it with consumer demand, but dramatically improving collection rates too.

This article was written by Arjun Mitra, President of Global Collections at Firstsource and was originally published on Finance Derivative.

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