Want to Revolutionize Collections? Adopt a Marketing Point of View

Consumer lenders are investing considerable resources to figure out how best to target prospective borrowers and provide them with the most efficient and enjoyable experience possible. To do this, these lenders reach consumers the moment they have a credit need with the right message, at the right time, and through the right communication channel. Once consumers become customers, the lender can provide them with frictionless and speedy loan originations. These processes are driven by investments in analytics and technology platforms that allow lenders to anticipate a consumer’s needs, understand communication preferences, and provide near-seamless interactions.

If technology can make lenders more competitive during the loan origination stage, can similar approaches be used by debt collectors when some of those loans inevitably become delinquent? To answer this question, I asked collection executives at some of the largest banks, credit unions, and nonbank lending institutions how they are investing in new technology and analytics to more effectively collect on delinquent accounts while preserving the customer relationship.

Here are some key takeaways from those conversations (with more details available in the full report):

First, it hasn’t been easy to compete with other areas of the business for funding. In this low-default environment, investments have been more focused on marketing and origination to grow the lending business. Collection executives note that it’s critical to socialize across the institution how evolving the collections process can positively impact an institution’s return on investment. And they believe it’s imperative to make investments now in order to be ready for a future downturn, whenever that might occur.

Second, regardless of where they are in the process, debt collection executives believe it is vital to undergo a digital transformation in the coming years. The investments collectors seek largely revolve around the ability to do three things better: predict which accounts will go bad, segment those delinquent accounts into different workstreams, and prioritize with which accounts to work—with different timing, frequency, and channel of contact, depending on which bucket they are segmented into.  

Third, just like when they are applying for credit, consumers want to deal with their delinquent debt at the time and in the channel of their choosing. Collectors are enabling this by offering online portals in which consumers can take advantage of self-serve payment options or even engage with an artificial-intelligence-infused chatbot that can answer questions or otherwise facilitate the collections process. Self-serve portals and other automated communications not only allow delinquent consumers more options for resolving their debt but also enable collection staff to better focus their efforts on more complex cases.

Finally, while compliance is always a concern, collectors need to find ways to broaden their communication channels. It’s increasingly hard to reach consumers by phone, and many would rather communicate via email or text message. The Consumer Financial Protection Bureau’s proposed rule covering third-party collectors is expected to provide greater certainty in broadening out to these more modern options. Hopefully this can also be a roadmap for creditors collecting their own debt for how to use these forms of communication in a compliant way.

Financial institutions invest considerable resources to attract and retain customers. Along with their core responsibility of recovering as much delinquent debt as possible, collection departments also have a role to play in the nurturing of customer relationships. Designing processes to collect debt more efficiently and offering delinquent customers ways to interact that align with their preferences can allow institutions to maintain customer relationships while effectively collecting debts.

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