The United States debt collection industry is a $15 billion enterprise, yet debt collectors face several compliance, reputational management and cash flow challenges. As the industry becomes more complex, debt collectors encounter novel hurdles, which can impact operations.
Collections industry businesses are leveraging technology to streamline operations and improve agility. Modern innovations allow them to automate processes, personalize communication and customer experience, integrate communication tools for simplified interactions and implement robust payment systems.
Challenges in the Collection Industry
The credit collection industry faces several obstacles.
1. Compliance Roadblocks
As the credit collection industry becomes more complex and adopts new systems and technologies to resolve challenges, government agencies have embraced these innovative strategies by implementing further legal and regulatory standards. These additional rules have created two potential problems.
- First, regulatory updates require collection departments and organizations to stay abreast of new obligations and may need them to take additional operational and administrative steps.
- Second, rigid regulations affect operational efficiency. Amid an uncertain financial market, technology allows you to create an agile business capable of adjusting to changing laws and best practices.
2. Outdated Technology
Working with old technology in the current market makes it challenging to meet customer demands or scale operations. A classic example is relying on traditional communication and payment channels to address customer needs. Leveraging modern collections industry technology is a necessity that saves time and money, while helping you stay competitive.
3. Reputational Management
The debt collection industry faces criticisms regarding unfair tactics in conducting collection exercises and other activities. According to the Federal Trade Commission, debt collectors generate more fraud reports than any other industry in the United States. Some customers still encounter unpleasant experiences, even with collectors that comply with consumer protection laws. What is the solution? In addition to deploying technologies to improve transparency and accountability, creating an omnichannel experience for consumers can be helpful.
4. Cash Flow Issues
If a business usually takes a long time to collect payments, it can create cash flow problems. Leveraging digital tools such as data analytics, payment automation and cloud-based systems is a proactive way to maximize debt recovery rates.
Collections Industry Trends
Here are four debt collection industry trends.
1. Rising Debt
There has been a steady increase in consumer debt, and we may experience a surge in all debt types in the coming years. At the end of 2022, Americans had a record $16.9 billion of debt, $1.3 trillion more than the previous year. At the same time, mortgage, credit card and auto loan delinquencies increased. The balance increase survived despite an aggressive rate-hiking campaign by the Federal Reserve.
2. Acceleration of Digital Technology
Providing digital solutions has become essential to agents and consumers. Smart systems continue to drive customer engagement across various sectors, and the debt collection industry is no exception.
For example, organizations leverage data analytics and data mining strategies to understand customer behavior better, tailor collection strategies, segment contacts according to the likelihood of payment and increase the chances of successful collections. Similarly, cloud computing streamlines access, storage and data recovery. Agencies continue to deploy remote working technologies to help them meet current demands.
A J.D. Power report indicates 41% of retail bank customers are now digital-only, which has increased satisfaction. Thus, besides streamlining operations, digitization remains an effective way to strengthen customer loyalty.
3. Additional Compliance and Regulatory Requirements
Federal and state agencies continue to implement legal and regulatory strategies to address challenges in the debt collection industry. Among other things, these initiatives are vital in protecting consumers, keeping data secure and improving communication.
For example, the November 2022 update of Regulation F allows creditors to use text messaging, email, ringless voicemail, social media and other electronic forms to contact debtors. It also lets customers choose their preferred contact method. As debt collection digital tools become more complex, federal and state departments will likely adopt more robust standards.
4. Increase in Self-Service Systems
Automation benefits customers and debt collectors. Self-service systems let customers ask questions and address issues independently without a human presence on the other side. Interactive voice response platforms, mobile applications and digital portals allow customers to find the balance due, set communication preferences and make payments through their preferred method. Meanwhile, debt collection employees can focus on other tasks, saving time and money.
How to Improve Debt Collection With Technology
Here are four helpful tips to improve debt collection.
1. Automate Operations
The most efficient financial institutions rely on digitization to streamline operations. Automation allows you to shift mundane work away from your employees, who can then concentrate on more complex tasks. This technology reduces human errors and increases efficiency. For example, interactive voice response tools can handle standard calls, freeing operators' time, facilitating communication and improving responses. Additionally, smart collection platforms streamline payment and collection processes.
2. Personalize Communication and Customer Experiences
Automating operations allows you to create personalized customer service, boosting satisfaction — an excellent way to handle reputational management. Consumer analytics helps you assess trends in consumer behavior and make accurate predictions. Data also enables you to evaluate communication channels and frequency, and implement strategies to increase recoveries.
3. Integrate Communication Tools
A 2022 TNS survey found 75% of Americans do not answer calls from unknown numbers. Another report from McKinsey indicates that consumers continuously inform debt collectors they prefer contacts through digital channels such as SMS, email and mobile apps.
These stats show one thing, at least. Integrating communication solves a challenge that probably affects your operations. However, adopting new technology does not translate into abandoning traditional methods. The trick is in the integration level. A 2020 KUBRA study found 42% of customers still prefer to receive paper statements because 33% find them easier to review, while 28% use them as reminders to fulfill payment obligations.
4. Adopt Robust Payment Systems
There are multiple payment methods available to customers today. While some prefer digital systems, others rely on traditional means. Designing a plan that addresses several payment channels is vital to increase action rates.
Optimize Debt Collection Through KUBRA's Debt Collection Technology
KUBRA is a payment system designed to increase debt recovery rates conveniently and efficiently. Our system deploys advanced natural learning tools that personalize communication for your customers and enhance self-service channels. It also integrates multiple communication channels for proactive messaging. Our next-generation payment security and PCI-compliant solutions create the platform that scales your business. Request a demo today!