A New Perspective on Ethical Debt Collection Strategies in the Digital Age



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Several global sectors have been forced to move their business activities online due to the Covid-19 pandemic. However, credit activity has remained static during the pandemic, making digital adoption mandatory for creditors. Due to its speed and simplicity, digital lending has become a reality and a preferred path for most Indians. It has a market potential of $820 billion, with 50% of all lending transactions expected to be digital by 2023. However, every lending activity, whether digital or traditional, is two-way traffic, involving the extension of a loan and subsequent repayment. of this loan. The reality, at the same time, is far from simple with two processes.


Banks are encouraged to outsource collection to resolution platforms for debt and non-performing asset (NPA) management. The argument is to persuade banks to hand over their delinquent buckets to these companies, which aim to minimize NPAs through technology, reduce the likelihood of NPAs using predictive models, and streamline the collection process and recovery. Historically, the use of technology in banks and NBFCs (non-bank financial companies) has been minimal. Additionally, they have historically relied on collection companies (telemarketers and field agents) to collect their debts, leading to poor customer experience and harassment.

Even though debt collection methods have improved over time, many companies still avoid investing in credit technology due to the unpredictability of lenders’ relationships with borrowers. However, today’s technological improvements and adoption can generate enormous amounts of data that can be used to better understand borrower behavior, thereby improving borrowers’ perception of collectors.

What can lenders do?

The first step is to ensure that lenders adhere to ethical standards in the most literal sense. This means that collectors must have moral principles that agents can use to create an ethical framework. Many fintech organizations have taken advantage of technology to drive innovation and increase efficiency. Their main goal is to improve the financial services offered to consumers by implementing customer experience management and reducing reliance on humans. It also helps operators in today’s world in their successful operations.

The global debt collection software industry is expected to grow at a compound annual growth rate (CAGR) of 9.6%, from $2.9 billion in 2019 to $4.6 billion by 2024. Consumer desire for self-service models in the collection process has increased, and the expansion of companies specializing in debt collection will be the main driver of growth. The opportunity is particularly huge in India, where the BFSI sector spends over $3 billion on collections alone.

Understanding Borrower Emotions

The pandemic has caused severe financial hardship and loss of livelihoods for the vast majority of the population, especially in the informal sector, and has had a devastating emotional impact on many people. Therefore, it is essential to understand the emotional toll that loan repayments and constant calls can have on debtors. Lenders need to be aware of their customers’ current situation and therefore empathize with them by offering restructured repayment options.

Covid has underlined the urgency of going digital

Going digital has been a pressing issue for creditors since the pandemic outbreak. Although debt collection procedures have improved over time, many people are still hesitant to invest in credit technology due to the unpredictability of the connection between lenders and borrowers. Today’s technological developments and widespread use can offer enormous amounts of data to help understand borrower behavior, thereby improving borrowers’ perception of collectors.

Using AI to collect better, faster and humanely

Technology has helped several fintech companies foster innovation and increase their level of efficiency. Their main objective is to reduce reliance on people while improving the financial services offered to consumers through customer experience management. Likewise, it supports the success of operators in the modern world. Here, the combination of AI and machine learning will bring efficiency and personalization by enabling better targeting and personalized messages for borrowers. AI is currently being used to predict the probability of repayment of a delinquent loan based on various data variables such as location, EMI payment history, borrower profile, etc. Technology is also helping lenders become more understanding when it comes to collecting overdue debts. By using AI-powered bots to guide customers through the checkout process and provide one-click payment choices, fintechs, NBFCs and banks have expanded the use of digital payment for cards credit and personal loans. AI-powered models help maximize collections by selecting accounts most likely to pay. This allows for faster liquidation, deeper net collection for each agent, and more account closures each month.

The path to follow

Borrowers and lenders benefit from new-era debt collection solutions powered by AI and ML technology. The ability to leverage large datasets and behavioral science to understand customers is invaluable. AI eliminates human bias and every process is automated using algorithms to establish a customer-centric strategy.

To thrive ethically in today’s marketplace, the loan collection process must be leveraged through agility, smart, personalized communication, and innovation. With the alternatives listed above, lenders can be more flexible with their borrowers while improving their overall lending and collection experience.

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