Debt collection is an industry with deeply entrenched practices; it’s slowly growing, subject to macro economic trends and credit cycles, and rife with litigation. These are the hallmarks of a mature industry, one that isn’t expected to demonstrate extraordinary technical foresight and innovation.
However, change is coming. It will be driven by the regulatory changes we expect to see this year. In addition, new technology, and even customer care considerations, will finally influence the way debt collection is done. The result? Leaner, more sophisticated, digital- and data-driven collection processes that will align with the incredible shift that’s happening in banking as a whole.
Here are three ways the debt collection industry is changing and what it means for financial institutions:
1. A new debt collection rule from the Consumer Financial Protection Bureau (CFPB) will enable new avenues for evolution.
The CFPB will require more data and disclosures in every step of the debt collection process, with an emphasis on debt that is sold and older than the statute of limitations. These requirements practically eliminate secondary debt sales, and in many cases stop all debt sale activity.
What does this mean for financial institutions? Loan originators and major debt buyers will now have to handle huge debt volumes they have previously outsourced or sold. This shift will require more sophisticated methods for segmentation and treatment.
As the CFPB is expected to broaden its oversight to first party collection efforts, these teams will require even more controls and training. While handling collections can become a heavy burden on these teams, the introduction of the right technology can not only help ease the pain points for financial institutions, but evolve the process as a whole.
Furthermore, the CFPB is expected to give clear guidelines on using SMS, email, and social media in debt collections. A clear rule from the CFPB, no matter how restrictive the guidelines may be, means an open race to using digital media and its advantages: real time communication, 24/7 availability, data feedback and more.
2. The days of outsourcing to “bad guy debt collector” are numbered.
As debt collection will soon be measured on Net Promoter Score and general customer satisfaction, it’s time for banks and credit unions to start thinking about customer experience with debt collection.
The shift towards treating debt collection as another step of the customer life cycle has started. Financial institutions are beginning to realize that when collections are done in house, the consumer’s experience is tied to the bank’s brand.
With 81% of consumers expecting to use their laptop for banking activities, and 62% expecting to use a mobile device, consumer preference of communication are changing. Offering a self-service portal as an alternative to an intruding, judgmental phone call are obvious next steps.
3. The talent pool in debt collection is starting to see a shift.
Historically, operators and leaders in the debt collection space have been long time veterans of the industry, having started as collectors on the production floor. As alternative lending is booming, so is the demand for innovative services that support the industry. This leads to more technical and product minded people working on underwriting, servicing and collections solutions that can service consumers who were acquired online, receive services online, and pay debt online. This talent, closer in age and mind set to Millennials, will offer debt collection solution that better match the young generation, and provide the technological prowess needed to develop it.
The debt collection industry is experiencing pressures from multiple directions. For the first time, technology and customer preferences are expected to join forces with regulation to allow a more forward looking, digital, 21st century interpretation of what debt collection should look like.
Ohad Samet is a FinTech industry veteran and the co-founder and CEO of TrueAccord, the first-of-its-kind algorithmic recovery platform. TrueAccord is using machine learning, behavioral analytics and a humanist approach to help enterprises and small businesses recover outstanding payments and maintain positive customer relationships.