February 24, 2024

Signing out of account, Standby…
Even though the methods for collecting debt have improved over time, many businesses still avoid investing in credit technology due to the unpredictability of lenders’ relationships with borrowers
Multiple worldwide sectors have been compelled to move their business activities online due to the Covid-19 pandemic. However, the credit business has remained static during the pandemic, making digital adoption mandatory for creditors. Because of its speed and simplicity, digital lending has become a reality and a favored path for most Indians. It has an $820 billion market potential, with 50 per cent of all lending transactions predicted to be digital by 2023. However, every lending activity, whether digital or traditional, is two-way traffic, involving the extension of a loan and subsequently the repayment of that loan. The reality, at the same time, is far from two-process straightforward.
Banks are encouraged to outsource collection to resolution platforms for debt management and non-performing assets (NPAs). The pitch is to persuade banks to hand over their delinquent buckets to these companies, who aim to minimize NPAs through technology, reduce the likelihood of NPAs using predictive models, and streamline the collection and recovery process. Historically, the use of technology in banks and NBFCs has been minimal (non-banking financial companies). Additionally, they have historically relied on collection firms (telemarketers and field agents) to recover debts, leading to a poor customer experience and harassment.
Even though the methods for collecting debt have improved over time, many businesses still avoid investing in credit technology due to the unpredictability of lenders’ relationships with borrowers. However, today’s technological improvements and adoption can generate massive amounts of data that can be used to understand borrower behavior better, hence enhancing borrowers’ perceptions of collectors.
What can lenders do?
The first step is ensuring lenders follow ethical norms in the most literal sense. This means that collectors must have moral principles that agents can utilize to create an ethical framework. Many fintech organizations have benefited from technology in boosting innovation and increasing efficiency. Their main goal is to improve the financial services given to consumers by implementing customer experience management and reducing reliance on humans. It also aids operators in today’s world in their successful operations.
The global debt collection software industry is predicted to increase at a 9.6 per cent compounded annual growth rate (CAGR) 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 specialist debt collection firms will be the primary growth driver. The opportunity is particularly huge in India, where the BFSI sector spends over $3 billion on collections alone.
Understanding borrower’s emotions
The pandemic caused severe financial hardship and the loss of livelihoods for the great majority of people, especially in the informal sector, and had a devastating emotional impact on many. As a result, it’s critical to comprehend the emotional toll that loan repayments and constant calls can take on debtors. Lenders should be aware of their customers’ current circumstances and, as a result, empathize with them by giving restructured repayment options.
Covid has emphasized the urgency of going digital
Going digital has been a pressing issue for creditors since the pandemic outbreak. Although the procedures for collecting debts have improved over time, many people still hesitate to invest in credit technology because of the unpredictability of the connection between lenders and borrowers. Today’s technological developments and widespread usage can offer enormous amounts of data to help understand borrowers’ behavior, enhancing borrowers’ perceptions of collectors.
Use of AI to collect better, faster, and humanely
Technology has aided several fintech companies in fostering innovation and increasing their level of efficiency. Their main goal is to lessen reliance on people while improving the financial services offered to consumers through customer experience management. Similarly, it supports operators’ success in the modern world. Here, combining AI and machine learning will provide efficiency and personalization by enabling improved targeting and customized messages for the borrowers. AI is currently being used to forecast the likelihood of an overdue loan repaying based on various data variables such as location, EMI payment history, borrower profile, etc. Technology is also assisting lenders in becoming more sympathetic when it comes to collecting overdue debts. By utilizing AI-based bots to walk customers through the payment process and provide single-click payment choices, fintechs, NBFCs, and banks have extended the use of digital payment for credit cards and personal loans. AI-powered models assist in maximizing collections by selecting accounts that are most likely to pay. This helps with quicker liquidation, more thorough net collection for each agent, and more account closures each month.
The way forward
Borrowers and lenders benefit from new-age debt recovery solutions backed by AI and ML technology. The ability to leverage large data sets, and behavioral science to understand clients is significantly valuable. AI eliminates human bias, and each process is automated using algorithms to establish a customer-focused strategy.
To thrive ethically in the market today, the loan collection process must be leveraged through agility, intelligent and personalized communication, and innovation. With the alternatives listed above, lenders can be more flexible with their borrowers while improving their overall loan and collection experience.
Ginni Saraswati
Gurpreet Kaur
Christopher Massimine
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