While digital transformations are a common practice in many industries and businesses generally speaking, debt collection processes have largely been outsourced and remain highly manual processes, even in 2022. In most cases, banks and other lenders work with debt collection agencies (DCAs) as servicers to operate collections of claims. The processes in place are often rudimentary. Sending letters and making phone calls are still common communication practices in debt recovery.
Consider these key debt collection statistics:
The global debt collection software industry is set to increase at a compound annual growth rate of 9.6% in the next two years, from USD 2.9 billion in 2019 to USD 4.6 billion in 2024.
The digital transformation market is on pace to grow from USD 469.8 billion in 2020 to USD 1,009.8 billion by 2025.
The debt collections software market is expected to reach USD 2,046 billion by 2028.
Despite this clear indication of a growing consumer preference for automated, self-service repayment solutions, many companies still consider debt management technology an afterthought. And while newer businesses and startups are more likely to be fully digital from their inception, established companies are commonly operating with zero digital collections processes in place. As a result, innovation in the field is not moving in lockstep with many other areas of business.
The defining factor of a scalable debt management system is the emphasis on capturing all of the data surrounding a claim, which allows for digitalising and automating collections processes as early as possible. Further, the collections platform needs to reach beyond the boundaries of the originator’s business. Both the service providers (the DCAs) and the investors on the non-performing loan (NPL) side need access to the same data points. To make this possible, data hygiene must be driven across the value chain, which can be facilitated through unified systems, such as cloud-native solutions.
Source: Markets and Markets - Debt collection Software Market - Global Forecast to 2024
Access to more data gives collections teams the power to better understand and act on customer behaviour. Providing a range of digital communications channels equips borrowers with the means to settle their debts flexibly and autonomously.
Digital platform providers should allow collections teams to configure communications via the appropriate channel for their customer segments. When combined with collections pages that offer multiple payment options, customers have opportunities to resolve their debt swiftly and without barriers.
If your business is noticing a high-cost basis in connection with your recoveries or collections, digitalisation can drive those costs down significantly. It is also often difficult to leverage the data collected from manual processes. So, if you're generating data for which you have no use – or data that isn’t improving efficiency or increasing recovery rates – a switch in systems could be the optimal solution.
The same approach could be applied to growing businesses, wherein debt recovery becomes a mounting cost issue over time, and additional resources must be allocated to recoup potential losses.
In many instances, operational costs are incurred from a need to recruit staff into collections departments, in order to handle manual processes at scale.
To address this, automation via a cloud-based system expedites labour-intensive processes and eliminates reliance on IT departments, both in setup and maintenance costs. In fact, updates are actioned automatically in cloud systems, reducing operational overheads considerably.
A number of receeve’s earlier customers began their digital transformation by initially updating their communications methods to include email, allowing them to track the outcome of communications and measure success. Thereafter, their systems became increasingly sophisticated. Customers operating in multiple countries are now using technology to decide on the best communication channels for each region and adjusting their messaging as necessary.
Ultimately, a step-by-step approach means system digitalisation can remain a simple process.
By layering the digital product on top of the existing system, the process can remain free from the intervention of multiple departments and without the operational risks of a ‘Big Bang’ approach, wherein a system is shut down and a new one is put in its place. This de-risks the implementation stages and ensures a safer transition from legacy systems to cloud-native solutions.
To optimise access to data, improve communications strategies, and leverage customer insights, businesses are switching to technologies that are modular, scalable, and compatible with their choice of digital services.
A plug-and-play solution affords clients the freedom to choose their communications channel or virtually any other digital product with the use of APIs, meaning their collections platform can be modified at any time. This keeps system maintenance as simple as possible, maximising process efficiency and fostering better resource allocation in the long term.
Paul Jozefak is the CEO and co-founder of receeve, a serial entrepreneur with a 15-year VC career and 7 years of company building. He co-founded and launched receeve GmbH, a cloud-native solution for the collections & recovery industry, automating data management and engagement across all stages of debt management. ML/AI helps internal teams recover more by optimising all processes, strategies, communication, and channels. receeve is venture capital funded and growing the team rapidly in the EU & LATAM markets.
receeve is a fully customisable all-in-one platform for collections & recovery. We simplify the growing complexity of data and systems and empower in-house teams to easily automate processes, engage customers and apply 360° insights to maximise recovery and minimise risk across every stage of credit management – from pre-delinquency to portfolio assignment or sale. A perfect balance of ease-of-use and power, receeve’s cloud-native, no-code platform is fast to deploy, simple to manage, and easy to customise and expand.
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