The Future of Self-Servicing Channels in Debt Collections

A 2006 research paper examining the impact of self-service technology (SST) on restaurant operations made some interesting conclusions. First, the paper found that customers embraced SSTs primarily because of convenience. Secondly, customers enjoyed the fast service they received by using SSTs. More than 15 years later, automation in the service sector is no longer a luxury but necessary. Many SSTs exist today, and each one is fully customized to achieve certain ends in the respective sector.

For a long time, person-to-person interaction has been the standard of operations in the debt collection industry. Make no mistake; such interactions are necessary to build a good rapport between collectors and debtors. Nevertheless, overreliance on the interactions has proven futile.

In an illuminating survey by McKinsey, respondents said they preferred contact through email instead of incessant phone calls. No matter how many calls lenders make, McKinsey found, their contact and recovery rates won’t improve.

The Ground is Shifting

Significant changes are happening in the credit industry now. Person-to-person interactions are waning as more self-service systems take their place. Two main factors are at the heart of this shift. The first one is the need for collectors to maintain high-efficiency levels. Efficiency means making the least amount of phone calls while achieving the highest rates of recovery.

Before Covid-19, some collectors would have been a bit heavy-footed to adopt lean operation techniques. On the one hand, the existing techniques were working just fine. Also, the urgency to think radically was nonexistent. Now, efficiency defines the post-Covid era. Collectors who are unable to keep customers happy while using as few employees as possible cannot survive.

The second factor driving the shift in the debt collection industry is customer experience. According to the McKinsey study, lenders cannot achieve potential recovery rates by relying on traditional contact channels such as letters and phone calls. This strategy is ineffective, says McKinsey because it lumps all borrowers into one colossal segment. Such practices propagate mistakes that push more debtors towards delinquency.

The first step towards a better customer experience is integrating behavioral segmentation and contact preferences into collection models. For example, lenders should try to call customers who prefer contact by email.

How Self-Service is Changing the Collections Industry

Welcome to the DIY era. SST in debt collection is as radical as it is reinvigorating. The onset of the pandemic and the subsequent lockdowns made it impossible to follow up delinquent borrowers. However, the phenomenon has set the stage for debt collections models centered around software-as-a-service to thrive.

Like we have seen already, SST is geared towards increasing efficiency and improving customer experience. Other applications of the technology include automation of the collections process and management of compliance. But how is the disruption happening?

Traditionally, an agent would have to call a debtor to follow up on his/her obligations and to facilitate payment of the debt. Automation has now taken out many of the agents and replaced them with virtual agents.

Consider C3 Ltd., a European communications platforms company that supplies customer service automation technologies to companies in Asia. One of C3 Ltd.’s flagship products is an Interactive Voice Response (IVR) platform that, according to the company, “reduces live agent occupation by one minute per call in a 100 seat call center.”

The highly personalized interaction kills two birds with one stone. First, the step-by-step and patient service delivery of the virtual agents conveys a sense of helpful service. Such an interaction is the antithesis of many person-to-person interactions, which often suffer from emotional stresses on both sides. Second, the borrower’s perception will mellow because there is no way one will feel embarrassed talking to a virtual agent.

Benefits of Self-Service in Debt Collections

If nothing else, the bulk of our discussion so far revolves around the benefits of self-service in debt collections. The first thing that jumps out when you speak about the benefits of any technology is increased capacity. Humans are the best workers in any company. However, problems arise when the tasks they accomplish are repetitive. For example, there is a limit to the number of calls human agents can place in a day. Also, there is the psychological aspect.

Self-service technology enables collectors to handle more cases in a day, and all of them are completely personalized. Even with one staff, a business can handle many cases in a single day. As such, businesses can easily scale capacity in tandem with the rise in delinquency volumes. Besides increased capacity, SST enables collectors to improve recovery rates and at a smaller cost.