The debt collection industry has traditionally had a bad reputation. This was, in part, a consequence of human-centric services. In recent years, banks have embraced new era technologies to provide internet banking, UPI payments and other facilities to their customers. While large swathes of the Indian population have become tech-savvy in their banking habits, they remain apprehensive about digital cash-outs/refunds.
Digital debt collection is the practice of collecting outstanding debts through digital channels by leveraging advanced data analytics. Internal data from Creditas Solutions shows that digital collection has clearly benefited both lenders and borrowers. Lenders have seen cost savings of up to 60%. Borrowers benefited from being engaged through hyper-personalized nudges in an empathetic and non-intrusive manner. These factors have led to higher collections at lower costs.
DIGITAL VS TRADITIONAL COLLECTIONS
Traditionally, debt collection involved sharp practices such as aggressive phone calls, home visits by field agents, rude emails, and tedious resolution plans. Intimidation tactics resulted in questionable collection rates and damaged the bank’s reputation.
Digital Debt Collection leverages advanced data analytics to ensure customers have a seamless and empathetic collection journey. An omnichannel contact strategy involves creating a mindful empathetic communication plan by analyzing customer demographics and financials.
Creditas Solutions internal data shows that digital collection ensures 100% compliance while increasing customer engagement by 4x. We are seeing a 10-15% recovery rate improvement across different compartments and portfolios.
Today’s consumers prefer digital self-service when and where they choose. They feel empowered when they have full control over their debt repayment journey. Creditas Solutions’ internal survey found that 89% of customers in the 18-35 age bracket and 87% in the 35-50 age bracket have a strong preference for digital repayment options.
With the looming threat of rising NPAs, digitization of debt collections has become a major trend in the banking industry. According to a Crisil report, gross NPAs in the banking system could rise from 8% to 9% by the end of FY22. Ensuring timely repayments and managing collections is essential to maintaining healthy balance sheets. New technologies are simplifying the debt collection ecosystem by making it cost-effective, customer-centric and fully compliant.
Thoughtfully pushing clients to pay their debt involves educating borrowers about the consequences of being in default. Adopting a digital approach not only contributes to seamless collections, but also to the financial literacy of customers. In the long run, clients will understand best practices for financial health.
The digitization of debt collections results in better communication between borrowers and lenders which improves the collection effort. With the growing adoption of information and communications technology by customers, it is incumbent on lenders to update their collection practices accordingly.
(The author is Anshuman Panwar, co-founder, Creditas Solutions)