Banks must digitalize debt collection processes to survive the pandemic

If you’re an avid reader of our research, you will have undoubtedly read the highlight report we published on EXL PayMentor. In it, we outlined EXL’s solution that aimed to collect debt faster and more efficiently. While maximizing process efficiency using tools like EXL PayMentor is always beneficial, it has become increasingly important now that we are knee-deep in the economic fallout from the COVID-19 outbreak. Banking and financial services (BFS), on the whole, may have been less impacted than other industries, but some segments, such as collections, are much more exposed to the economic impact. Lenders must ensure they have both reduced their risk exposure as much as possible and improved their success rates. Pandemic aside, they should have been exploring this anyway! Working with an external service provider to digitalize debt collection processes could be a viable port of call.  

The economic fallout from COVID-19 has been devastating—recessions, mass unemployment, and crippling uncertainty—leading to the highest level of defaulted debt since 2008 

You’d have to have been living under a rock for the past six months to have avoided all talk of recessions and redundancies. The ongoing pandemic will likely (hopefully!) be one of the biggest global shocks of our lifetime, and it will take years to recover. History has taught us that recessions mean financial hardships for both business and individuals, leading to a significant increase in loan defaults—we saw this very clearly in the 2008 recession.  

Every lender understands that the business of lending money always comes with risk, and they will have a contingency plan. But in unprecedented times like the economic fallout of a global pandemic, their plans can be rendered useless when defaulted debt increases tenfold. The Wall Street Journal is already reporting that banks are sacrificing their profit margins to build capital stockpiles to help them survive the crisis, and while that really is a smart move, it isn’t enough on its own. Lenders must maximize their debt collection process efficiency to supplement their capital resources; reducing the number of defaults and leveraging a digital debt collection solution is a good place to start.  

The pandemic has forced enterprises to accelerate their adoption of digital technologies, and lenders must implement a touch of digital to their collections processes 

HFS, in conjunction with KPMG, recently released a report that surveyed 300 executives across the Global 2000. One of the key findings was that due to the COVID-19 outbreak, businesses are accelerating their digital transformation efforts, but only in areas with a clear return on investment, as Exhibit 1 explains, and digital collections is one area that fits the bill. Many lenders rely on outdated debt collection processes, such as phone calls and emails, both of which require significant amounts of human intervention and have a limited success rate.  

Exhibit 1: Most respondents agree that COVID-19 means they must accelerate digital transformation, but with limited risk.

Sample: 300 executives across Global 2000 enterprises surveyed in May–June 2020 (Phase II sample)
Source: HFS Research, 2020

Digital debt collections were a differentiator pre-pandemic, but the capability has since become a have-to-have, and it’s easy to see why. For a start, it is somewhat easy to implement as service providers’ solutions range from modularized platforms to as-a-service offerings—it can be tailored to any lender’s needs. Furthermore, the benefits are easy to spot and straightforward to explain to the C-Suite; for example, increased customer retention, cost savings, and increased success rates, just to name a few. In fact, HFS previously published a POV following an interview with Citizen Bank. We outlined how Citizen Bank leveraged artificial intelligence (AI) and machine learning (ML) to digitalize its collections process and the countless benefits it experienced. Another example is Wipro, which claims that by leveraging automation and AI, it can help its clients achieve a 30% increase in collector efficiency, 25% improvement in customer retention, and 30% reduction in cycle time, which means success rates aren’t the only thing that can benefit from digital collections processes.  

A digital collections process brings with it a host of new benefits and efficiencies beyond simply success rates 

If you think you already have enough in your armory to convince your senior executives to consider digital collections, feel free to stop reading now. But if you want a little more, we’ve got that too. Increased success rates are only one of the benefits enterprises can achieve by taking their collections digital. Implementing digital communications into the debt collection process also reduces the need for a high call volume, something TCS cites as a benefit of its collections platform. Now, it’s up to each lender exactly how they want to approach collections. They could eliminate manual labor by relying solely on an entirely automated collections process, or they could adopt the often–favored omnichannel approach, with automated digital communication augmented by human intervention when required. Whichever approach a lender chooses, it will reduce the workload of many employees, allowing them to focus on higher-value areas that could generate further revenues.  

The Bottom Line: As we plunge into another global recession, digital debt collection is a have-to-have, and service providers are armed with tailor-made solutions to support you.  

We’re all staring a recession in the face as the fallout from COVID-19 continues, and while everybody has worked tirelessly to ensure the safety and survival of their family members, they must now work to ensure their finances are in order, too. Sadly, not everybody will be successful. Businesses will close, people will face redundancy, and loans will be defaulted—it’s an undeniable fact. If lenders hope to survive, stockpiling cash simply won’t be enough. They must embrace digital collections to not only improve their success rates but also maximize their efficiency and drive down costs—and it’s time to leap.