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5 Desired Debt Collection Features to tackle increasing Consumer Credit in 2022

by Chan Hsuan
Thursday, January 27 2022

#loans

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As the global economy re-emerges from the worst of the COVID-19 pandemic, consumer credit has been steadily on the rise:

  • In May 2021, Equifax figures showed that total US consumer debt amounted to $14.72 trillion—a 4% increase from May 2020. 
  • 72% of total consumer debt ($10.6 trillion) consisted of mortgage debt, including home equity loans, while non-mortgage debt was responsible for $4.13 trillion. 32.8% of this figure came from auto loans and leases. 
  • TransUnion suggests that consumer credit will increase further in 2022 as financial institutions “recalibrate their growth strategies”, expanding into the subprime and near-prime risk tiers. 

This increase in consumer credit comes after better-than-expected delinquency rates, with serious delinquency rates currently well below pre-pandemic levels. But past performance doesn’t guarantee future returns. Financial institutions might be in a position to expand the credit that they offer consumers—but they must prepare themselves in case some consumers struggle to pay them back. 

This blog will explore three key consumer credit categories that are set to increase in 2022: auto loans, credit cards, and personal loans. It will then delve into the 5 must-have debt collection software features that will allow financial institutions to successfully recoup all that they are owed. 

3 key consumer credit categories expected to expand to non-prime customers in 2022

According to TransUnion’s forecast, auto loan, credit card, and personal loan are the major consumer credit categories to watch in 2022 for all financial players (as shown by the figures below).

Source: TransUnion

1. The auto loan market

Although the U.S. auto lending market is forecast to grow in 2022 (by 0.6 million, a 2% year-on-year increase), this growth will probably continue to be hampered by inventory issues. Due to the COVID-19 pandemic and trade sanctions, the global shortage of computer chips is affecting a wide number of sectors—and the auto market is no exception. 

However, as things stand, “Non-prime originations are forecast to rise from 9.4 million in 2021 to 10.0 million in 2022, representing a higher share of all auto loans.” With prices reaching record levels (even for used cars), the auto loan market is set for a strong few years—especially once the current chip supply issues are resolved. 

2. The credit card market

Pre-pandemic, roughly 38% of credit card accounts belonged to non-prime borrowers. In 2021, this rose to 42%, while it’s expected to stay largely the same (41%) in 2022.

This strong performance comes after a stellar year, with a record-breaking 19.3 million originations occurring in Q2 2021 alone. As consumers begin to spend more on entertainment-related expenses, such as international travel or holiday spending, card balances will likely increase further over the course of the year. 

3. The personal loan market

Unsecured personal loans are beginning to bounce back, with the 4.43 million originations in Q3 2021 representing the largest number since pre-pandemic levels. Indeed, unsecured personal loans are expected to grow 11% among non-prime consumers in 2022. 2021 figures showed that Gen Z is likely to see the highest increases in unsecured personal loans—expect this to continue. 

What does this mean for financial institutions?

The rise in consumer credit certainly points to a positive post-pandemic economic future. However, this is just one side of the story.

Rising inflation is causing widespread uncertainty—81% of US-based consumers are currently highly concerned about inflation. With inflation hitting lower-income borrowers hardest (i.e. consumers who usually fall into the subprime and near-prime risk tiers), it may well cause a sharp rise in delinquency rates.

What’s more, the emergence of ‘buy now, pay later’ (BNPL) allows consumers to spend money that they don’t yet possess. Unsurprisingly, this adds to the risk of delinquency. Financial institutions must therefore get ahead of the curve, implementing themselves with the latest (and most effective) debt collection software.

5 must-have features for debt collection software

Not all debt collection software is equal—or equally effective. There are 5 key features that separate the best from the rest.

1. An advanced debt collection algorithm

Leading debt collection software leverages artificial intelligence (AI) and machine learning (ML) to help collections teams optimise their strategies. AI and ML gather critical data into how consumers interact with the dunning strategies that they are served. For instance, this encompasses everything from email open-rate to the percentage of payment landing page visitors that successfully completed a payment.

AI can then analyse this data to assess performance—and to improve future efforts. They help agents understand which strategies work best for which consumer segments, optimise their dunning materials, and improve overall repayment rates. They are indispensable tools for modern collections teams, helping them automatically fine-tune their approach on an ongoing basis. 

2. Customisable landing page builder 

No-code landing page builders let collections agents create customisable landing pages in minutes, thanks to their simple drag-and-drop functionality. No longer will agents need to enlist the help of their colleagues from the IT department when creating, or editing, repayment landing pages.

This increases team-wide productivity, allowing collections employees to react quickly to incoming data and create personalised customer experiences (CX) for each particular segment. They can add buttons, payment options, and let consumers set up instalment plans—all without needing to know how to code. 

3. Flexible self-service functionality 

Consumers appreciate being able to pay back what they owe on their own terms. In other words, using their preferred channel, paying back as much (or as little) as they can afford, at a time that suits them.

This is where self-service functionality comes in. It gives consumers control over the process, increasing their sense of personal agency. In turn, this dramatically boosts repayment rates. 

4. Scalable cloud-first software

Financial institutions need to work with providers that scale as they grow, and allow remote teams to work together effectively. In other words, with scalable, cloud-first software providers.

What’s more, these solutions can be easily integrated into financial institutions’ existing legacy systems—reducing downtime and increasing productivity. 

5. Data-driven dashboard 

By operating with a data-driven dashboard, collections managers can operate in the know at all times. They can measure the success of their various strategies—and hone in on which are the most effective. 

Collections departments can take all guesswork out of their dunning approach, maximising the chance that they will quickly be repaid by past-due customers. 

Get ready for 2022’s rise in consumer credit

Consumer credit is set to rebound strongly in 2022, especially in the auto lending, credit card, and personal loan sectors. However, inflation and BNPL will likely increase delinquency—so financial institutions must act quickly.

By implementing future-proof debt collection tools, they can fine-tune their collections operations and minimise consumer delinquency.