A collections crisis is looming on the horizon. In the wake of the COVID-19 pandemic, the Euro Area (EA) is set to suffer a 10.2% contraction in GDP, meaning losses and non-performing loans (NPLs) are predicted to rapidly increase in the near future.
Collections departments must therefore leverage the most efficient dunning strategies at their disposal. However, too many collections teams still must rely on outdated, ineffective, and costly communication methods like direct mail. This is inefficient and unproductive.
- 93% of collections agencies communicate with past-due customers via mail;
- However, 51% of past-due customers take no action after having received a dunning letter;
- Offering digital payment methods instead increases the chance of full repayment by 2x.
It is time for collections agencies to reevaluate their dunning approaches, abandoning outdated methods and embracing digitisation. Not only is direct mail unsuccessful and time-consuming to send out, but it is also expensive. You have to pay for both the cost of postage as well as the salaried time of your employees.
In fact, as things stand, employee salaries (78%) and postage (39%) currently rank as two of the highest collections costs. This does not have to be the case. With the right tool—an AI-powered collections management software —agencies can reduce their headcount, increase collections success, and eliminate all postage costs.
This post will examine why sending collections letters is inefficient in 2021, the value of digital communication strategies, and how an AI-based software can fuel collections success going forward.
An outdated approach to collections operations
As things stand, 78% of collections leaders view postage as a moderate to a major expense, while 93% also consider employee salaries to sit in the same bracket. However, these expenses can in fact be reduced without hampering collections success.
Just over half of all dunning letters are ignored by past-due customers. Plus, they are virtually impossible to analyse or optimise. The only way that you can confirm whether a customer opened your letter is if they submit a payment. Even then, you cannot be sure—they may have repaid of their own volition rather than being prompted by your letter.
Fortunately, there is a better alternative: digital communication via a centralised, AI-based software system. By implementing productivity-enabling AI tools, collections teams can reduce their headcount, eliminate postage costs, and increase collections success.
The future-proofed alternative
83% of collections leaders believe that controlling costs is either somewhat or very important, as well as being an ongoing challenge. But how can they control costs while maintaining collections success?
With the help of an AI-powered collections management software. This one single tool supports a range of digital communication methods: SMS, email, push messages, paper mail, and more. Create, send, and analyse the success of your outreach messages in a matter of clicks. Many regulations across different countries in Europe (Germany, for example) mandate that paper mail be sent, so it is essential that a digital approach also include a way to comply with these regulations.
Collections strategists will be provided with up-to-date metrics on an ongoing basis, like open rate, click-through rate, bounce rate, and response time. Heads of Collections can then use these data-driven insights to tweak and refine their collections approaches based on past-due customers’ behaviour—instead of merely operating in the dark.
With direct mail, however, there is no way to verify if a customer has opened your letter. You might even send countless letters to outdated addresses. Worse still, you may never realise this is the case. With software, even if you are required to send direct mail, you can write, track, and send out paper mail as part of your overall strategy, within a software, incorporating it into the full customer journey.
By embracing digital communication methods, agents will no longer have to spend their salaried time and energy manually sending out direct mail as their primary channel. Postage costs will plummet—while collections rates go through the roof, powered by data-driven digital communication insights.
You will be able to reduce your employee headcount, increase efficiency by leveraging AI to automate routine, data-heavy tasks, and unlock greater levels of collections success.
As one collections leader notes: “If you can lower [employee-related expenses], you can make more money. The few firms that have invested in artificial intelligence are leading the pack.”
Pactum Collections GmbH, a subsidiary of the international mobile banking provider Ferratum, implemented receeve’s AI-based collections management software and achieved great success in both operational efficiency and cash recovery. With receeve, Pactum achieved a:
- 68% decrease in outbound calls
- 15.1% increase in cash collection
- 9.1% increase in 7 days past-due (DPD) customers’ payback
- 3X increase in instalment plans
The benefits of AI-powered collections management software
Implementing an AI-powered collections platform will have a transformative, wide-ranging impact on your collections success.
1. Better results
Meet customers digitally on the channels they actually use. Digital tools enable you to leverage data-driven insights to personalise your messaging according to each past-due customer’s preferences. In other words, your collections teams can analyse and optimise your strategies on an ongoing basis.
2. Greater efficiency
Agents will be able to communicate with thousands of past-due customers at the click of a button. AI even learns which methods work best for which customers before tailoring your outreach accordingly, without agents or collections strategists having to manually step in.
3. Increased visibility
Thanks to real-time data, collections strategists can analyse how existing strategies are performing—and identify room for improvement. With digital communication metrics such as open rate, conversion rate and response time, you will have a birds-eye view of whether you need to increase the engagement of your content, improve the design of your repayment landing page, switch the communication channels, or change the time slot when you deliver your messages.
4. An improved customer experience (CX)
According to KPMG: “The use of digital channels has accelerated rapidly, and is set to continue, even once the COVID-19 situation has eased. Of the 43 percent of customers who previously mainly used in-person channels to contact brands for support, 1 in 3 have now switched to digital channels as their main channel”.
Ditch direct mail where possible for more consumer-friendly digital alternatives. As one collections leader states: “If we don’t come up with new ways to communicate with consumers, the entire industry will die off.”
5. Attract and retain talented professionals
83% of collections leaders view winning and retaining talent as a major concern. One way to attract new talents is by adopting innovative, tech-led approaches. Embracing AI technology and machine learning allows employees to move away from routine, mind-numbing work (like sending out direct mail), and gives them the chance to learn invaluable digital skills.
Your future-proofed and efficient ways of working will help you attract and retain top talent for years to come.
6. Lowered staff salary costs
You no longer need back-office employees who spend their days creating and posting direct mail. Instead, adopt smarter alternatives (such as push notifications or email messages). By leveraging a digital collections platform, your employees can work on more impactful projects and leave software to optimise digital communications.
The time to act is now
The global economy is set for a turbulent few years after the fallout of COVID-19. This means the time to invest in new AI-based technology is now.
When analysing the severe after-effects of the 2008 financial crisis, McKinsey noted that: “During the global economy’s long boom period, lenders experienced low losses and consequently tended to underinvest in collections.” As a result, when losses did increase, banks and financial organisations were wholly unprepared to deal with the increase in workload.
But not all investment is equal. Collections departments must not simply invest in age-old, and ineffective, strategies like sending out more direct mail and increasing their headcount. Instead, they need to strategically invest in AI-based tools that allow them to achieve more efficiency and increase success with fewer employees.
Indeed, according to a study conducted by Temenos and The Economist Intelligence Unit (EIU), 77% of C-Suite banking executives say that “unlocking the value of AI will be the difference between winning and losing” moving forward.
Embrace a smarter strategy, today
AI-driven collections technology is a no-brainer. By implementing an AI-based collections management software, you can:
- Make your collections team more productive, cost-effective, and successful—improving your customer experience (CX) and driving increased repayment rates.
- Maintain complete visibility over existing strategies, pinpointing areas that can be improved going forward.
- Improve your employee experience (EX), and attract/retain talent over the long term.
- Eliminate the time, energy, and money that you currently spend on sending out ineffective direct mail.
So what are you waiting for? Get in touch with a member of receeve’s expert team to understand more about why AI-driven software is the future of collections.
Jan is one of the first members of the receeve team, and has become an expert on the fintech industry, particularly digitising collections and accounts receivable processes. He is a talented multi-disciplinary professional with immense drive to bring modern technologies and processes into financial services.