Debt collection is changing rapidly. To keep pace banks have to adapt to changing consumer behaviours as well as many other opportunities for digital collections pitfalls. COVID-19 has further increased the move towards digital banking, causing a reported 72% increase in the use of Fintech apps across Europe.
With consumers going digital, financial institutions must now follow suit. In a bid to reach more consumers, more quickly, easily, and cost-effectively than ever before, AI and ML are reinventing the collections process—leading to the emergence of a number of exciting enterprise collections software tools.
You have to effectively integrate software with your existing system. You have to train your staff on how to use the software, as well as teaching them future-proofed collections strategies. You have to remain secure and compliant at all times.
Let’s explore the 5 key pitfalls in digital collections before exploring how you can successfully overcome these challenges.
Challenge 1: Falling for a one-size-fits-all approach
Financial institutions have typically adopted one-size-fits-all, ineffective dunning approaches. According to McKinsey, “Despite customer inclinations, banks are not using the channels that lead to the best collections outcomes.” Digital collections is more than about just sending emails instead of direct mail.
With changes in consumer behaviours accelerated by COVID-19, such as an increased preference towards digital banking channels, it is crucial that financial institutions adjust their own outreach accordingly.
BCG argues that this relies upon collecting, analysing, and using customer data to craft dunning strategies that work best for each individual past-due customer: messaging, tone, frequency, channel, etc.
McKinsey backs up this approach, highlighting: “The object is to deliver tailored messages through the right channels in the right sequence to the right customers. The cost of implementing a true multichannel strategy will amount to a small fraction of the return to issuers, in more efficient and effective recoveries and happier customers.”
Tailored dunning strategies lead to increased results. It is as simple as that.
Challenge 2: Implementation and maximising impact throughout the value chain
Strategy matters for little unless you have effectively implemented your enterprise collections software solution. However, this can be tricky.
For instance, TSB botched their implementation of a new IT system, eventually losing 26,000 customers and causing damage to the banks’ reputation. So how can you mitigate these common implementation difficulties as much as possible?
First, guarantee that you have executive buy-in before beginning any large-scale software implementation. Then, set out a clear implementation strategy and remember to have backup plans in place in case a key system runs into issues. Finally, make sure you are totally aligned with the vendor on expectations, support, resources, and timeline.
But implementation is just the first step. You have to also focus on deriving as much value as possible from every step along the customer’s journey to repayment. The longer a customer is past-due, the more of your time, effort, and money you have to spend recouping what they owe you—so the less valuable the claim becomes.
As Paul Jozefak, our Co-Founder and CEO, states: “Injecting our software as early as possible allows the greatest level of value extraction. If we can already begin nudging the customer of our clients to remember their upcoming payment, no loss needs to take place whatsoever.”
Challenge 3: Correctly informing yourself on compliance, privacy, and security
As you’re aware, any new addition to your tech stack—especially one that regularly deals with your consumers’ personal data—requires considerable thought with respect to compliance, privacy, and security.
It’s therefore crucial that financial institutions have a proper plan in place to keep their consumers’ data secure prior to implementing the new tool in question. For companies that get it wrong, the results can be disastrous. They risk damaging their consumers’ privacy, falling foul of the law, and ruining their reputation.
For instance, an inquiry is currently underway after Bank of Ireland accidentally misconfigured their customers’ banking profiles. This might seem like a small slip-up, but the mistake meant that one customer could inadvertently access an entirely different customer’s personal data. It also appears that regulators are increasingly clamping down on such slip-ups. GDPR fines have risen by 40% year-on-year, and Caixabank was recently fined €6 million earlier on this year.
Compliance, privacy, and security are essential. They can be hindrances to growth, and cumbersome at times, but if anything ever goes wrong, you’ll wish you paid more attention to them.
Challenge 4: Staying up to date with the latest trends in Fintech and software
The Fintech revolution is well and truly underway. However, staying up-to-date about the latest industry news can be difficult.
According to BCG, being in-the-know is crucial for financial institutions’ mere survival: “Advances in technology, big data, and AI are leading customers to change old habits. They’re also empowering tech companies and startups to challenge banks on their home turf.” In fact, they even go as far as saying: “Those that wait to adapt might find themselves stuck with the label ‘too slow to survive.’”
The message is clear: staying on top of industry news is not just a welcome distraction from your daily duties—it is a genuine survival imperative.
Challenge 5: Choosing the right way forward
There’s no standardised method towards adopting a digital collections strategy.
You can work with a debt collection agency (DCA) that has its own external call centres. While you outsource the time-consuming, effort-draining work itself, you also give up all control—meaning the DCA can effectively follow its own collections strategy, regardless of what you think.
Or you could build your own in-house tool. As appealing as this might be, you ultimately run the risk of costs (and timelines) spiralling out of control. Collections departments are by no means tech innovators—so you’ll have to hire expensive developers or allocate significant internal resources just to see the project over the line. Also, you may well just build something that already exists—only you have spent far more than it would have cost to implement it in the first place.
The last option is to choose a recognised software/software-as-a-service (SAAS) provider. This is undeniably the most foolproof approach. You can focus entirely on your own work while experienced professionals create your own dedicated and tailored solution. In-house work is minimised and costs are kept to a bare minimum.
However, this does mean organising and following Request For Proposal processes, as well as flirting with the aforementioned implementation challenges. The key here lies in making sure you work with the right provider from the get-go—so make sure to ask the right questions when searching for the appropriate vendor.
Multiple digital collections pitfalls, but one solution
Financial institutions must contend with a number of digital debt collection challenges: implementation, devising the correct strategies, staying safe, secure, and compliant, and deriving value throughout the entire chain. Fortunately, such challenges are far from insurmountable.
By partnering up with enterprise collections software experts like receeve, financial institutions can work with a single solution that helps them solve all their digital collections pitfalls.
For more information on receeve’s unique digital collections offering, book a demo to speak to a member of our team.
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.