Why the Future of Debt Collection is Digital and Customer-led • InDebted (Canada)
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Why the Future of Debt Collection is Digital and Customer-led

The relationship organisations have with their customers these days is very much a digital one – which is why a digital approach should also apply to debt recovery.

Chasing customers for payment is an unfortunate part of running a business, no matter how big or small. For larger customer-based organisations, especially financial services, utilities and telecommunications companies, outsourcing this activity to a debt collection agency is a common practice.

While engaging with a debt collector means an organisation can benefit from their expertise and resources, there are still specific challenges to face. Debt collection is an industry that has traditionally struggled with its image, characterised by poor customer experiences as a result of one-size-fits-all strategies, inefficient and antiquated processes and collection methods that can feel harassing. Issues such as these have delivered inadequate commercial returns for clients and resentment from their customers.

How Digital Debt Collection Puts Customers First

Increasingly, organisations realise their customers need to be provided with more options and support to help with their overdue debts. In the debt collection industry, technology is helping to bring this about through digital means. Digital debt collection is a process where consumers are contacted about their overdue debts through digital channels, such as email, SMS or WhatsApp. They can then respond and make payments digitally as well, eliminating all need to talk to a person if they choose not to.

“If a consumer has a poor experience with a debt collector, this can adversely affect the brand reputation of the organisation that referred the debt for collection.” 

A key reason digital debt collection is the way of the future is because of its digital-first approach that puts customers front of mind. Traditionally, debt collectors have been motivated and compensated based on how much of a debt they recover. This has led to some debt collectors making endless calls to consumers at inconvenient times. The calls have often ended up being abrasive and bordering on harassment – an approach that isn’t in alignment with what is best for the consumer. 

Digital debt collection addresses this misalignment.

How Digital Debt Collection Is Reinventing A Broken Approach

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The future of debt collection is clearly digital; the traditional collection model is broken. This makes sense when you consider that these days the majority of consumers apply for a financial product entirely via a digital process. Therefore, it’s illogical to think they want to be contacted via an analogue method such as a phone call or letter.

Successful debt collection requires two key elements: it needs to be easy and frictionless. If a consumer has a poor experience with a debt collector, this can adversely affect the brand reputation of the organisation who referred the debt for collection. For example, if a debt collector works from a call centre and attempts to contact a consumer via a phone call, there can be many points of friction: the person they’re attempting to call doesn't answer, it’s a wrong phone number or the consumer doesn't have time to talk. But if the consumer is contacted via an email or SMS, they can self-serve the request at whatever time they like. This is a more convenient process, and digital debt collection agency InDebted has found more than 35% of all its customer transactions happen outside traditional business hours. 

InDebted’s digital-first model suits today’s consumers

InDebted is a customer-centric and digital-first collection business. This means it uses digital communication to contact a client’s customers before any analogue channels are used. Today, 98% of InDebted’s business is carried out digitally. 

But founder and CEO Josh Foreman says what makes the business different to others is that it’s digital from end-to-end, which is a huge benefit for organisations. “We are set up to ensure our clients’ customers are able to self-serve. This means once contacted, they can modify their payment plans, resolve their debt, dispute their account – everything that they can normally do over the phone, they can do digitally. This ease of use creates less stress for them, which our clients ultimately benefit from.”

And while this differentiates InDebted from other debt collection agencies, what makes it unique is the way it leverages the data it receives from these digital interactions. These interactions allow it to build sophisticated behavioural models that help it understand, to a high level of certainty, the preferences of each individual consumer, including how they prefer to be contacted, at what time and in what context. 

“Because of this, we don't have to spend nearly as much effort getting consumers to engage with us to resolve their accounts, as opposed to the traditional model, which could have 1000 staff in a call centre, calling people, three or four times a day,” Foreman says. “Our clients benefit from this because the end result is more engagement with their customers, which equals more recoveries and less people in debt. It's a win-win for everybody.”

Different remuneration model drives satisfaction

Another major difference is the way InDebted remunerates its employees. Rather than being commission based, it incentivises staff based on how they deal with customers and net promoter scores, not on dollars collected. “We have a customer service team; we don't have collectors, and as all contact this team has with consumers is inbound traffic, the conversations we have are more effective,” Foreman says. “We operate on traditional customer service metrics and we don't focus on how much we collect each day as this is a by-product of how we service our customers.”

“We don't have to spend nearly as much effort getting consumers to engage with us to resolve their accounts, as opposed to the traditional model, which could have 1000 people in a call centre, calling people, three or four times a day.”

InDebted’s clients’ customers have shown they prefer this approach. InDebted’s customer service team is rated 4.9 stars out of 5 for customer satisfaction, a highly unusual result for a debt collection agency. 

Foreman would also like to see the traditional remuneration model, where debt collection agencies receive a percentage of money collected, change. His preference is for one where a debt collector is paid a percentage of the placement upfront, that is, a percentage of all debts that are referred. 

He adds that some companies may be reticent about using this approach. “Some businesses may feel there is a lack of incentive for a debt collection agency to put its best resources to work collecting their debts if it has already received payment,” he says. “But with digital debt collection, there is no favouring of one client over another. Once a business realises they will see exactly the same performance rates as before, we feel they will be more comfortable with paying on debts referred, especially if they get a discount by paying upfront.”

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Benefits Of Digital Debt Collection For Clients

While a digital-first approach is designed to provide more help to consumers with overdue accounts, clients also reap the rewards. When considering a debt collection agency, there are three important metrics to judge it on: commercial, customer experience and compliance.

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Helping customers stay loyal

Happy customers are more likely to stay with their existing organisation. Digital debt collection provides clients’ customers with a more satisfactory experience because of the frictionless contact and the ability to self-serve. 

A digital end-to-end approach, such as InDebted’s, allows consumers to resolve their account online, chat with a customer service team 24/7, choose to pay in instalments, or lodge a dispute. This ease of use has a positive effect on the brand and reputation of the company who is owed the debt. Because of the positive experience, once the consumer is back on track financially, they are more likely to stay as a customer of that organisation and continue to buy their products or services as opposed to going elsewhere. 

Higher recovery rates boost commercial outcomes

From a commercial point of view, using a digital debt collection agency results in higher recovery rates for a business. Statistics from McKinsey & Co show contacting customers through preferred digital channels improves effectiveness, especially in the 30-plus days past-due segment. 

“There's a tendency for clients to think digital is the cheaper option, and one that you use to save some money before going back to the traditional style of debt collection,” Foreman says. “But we've proven our approach works on all types of accounts and at all stages of the process. Fundamentally, debt collection is not about trying to save costs, it's about implementing efficiencies that allow you to recover more.”

Mitigating compliance risks 

Meeting compliance requirements is one of the major benefits to clients of digital debt collection. Financial institutions are more cautious these days about how they deal with their customers’ debt. Most of the risks that are introduced in debt collection are process or people risks, for example, not sending a notice that a person was legally required to send, or a call centre operator saying something on the phone they weren't meant to. Technology is far superior in terms of dealing with these issues as systems can be built to prevent them occurring.

Larger organisations tend to have legacy systems where meeting the levels of compliance required is difficult. This is when outsourcing to a digital debt collection agency makes sense as their systems have built-in protections against process risk.

“What makes digital debt collection unique is the way it leverages data to build sophisticated behavioural models that help it understand, to a high level of certainty, the preferences of each individual consumer.”

Digital debt collection also overcomes the people-risk in maintaining compliance. By being digital end-to-end, consumers have more opportunities to self-serve, reducing the need to have real-life conversations. Fewer conversations minimises the risk of call centre staff providing incorrect information. 

Another way digital debt collection mitigates compliance risk is through offering a more robust and automated compliance infrastructure. “The right technology and the right way of incentivising people is what really minimises risk,” Foreman says. “Compliance is the benchmark our clients look for, and then customer experience. The commercial element is the final component. Digital debt collection ticks all three of those boxes.” 

How Digital Debt Collection Delivers An Exceptional Customer Experience While Fulfilling Compliance Requirements

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All organisations would like to provide exceptional customer service, but how do you define it in the context of debt collection? To InDebted’s Tim Collins it involves, “giving your customers all the information they need to self-serve through the channel of their choice, 24/7, every day of the year.”

But with debt recovery comes compliance obligations, especially around what regulators require of organisations. “This is the point where a lot of collection agencies stop,” Collins says. “This is where they say they’re only going to do the bare regulatory minimum that's required.”

Taking the extra step towards a customer-focused approach

But according to Collins, this attitude means opportunities are being missed, because if businesses go a step further, they can become more customer-focused with the resulting benefits. 

“When a business is focused on what's good for their customer, they don't get the same level of complaints from them or from the regulators about their business practices,” he says. “It also leads to fewer issues. We've become a very litigious society and the practice of calling consumers all the time is now frowned upon by regulators with many issuing guidelines around what is acceptable.”

“The practice of calling consumers all the time is not what a consumer wants. They want to be able to educate and self-serve, whenever they want, in a channel that is not someone calling them on the phone.”

Collins says compliance issues also tend to arise for organisations when their debt collection agency relies on call centre staff reading the same prepared script to consumers. This is because human nature dictates that mistakes will be made, possibly with legal consequences.

“InDebted’s approach is to try to put as much as possible into the platform,” he says. “For example, the messages that we send are checked to make sure that they're going out at the right time and the content has been approved. This approach allows us to build compliance controls right into our platform and this helps avoid compliance errors.”

Another contributing factor towards customer satisfaction is that with digital debt collection, information can be seamlessly transferred across multiple channels. “One of the most common complaints businesses receive from their customers is that they have to repeatedly verify their essential information each time they are passed to a different person,” Collins says. “But with digital debt collection, that constant verification isn’t required. Combine this with being able to make a payment using the channel they want, whenever they want, and businesses are able to offer exceptional customer service with no compliance breaches.”

The role of regulatory bodies

Regulatory bodies aim to prevent harassment, threats and deception when it comes to debt collection but the basic principle they espouse is to treat people fairly. 

“Few regulatory bodies define exactly what that means, and none tell you what you can do,” InDebted’s Tim Collins says. “In the US, a debt collection agency cannot keep ringing a consumer who doesn’t answer as that is deemed harassment. But the regulator doesn’t tell you whether you can call on Monday, and if they don’t hear from the consumer, whether they can then call the next day. They don't go into that level of detail.”

Few regulators around the world have contemplated what digital compliance looks like or should look like, Collins says. But the companies that are going to be successful in the digital debt collection space are those that “think like a consumer and act like a consumer”. 

“This is because consumer empowerment is the number one change that's happening,” he says. “Consumers increasingly prefer to deal with those companies that have an easy-to-use payment portal where they can conduct all their business.” 

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