Innovative And Ethical Debt Collection Strategies In The Digital Era
The fintech industry has seen unprecedented popularity in recent years, particularly in the lending and borrowing space. The rise of creative operating models, big data and technology breakthroughs, internet-savvy millennials, and supportive regulatory environments are some of the factors powering the global expansion of digital lending.
Debt collection has always been a critical component of the lending business, ensuring that borrowers fulfill their repayment obligations. With the advent of digital lending platforms, the importance of debt collection has only increased.
Digital lending platforms are aiming to disrupt the way debt is collected, doing away with conventional methods and bringing in new norms. The rise of the fintech industry and the growth of digital lending have brought about significant changes in debt collection practices, making it more efficient and effective.
Evolution of debt collection
The need for ethical debt collection has increased as a result of the boom in digital lending. To safeguard the clients, it is now more crucial than ever for companies to use moral debt collecting techniques. Debt collection is a necessary part of any lending business. When a borrower defaults on their loan, it is the lender's responsibility to recover the outstanding amount. However, the traditional debt collection process is often viewed as aggressive and intimidating. Debt collectors often use abusive language, make threatening phone calls, and send intimidating letters to coerce borrowers into making payments. The fintech industry has the opportunity to change this narrative. These companies have access to innovative technologies and customer-centric business models that can be used to create a more ethical debt collection process.
Why ethical debt collection matters?
Ethical debt collection practices are crucial for both customers and businesses. When debt collectors use ethical practices, it can lead to a more positive experience for everyone involved, which can ultimately benefit the financial health of both parties. When debt collectors use ethical practices, it can help to maintain customer trust and loyalty.
Customers are more likely to continue doing business with a company that treats them fairly and respectfully, even if they are experiencing financial difficulties. When debt collectors use ethical practices, it can increase the likelihood of payment from customers.
In addition to the potential impact on customer relationships, unethical debt collection practices can also result in legal and regulatory consequences. Businesses that engage in harassment, deception, or other unethical practices can be subject to fines, lawsuits, and damage to their reputation.
Trends in ethical debt collection
The digital age has brought about a number of emerging trends in ethical debt collection. As per an industry report, the use of digital collection techniques has enabled lenders and debt collectors to increase their debt recoveries by an average of 65%. Here are some trends that new-age companies are using for ethical debt collection:
Using AI, ML and data analytics
Using these advanced technologies, digital debt collection systems gather important data from several sources and channels. This data might contain details about the borrower's profile, income, preferences, credit and financial history, and payment history to generate smart micro-segments and increase the effectiveness of the lender's traditional collection techniques. For instance, businesses can use data analytics to identify customers who are most likely to default on their loans and develop strategies for managing those risks. In addition to data analytics, businesses are also turning to automated communication tools to improve debt collection practices. AI chabot and automated messages can be personalized to the customer's needs and can be used to send reminders, offer support, and facilitate payments.
Debt collectors might use means to reach customers through several ways if they are not accessible through their phones. It is important that there is absolute safeguarding of customer data and all information such as phone numbers and addresses are encrypted and calls can be made without access to the actual digits of a phone number. It is also advised that customers do not share any personal information with collection agents. This can help companies monitor the number of times calls are made to a customer and take necessary action when required.
Introducing a rule rook
The rules of debt collections have changed and a new rule book is the need of the hour. Some companies have a manifesto for debt collectors and customers alike so that they are aware of what is ethical and what is not. While customers can raise issues when the rules are not adhered to, it is the company’s responsibility to take quick and strict action against debt collectors who stray away from this rule book.
Humaneness at the core of business
It is important to understand the psyche of a customer who is unable to pay back a loan at any given point. People generally default on their loans due to extreme financial constraints and using aggressive tactics is not the way to deal with the situation. Having a transparent conversation and mapping out a repayment timeline with the customer has proven to be much more effective than use of harsh language or tactics. This in turn creates stickiness of the customers and they consider the lender as a trusted partner rather than a formidable enemy.
The way forward
As the digital age continues to evolve, it is likely that ethical debt collection practices will become increasingly important for businesses that want to maintain customer trust and loyalty. By adopting a customer-centric approach to debt collection and leveraging emerging technologies, businesses can develop innovative and ethical debt collection strategies that benefit both customers and businesses.
About the author: Ranvir Singh is the CEO of RING. All views/opinions expressed in the article are of the author.