Today, borrowers often face impersonal and rigid debt collection practices, leading to stress and frustration. They usually receive generic, frequent calls and letters that sometimes fail to consider their unique financial situations and need help managing inflexible payment plans that are hard to manage. This often results in non-compliance, damaged credit scores, and negative customer experiences.
McKinsey research indicates that debtors generally favor digital communication channels. Preferences varied among customers: lower-risk individuals with better credit scores preferred impersonal messages via traditional channels, allowing them to respond conveniently. In contrast, high-risk groups and low-risk respondents favored email and text communications over phone conversations with bank representatives. Neglected channels showed higher success rates, highlighting the importance of aligning contact strategies with customer preferences.
Source: McKinsey & Company – The customer mandate to digitize collections strategies
Source: McKinsey & Company – The customer mandate to digitize collections strategies
However, introducing AI into debt collection is a significant leap forward, offering a more personalized and incentivized process. AI has the capability to analyze individual data, tailor communication, offer flexible payment options, and provide timely, supportive reminders.
Lenders can personalize communication using artificial intelligence to provide a better customer experience. Here’s how:
- Analyzing Data
AI can analyze any borrower’s credit history, noting her typically on-time payments and good credit scores. However, analyzing only this much data is insufficient; the analyses need to go one step further in recognizing factors that could explain the missed payment. For example, a recent medical code, a potential explanation for the missed payment.
- Tailored Outreach
AI can be used to predict the delinquency of any borrower. As in the example above, AI can detect a high probability of delinquency due to a borrower’s recent medical code. Instead of an automatic robocall, the borrower receives a text message acknowledging the debtor’s financial situation and expressing empathy. The message uses a friendly tone and inquires if she’s facing any financial difficulties requiring support, ensuring a more human and understanding interaction. Moreover, the AI system can be programmed to use the borrower’s preferred language, address her by name, and reference specific details from her financial situation, making the communication more personalized.
- Flexible Options
Post detailed analyses of the complete history, current situation, and the borrower’s response. AI might suggest that the borrower discuss her situation with a live agent who can work with her to create a flexible payment plan that fits her current budget. This could involve breaking down the payments into smaller installments or delaying the due date slightly.
Such personalized approaches are more understanding of the borrower’s situation and less likely to cause stress or resentment. It also increases the borrower’s chances of working with the creditor to resolve the debt. Moreover, the personalization through AI is essential in debt collection as it would result in:
- ·Enhanced customer experience
Personalized approaches help understand each borrower’s unique financial situation, leading to more empathetic interactions. This reduces the stress and anxiety typically associated with debt collection.
Customized payment plans and communication strategies make it easier for customers to manage their debts. This individualized attention increases customer satisfaction and cooperation. - Increased recovery rate
By analyzing vast amounts of data, AI can predict customer behavior to identify the most effective debt recovery strategies, leading to more successful collection efforts. By understanding which customers are likely to pay and which need more attention, AI allows agencies to allocate resources more effectively, focusing efforts where they are most likely to succeed. This directly translated to an increase in recovery rates.
- Increased operational efficiency:
By automating routine tasks such as sending reminders, processing payments, and segmenting customers, AI significantly reduces the workload on human agents and lowers operational costs. This empowers lenders to handle larger volumes of accounts simultaneously, making managing more customers with fewer resources possible, thereby enhancing operational efficiency and control. With AI handling routine and straightforward cases, human agents can concentrate on more complex situations.
While AI can transform debt collection into a more positive experience, it is important to note that all data used by AI is anonymized and encrypted, ensuring the highest level of data privacy and security.
Personalized communication fosters understanding. However, a human touch remains vital for complex situations, emphasizing the crucial role of lenders and debt collection agencies in the resolution process. By responsibly wielding AI, they can navigate these situations more efficiently and respectfully, making them feel valued and integral to the process.