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Collections process slow to embrace digital-first strategies

While consumer lenders have invested in creating frictionless account opening and customer management processes, collections is one area of the credit lifecycle that’s slow to move to a digital-first, customer-centric approach.

That’s one of the key assessments of a new report from analytics company FICO and research and advisory firm Aite Group. The report shows there’s a need to transform the debt collections process by investing in more analytics technology to drive efficiencies and improve customer engagement.

Aite Group conducted two types of interviews for the research, including a survey of 22 U.S. lending executives with significant responsibility for their institutions’ retail credit portfolios in the fall of 2018, and in-depth discussions with 10 debt collection and default management executives focused on consumer debt at leading U.S. banks, credit unions, and nonbank lenders in January and February 2019.

Nearly two thirds of consumer lenders (63 percent) reported increases in technology investments for originations and compliance, and 42 percent noted increased IT budgets for collections in 2018. Of the new resources being allocated to collection-related activities, half the respondents reported that these investments are for data and analytics to inform their collections practice. More than 40 percent report investments in operational or business processes and technology.

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A customer views an iPhone 7 smartphone at an Apple Inc. in San Francisco, California, U.S., on Friday, Sept. 16, 2016. Shoppers looking to buy Apple Inc.'s new iPhone 7 smartphones on Friday better have ordered ahead. Brisk demand left some stores sold out, leaving those who purchased online with the best chance to get their hands on the latest models -- and some resorting to extreme measures. Photographer: Michael Short/Bloomberg

In the next two years, however, debt collection professionals expect a shift in spending to focus on building or acquiring collection software platforms that integrate with analytics tools to broaden the communication channels options for their customers, and digitally transform the collection process.

A large majority of consumer lenders (86 percent) think machine learning and artificial intelligence (AI) technologies might be useful at many stages of the credit lifecycle.

Some specific applications of machine learning and AI mentioned by collection executives include improving collectors’ understanding of optimal times and channels to contact delinquent borrowers; assigning the right type of agent for the right type of activity or contact; identifying early warning signs of distress in not-yet-delinquent accounts; and AI-enabled chatbots to engage lower-risk customers.

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