What can collections & recovery executives expect in 2023? Here are bold predictions for 2023 from four industry thought leaders:
Digitization will continue in 2023 and be critically accelerated by the CFPB’s new attention on Dodd-Frank Act Section 1033 rulemaking. Depending on how the CFPB defines “covered financial institutions”, recovery organizations may be required to furnish consumers’ account data through whichever 3rd party technology platform a consumer wants to access information on their behalf. Those consumer-selected platforms will likely be different from organizations’ traditional payment portals. Organizations should start preparing their technology and operations for that contingency now. The shift will result in significantly higher inbound recoveries and benefit organizations who can harness the trend to their benefit.
Omnichannel is not Optional - 2023 is the year that will separate the omnichannel leaders from the laggards. Macroeconomic woes will trickle down to the collection agency level as clients pass down both the margin pressure and increased delinquency volume. The agencies best positioned to withstand this dual pressure have spent the past few years investing in technology and efficiently collect 24/7/365 across all channels. In 2023 agencies without lower cost omnichannel options will begin to fail. Clients without regular financial oversight on their collection partners will be left scrambling to find and vet needed capacity following sudden agency closures.
Bets on Brand bring results – With US consumer credit card debt hitting an all-time high in Q4 ’22 we should expect sharp upticks in delinquencies during the holiday hangover in Q1’23. Volume alone indicates we should expect a larger proportion of first time customers experiencing concurrent delinquencies. Most likely these will be originated/serviced by different entities while only one creditor will be top of mind thanks to the “availability bias”. The availability bias is a well-documented phenomenon in the psychology and behavioral economics disciplines. In short, people remember best what they heard or saw last. The creditors or agencies who have created brands built on positive emotions, regular outreach, and visibility in all modern channels (web, social, email, SMS, paid and organic search, reviews) will be top of mind for customers in delinquency when their economic situation changes for the better. The ability to attract each marginal dollar of a customer’s limited disposable income will differentiate successful from unsuccessful agencies.
Credit scores evolve, and you should too – There have been a few slow-moving trends over the past few years that will converge and come home to roost in 2023. First, while dubious “credit repair” practices are nothing new, customers more easily research and connect with these options with the viral growth of TikTok financial influencers. Next, increased regulatory and enforcement attention on the CROs, and more generally on FCRA practices, will cause some smaller collection players to stop credit reporting entirely – the risk is too great. Finally the rise of “pay for delete” practices, deletion of sold tradelines, score-boosting products like Experian Boost and a new swath of fintechs aimed at helping consumers improve their credit scores will inflate baseline FICO. To be clear, a more fulsome view of customers’ financial health encompassing bank account activity is not necessarily a bad thing! However, if credit boxes (in originations) or recovery scores (in collections) don’t adapt to the new definitions of old faithful scores they should expect performance degradation in score-based strategies.
The Advent of Modular Collections – the Real Digital Collections – Collections and recovery will begin a reinvention phase that sheds the weight of aging systems and the slow rate of change adoption. Most traditional platforms lack an architecture that can support the intelligence, dynamic workflows and digital interfaces necessary for real digital collections. However, a cloud native solution enables critical functions of an account in the recovery inventory to operate and exist as independent components. Instead, operations will focus on cloud architecture as a foundational element that will enable modular collections. The cloud allows for real-time digital intelligence (using bi-directional micro-decisions and eliminating the batch process mentality). It will also usher in the frequent use of natural language understanding and natural language response to facilitate digital conversations that ensure consistent treatment across every channel (removing human interaction costs and focusing resources on the most difficult and complex customer situations).
Collections & Recovery Transforms into Marketing Experts – The pandemic pushed the envelope as customers gained the ability and convenience of performing non-human digital interactions. This forced a change in consumer preference that has been capitalized on by all business sectors—thus making everyone compete for attention. So, in today’s climate, the best way to ensure that you are the first paid, is to motivate your customer and that means you turn into a marketer. All strategies will require marketing at the core. The world of collections and recovery will take on a greater marketing feel through all outreach and digital channels to achieve success.
Analytics Capabilities take the Forefront – Never has it been more important to evolve analytics and segmentation capabilities. It’s time to remove the patchwork back-end process that supports the skin on top of a payment portal. Interactions at the consumer level through any channel (whether human-to-human or through digital agents) will fail without the proper analytics driving decision points in the process.
The really bold prediction would be that collections & recovery interactions will begin happening through digital channels that at the time of writing, don’t exist on the market yet. Could you ever imagine 10 years ago having social media as a channel or even collecting via smart watch? Creativity and convenience drive the inventions that have changed the way we do things, and there is more on the horizon that will be rife with opportunity for collections & recovery. Of course, part and parcel with invention and transformation will be evolving regulatory compliance challenges.
The data privacy conversation is going to get HOTTER. Consumers, creditor/lenders, and even regulatory bodies are just beginning to understand the real value (and risks) of data storage, sharing, and usage. First exposed by the CFPB's interest in big tech payments companies, industry groups and consumers are going to be asking a lot of questions and demanding a lot of assurances going forward. That means the creditors/lenders who handle that data will be doing the same.
The number of digital collections/recoveries solution providers will EXPLODE. An increased focus on the customer lifecycle in recent years means that the market is finally realizing how important and in need of innovation the collections experience is. Eager players offering omnichannel solutions and capabilities will proliferate, and this trend will continue intensifying if we do see any sort of extended recessionary indicators.
The best 2022 digital collections strategies will be STALE in 2023. This is the very nature of digital communications. Consumers get fatigued by seeing the same thing no matter how innovative it is. As we always say - digital collections is not a "set it and forget it" type of play. As a result, creditors/lenders who began more seriously focusing in this space will experience just how much ongoing investment a consistently successful strategy takes.
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