What is digital debt collection and what does this mean in 2022?
There’s no single way to define digital debt collection (also referred to as omnichannel collections or digital recovery), and not every digital solution will work for every type of debt. Generally, it means using a combination of digital tools, like SMS/texting, emails, and self-service portals to collect on delinquent and charged off accounts. A really good digital debt collection strategy will include layers of many of those digital channels, will integrate those channels into a cohesive consumer communication machine, and will be optimized to meet consumers where they are.
Want to know how lenders can improve their digital debt collection strategy right now? You're in the right place.
With this guide you'll not only learn about the key components and best practices for a digital debt collection strategy in 2022, but you'll also find out which elements of an omnichannel collections strategy and which digital collections technologies will help you upgrade your customer experience right away. Plus, you'll find out what's next for your digital strategy. We've included plenty of links, so you can go deeper on every aspect of your digital collections strategy.
Why lenders need a digital collections and recovery strategy
The trend in consumer communication preferences is clear. Consumers want options when it comes to handling everything, and that includes accounts in collections.
For so long, collections & recovery has been an industry that relies primarily on outbound telephone calls and snail-mail letters as contact methods, and few to no self-service options for consumers who want to negotiate and make payments. Running a solid call center was a good enough way to collect, and so innovation didn’t seem necessary.
That might be for good reason. It wasn’t until November 2021 that the debt collection industry received guidance on how to use digital means to interact with consumers. But even with those guardrails in place, however, many creditors are finding that pivoting to digital is not easy or simple.
The idea may be simple: consumers and regulators want creditors to have user-friendly, intuitive, compliant digital collections systems in place. For collections & recovery businesses, the business case is clear, too. Implementing digital collections strategies typically means better consumer engagement, increased liquidation and a lower cost to collect.
But the practical work companies have to do to pivot from a traditional collection model to a forward-thinking, consumer-friendly, compliant digital-first company can actually be quite hard. Figuring out how to implement a range of new channels - potentially including collections SMS, email, digital self-service portals, AI for collections, machine learning solutions, and social media - can be very hard. Integrating those channels into a cohesive system can also be really hard.
Starting from scratch with digital collections can seem overwhelming. But if you don’t at least start moving in a digital direction, it could be disastrous. So, let's get started.
What is a self-service portal for debt collection and why should it be a key piece of your digital strategy?
Where is the best place to start with digital collections and recovery strategy? What is the most effective way to optimize an existing strategy? The answer to both questions is the same: the self-service portal.
If you’re just starting out with a digital collections & recovery strategy, focus on your self-service portal. If your digital collections and recovery strategy includes a self-service portal that is not performing as well as it should, then you, too, should focus on the self-service portal. Portal creation / optimization may be the single best improvement you can make to your overall digital strategy.
Digital self-serve portals not only give your customers the power and freedom to manage their finances at their convenience (67% of consumers prefer making payments online, according to ATM Marketplace), they also give you a low-effort channel - and lower-effort equals lower cost. You don't want that self-pay channel to frustrate customers and push them to other, more expensive channels if you don't have to. Per Gartner Research, low-effort interactions result in lower costs across financial services. "Overall, a low-effort interaction costs 37% less than a high-effort interaction. Low-effort experiences reduce costs by decreasing up to 40% of repeat calls, 50% of escalations and 54% of channel switching."
What makes a good self-service recovery portal?
Here are three ways to create a good consumer experience on your self-service portal:
- Make it easy. Customers must be able to make a payment easily through your web-based portal. After all, most will be inclined to do so. Around 67% of consumers prefer making payments online.
- Mobile-friendliness matters. A growing number of consumers pay their bills on their smartphones. Not only does your self-pay portal need to be robust and user friendly on a desktop, but it has to be accessible and easy to use on mobile devices.
- Good UX is critical. If your portal confuses or frustrates a decent number of customers, you have a big problem. You want to make the portal as intuitive and easy-to-use as possible. UX designers refer to these frustrating elements "failure patterns," and it is in your interest to test for them and resolve them.
How do you know if your portal is under-performing?
It is in your interest to test for those failure patterns, identify them, and resolve them. Alex Kreger of UX Design Agency recommends testing and mapping out the process for consumers so you can find the user pain points."The 'failure mapping' process involves conducting UX audits of a financial institution’s existing products and services, as well as similar solutions on the market, to find possible user pain points," he says. "If failure mapping is integrated in the user journey map, the institution will get a view of user experience problems that generate pain points. It will help to identify possible problems and create solutions for them before ruining the product’s reputation."
How to create an email-first digital debt collection strategy
When it comes to digital debt collections best practices, collections email is underrated. It can absolutely be a key piece of your digital customer communication strategy, but it has to be done well for it to work..
Why should email be a bigger player in your collections strategy? Many consumers already prefer to communicate via email. Plus, a strong email process can drive significant revenue and cut costs. It can and should be a key piece of your customer communication and recovery / digital debt collection strategy.
Here are three ways a robust email strategy can improve your operations:
- Reducing cost to collect. Email outreach offers a compliant, low-cost alternative to traditional collections calls and letters, but could also be used to supplement your current outreach efforts
- Increasing Right Party Contacts. An effective email process can create hundreds, if not thousands, of RPCs in a day because email allows organizations to cast a wider net than simply calling or sending letters
- Improving Bottom-line Liquidation. Today’s customers, many of whom prefer to do business digitally, are likely to receive an email and either make a payment or otherwise engage through a self-service portal
Why use SMS for debt collection?
Texting consumers can lead to a significant lift in performance and engagement.
Some companies in the ARM industry have successfully integrated outbound SMS messaging into their collections strategies. These agencies are driving calls and website traffic via SMS.
Opening this channel of communication for two-way conversations with customers is key to the success of collections and recovery in 2022 and beyond. According to The Local Project, 64% of consumers are likely to have a positive perception of businesses that offer communication via text message, and unsurprisingly, 44% of consumers would prefer to push a button and initiate a conversation rather than waiting on hold for an agent. As more industries evolve to integrate two-way texting into their available communications channels, more consumers will come to expect that type of service from lenders.
Can lenders use SMS for collections and stay compliant?
The collections & recovery industry has been slow to adapt to using text messages to reach consumers due to a number of compliance myths. Here are some of those myths, debunked:
- Texting does not increase complaint volume. In fact, it leads to far fewer complaints than phone calls. Giving consumers the ability to opt-out of receiving text messages is critical to a compliant solution, but as long as you provide a way to opt-out, there should not be an increase in complaints.
- Consent is not expressly required. While Regulation F has express requirements about providing opt-outs, the same is not true about opt-ins.
- Third party disclosure is a major risk. Third party disclosure is a real risk when engaging in text communication with consumers, but creditors should be focused on understanding how their agency partners prevent third party disclosure without managing to the safe harbor, but instead managing to the FDCPA and Regulation F.
Why you should consider social media as the next big piece of your digital collections strategy
Social Media may not play a major role in collections & recovery now, but it will soon.
How to use social media for collections
Even if you’re not ready to take the leap to reach out to consumers via social media, here are three best practices you can use to integrate social media in your operations now:
- Create social media accounts and use them. Establishing an online presence and using social media to communicate basic, customer service related messages, like your business hours, directions to your web portal, etc., gives your business a legitimacy that it might not have otherwise.
- Field inbound messages from consumers. 90% of all social media users have communicated with a brand via social media, and 63% of consumers expect a company to offer customer service through their social media channels. If you can offer account assistance through social media direct messaging, you should.
- Prepare for inevitable operational and compliance challenges. For instance, your CRM may not be ready to allow for seamless communication via social media. You’ll also need robust social media policies and procedures, and your staff will have to be trained to abide by them. And remember, a bad social media presence is worse than none at all, so be prepared to commit to those social media channels.
Understanding digital collections: why channel integration is so important
The success of your digital collections strategy will depend not only on the channels you use, the partners you choose, and the digital collections technology you implement, but it will also depend to a large degree on how successful you are at integrating all these collections technologies and consumer channels into your strategy.
This integration means ensuring letters, phone calls, emails, interactive websites, and text messages are all working together. Allowing customers to access a two-way text conversation via a letter or email will be key to the successful implementation of this channel.
Digital collections (Omnichannel and, increasingly, opti-channel) are words that are often used, and even more often, misused. So, what should you be doing to make sure you’re headed towards a true omni-channel solution?
- Having all the channels available for consumer contact doesn’t mean you have an omni-channel solution. An omnichannel solution, by definition, requires all of your tools to exist in one environment. All of the channels you have available for customers are talking to each other, and reacting to the same data.
- Your data has to be ready. All of the tech you choose to use needs to receive data from the same source. Since the customer expectation is an immediate reaction from your technologies, it will be difficult to achieve a truly omnichannel solution using traditional batch processing, so you will have to explore other options, like APIs or webhooks.
- You need the right personnel. If your organization has not traditionally invested in IT and IT adjacent roles, it might be time to consider a shift in that mentality. A successful omnichannel solution doesn’t merely rely on good technology and good data, it also relies on subject matter experts and having the right individuals in the right roles to advance the goals of your organization.
Test your digital collections / omnichannel knowlege
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