The Future: Debt Collection Using Artificial Intelligence

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Technology is transforming the way that we do business in pretty much every industry imaginable, including the financial sector.

Financial technology (FinTech) is especially enamored with everything that artificial intelligence brings to the table. Promising to radically overhaul the way that we analyze, provide data and service the industry, artificial intelligence may still be in its infancy — but it’s already hugely influential.

Below, we dig a little bit deeper into how financial organizations and debt collectors are using artificial intelligence specifically when it comes to debt collection.

In an ideal world, debt collection wouldn’t be necessary because everyone would be current on their outstanding financial obligations. In the real world, though, debt collection is a huge issue – especially as global debt balloons to nearly $46 trillion and isn’t showing any signs of slowing down anytime soon.

We know that there is more than $600 billion of household consumer debt outstanding and technically delinquent right now (as of early 2020). Artificial intelligence solutions are being pioneered to help cut down on these kinds of issues in a couple of different ways.

Challenges AI Looks to Overcome in Debt Collection

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Before financial servicing and financial lending companies are able to use artificial intelligence to overcome obstacles in the world of debt collection, they first had to identify the main reasons that their debt collection practices were so inefficient.

And while there are obviously a lot of different moving pieces to the debt collection puzzle, they identified three specific obstacles and challenges that most financial services struggle with when it comes to debt recovery.

Efficient Customer Service Challenges

For starters, with the way that technology is interwoven with communication these days, everyone — and we mean everyone — expects a pleasant, speedy, and efficient communication experience when they are dealing with a business.

Unfortunately, when you start to look at how the financial lending industry handles most of their communications with their customers, a lot of it is inefficient, and much of it causes customers to feel dissociated from the brand — anything but happy with, pleasantly surprised by, or loyal to a company that is (admittedly) a huge part of their financial situation.

Avoid One Size Fits All Communications

Part of the inefficiency with communication comes down to the fact that financial companies are dealing with so many different customers. They have so many disparate financial services and lending packages out there that they have to take a bit of a “one-size-fits-all” approach to communication.

This results in everything feeling watered down, very corporate, and almost soulless, and, again, you lose those customers and clients that don’t feel like you are engaging with them at all.

Abusive Collections Behaviors

On top of all of that, in a rush to try and make good on some of the debt recovery efforts that they pursue companies can end up (even unintentionally) practicing pretty abusive collections behaviors that really turn people off – threats of derogatory marks on borrowers’ credit reports and wage garnishment.

Nearly 40% of Americans with outstanding debt report that creditors contacted them four or more times a week, most often at very inconvenient times – and that many of these organizations continued to do so even after they requested that they stop.

A lot of these calls are done simply because customers “fall through the cracks”, there is no real accounting for how many contacts are made, and most collection companies are just sort of trying to deploy brute force solutions rather than taking a more nuanced and tailored approach.

How AI Is Changing the Way Financiers Collect on Debts

Luckily though, AI is changing the way that those obstacles are overcome in a big way — helping financial services and creditors move through the debt recovery process in a much more fluid, more efficient, and a more laser-targeted way. Furthermore, clients are happy because debts are actually being recovered.

Better Predictive Capabilities

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For starters, artificial intelligence (used in conjunction with Big Data) allows financial service companies to better predict which clients are most likely to have trouble paying down their obligations — helping services to avoid these types of clients as much as possible.

AI is much more efficient at looking at Big Data than anyone looking at a FICO score or credit history could. More data can be crunched, more data can be analyzed, and more accurate results end up producing better (and happier) client relationships, too.

Better Segmentation of Customers

AI technology also works to better segment customers that need to have debt recovered, breaking groups of individuals down to a more granular level, so that a one-size-fits-all sort of communication strategy is no longer necessary and no longer attempted.

Manual outreach may still be necessary for their follow-up calls, letters, and emails, but everything will be much more tailored toward each client in a way that creates more human relationships and improved debt recovery results.

Dramatically Improved Communications

This goes hand-in-hand with what we just highlighted above and it’s that AI actually produces more personalized and more human communications, an approach that changes absolutely everything.

Not only will your messaging be better with the help of artificial intelligence during debt recovery initiatives, but you’ll also be able to better identify the medium that you should be communicating with specific customer segments, the right tone and sentiment you should be looking to strike, how and when communicate and reach out – and that’s just the tip of the iceberg!

Specialty and Custom Recovery and Settlement Options

At the end of the day, artificial intelligence is even being used to find specialty and custom recovery and settlement options that do not necessarily have to follow a rigid policy or a “one-size-fits-all” kind of settlement recovery protocol handed down before AI tools were widely available.

As we made mention of earlier, artificial intelligence remains in its infancy but it’s already transforming the world around us for the better in ways we never imagined.

Just think about how much better AI is going to be in 5 years, 10 years, or even 20 years. The entire makeup of the lending industry could be totally overhauled and turned into something we hardly recognize in large part because of AI and its capabilities.

Video – Artificial Intelligence

Interesting related article: “What is AI?