Enabling Efficient, Compliant & Customer-Friendly Debt Collection Practices with Artificial Intelligence

Srinivas Njay
Srinivas Njay

Debt collection remains one of the top challenges facing financial institutions today. Due to their business nature, financial institutions regularly undertake risks such as delinquencies & defaults associated with lending. Global consumer debt is estimated to be over $46 trillion. More than one in four Americans (28 percent) have at least one debt in collections in the US alone. Debt Collection success rates in many geographies are alarmingly low. Financial institutions in the US have a debt collection rate of around 36%, leading to over $600 billion of household debt considered delinquent. This low efficiency dramatically affects the profitability of financial institutions.

Some financial institutions hire third-party debt collectors to solve this issue, while others have in-house debt collection teams. More than 6,000 third-party debt collectors are operating in the United States alone, and Debt Collection is a multi-billion dollar industry.

Fair debt collection practices
To ensure fair debt collection practices by debt collectors, Federal Law has enacted the Fair Debt Collection Practices Act (FDCPA), which says debt collectors are not allowed to use unfair means to collect the debt.

Despite the above Act and irrespective of whether debt collection is handled in-house or through an external agency, there are several issues with debt collection practices today, which lead to long-standing problems for Financial Institutions.

Challenges with Current Debt Collection Practices
As per the Consumer Financial Protection Bureau (CFPB) report on debt collection experiences, the following are the significant issues with current debt collection practices -

  • Over one-in-four consumers report threatening contact.
  • Three-in-four consumers report that debt collectors did not honor a request to cease contact.
  • More than half of consumers report incorrect contact for at least one debt.
  • Over one-third of consumers report being contacted at inconvenient times.

With regulation not being precise on how frequently consumers can be contacted and what channels of communication can be used, debt collection agencies and teams create a frustrating experience for borrowers leading to far-reaching implications for financial institutions.

According to CFPB, financial institutions risk losing up to 75% of their customers, who are borrowers, due to poor debt collection practices. There is a negative impact on brand perception, leading to a large drop in future business.

Leveraging Artificial Intelligence for Efficient,  Personalized, and Fully Compliant Debt Collection Practices

With interface.ai’s Intelligent Virtual Assistant, financial institutions can automate end to end debt collection to enable customer-friendly practices that are fully compliant and personalized.

Some of the key benefits of using interface.ai’s Intelligent Virtual Assistant(IVA) for debt collection Assistant are:

  • Automation - With interface.ai’s Artificial Intelligence you can automate -

        - Payment Collection along with the delinquency notice sent via SMS, Email or Call

       - Payment Promise if the customer cannot make payment on-time

       - Payment Plans if the customer is unable to make payment

  • No judgment Interactions– Conversations around debt can be sensitive, and customers are comfortable discussing their options with a bot rather than a human agent without being conscious of being judged.
  • Consistent Agent Performance– With our IVA, the collection process is guided by automated workflows specified by your unique business rules. This setup leads to fewer disparities in performance.
  • Customized Plan: Customers can select a range of different debt payment plans customized based on customer payment history and savings.
  • Compliance– The workflows can be programmed to address all compliance requirements seamlessly.

The IVA can predict the consumer’s reaction to communication frequency, timing, channel, and content. By reaching the consumers at the right time, over the right communication channel with the right message, interface.ai’s IVA will drastically improve collection rates and the financial institution’s brand perception among prospects and customers.

Debt Collection using IVA - A Case Study from a Financial Institution

interface.ai ran a pilot with a Financial Institution of $10B in assets to showcase how the IVA can drastically improve its debt collection practices.

As part of the pilot, the IVA was set up to interact with customers across all customer-facing channels and programmed with the institution’s debt collection policies.

Results of the pilot-

  • With interface.ai IVA, the financial institution improved its debt collection rate to 200% of its initial debt collection rate.

           - The debt collection rate improved from 32% to 60% by the end of the pilot period

  • The percentage of customers who found the financial institution’s debt collection practices satisfactory increased from 34% to 70%
  • The expected annual ROI by using interface.ai IVA for debt collection was ~$8M.
  • A survey of over 1000 customers was conducted to understand how the end customers found interacting with the IVA  -

           - A marked improvement in customer perception of the debt collection process was observed, with close to 70% of the customers finding the debt collection through IVA satisfactory.

          - Fear of being judged by others is immense - Over 80% of customers preferred to interact with the IVA over a human due to the absence of judgment.

          - Over 65% of customers preferred interacting with IVA as communications happen over their preferred channel of interaction.

          - Over 75% of customers felt that the financial institution’s messages with the IVA were highly personalized and empathetic to their situation.

In conclusion, the impact of interface.ai IVA to improve debt collection in financial institutions is very evident. With interface.ai’s Artificial Intelligence-powered IVA, financial institutions can automate end to end debt collection to enable customer-friendly practices that are fully compliant and personalized, thus improving both their efficiency of debt collection and customer perception.

About interface.ai
interface.ai is a market leader providing out-of-the-box Intelligent Virtual Assistant(IVA) that acts as a “personal banking teller” to help customers 24x7 through every step of the journey from being a prospect to achieving financial wellness. Visit www.interface.ai to learn more.