It is imperative that collections organisations embrace the inevitable. In the next five to ten years, agent-led communication will no longer be the norm. The development of the use of technology is now not just an optional extra but a requirement to keep up with consumer demands
Digital communication particularly the humble SMS is set to become the norm. SMS messages not only have the highest open rate of any communication medium but are also more likely to be responded to quickly and it is not just Millenials who are embracing digital communication. The higher degree of ease, convenience, and quick retrieval associated with the SMS message, are driving its popularity and rapid growth across all generations.
Even within generations (Baby Boomers, GenX, Millennials, and GenZ) changes in contact channel preference and related trends are impacting collections. For example, Boomers generally tend to prefer voice messages over other contact channels due to having grown up with “voice” as their primary messaging channel. This would appear to be good news for the voice message channel; however, upon closer examination, this is not the case. The Boomer generation generally reflects a relatively smaller percentage of today’s past due credit accounts, and even fewer going forward. The reason being, the Baby Boomer population is declining. In addition, they are in or nearing their retirement years. As such, they have a general persona of being on a fixed income, but having more disposal income, with lower monthly expenses, and little to no debt.
So it is certainly the case that collection entities can expect to see a growing number of Millennials receiving collections notices. If for no other reason than due to their population size. Aside from their large population, more Millennials are likely to appear in collections due to their limited experience with credit, unproven credit discipline, low income, and large student loan debt burden. In addition, they are now having to take on expenses previously paid by their parents (e.g. car insurance, mobile phone plans). Therefore, if collection entities want to have any real chance of effectively reaching and collecting from this large consumer population, they will need to start by engaging with them through digital means and most likely through SMS.
It is also clear that technology has advantages in the area of compliance. Data compromises are mainly due to human error; laptops left on trains, passwords called “password”. Indeed it may be difficult to accept but human error is the major source of complaints in financial services. The Financial Ombudsman Service found that out of complaints concerning banking and credit: 53% concerned sales and advice; and a further 23% about administration, leaving only 9% of complaints in this sector to be about charges (a largely automated process) and 6% of complaints about transactions (again a process mainly relying on technology*). It is much easier to control a text than it is to control an individual; a pre-programmed text will not go off script, it will not react to rude responses and it will not make you listen to hits of the 80’s while on hold with rising blood pressure.
Technology means control and control means less mistakes.
In conclusion, whilst technology adoption is increasing, consumer behaviour and preferred contact channel is changing alongside. Consumers now dictate their channel preference, how often, and under what conditions. Therefore, collection entities need to move quickly to incorporate and or expand their digital channel engagement capabilities to better align with debtors shifting contact channel preferences. As consumer contact preference increasingly shifts to the digital channel, live collector reminder calls and voice messages may go the same route as the fax machine.
* Annual review 2015/16 Financial Ombudsman Service