The past couple of decades have seen the debt collection industry evolve from a relatively stable and mature field to one that’s in transition as it adapts to new technology, shifting consumer behaviors and expectations, and rapid changes in the regulatory environment. To help meet the moment, Spokeo recently commissioned an industry survey conducted by AccountsRecovery.net. From your responses, we’ve identified a number of trends shaping the future of the collections industry, as well as some insights into the challenges that might throttle their potential.
Let’s dive in.
Trend 1: The Growing Importance of Payment Portals
Collections firms are bullish on the use of payment portals and see them as a strong contributor to operations in the near future. The logic behind payment portals is clear: they allow payments at any time of the day or night, cut labor costs, give debtors a feeling of agency, and cater to the modern consumer preference for transactions that do not require interaction with a human. (That’s why we’ve previously cited them as a core strategy to improve the collections experience for debtors!)
Among respondents to our survey, 82% expressed strong confidence in the growth of payment portal usage. At present, however, only 15% of respondents reported receiving the majority of their payments through a payment portal. We can infer from this discrepancy that a large percentage of the industry must prepare for sharp growth in the volumes of business their portal will handle. (And we’ll discuss the hurdles to achieving wider adoption later on in this article.)
Trend 2: Increasing Focus on Higher-Quality Data and Data Providers
One striking response to Spokeo’s survey came in the area of data sources and providers. Respondents reported using a diverse range of data sources, with six categories showing double-digit usage within the industry (client data, third-party skip tracing, internal databases, public records, credit reporting agencies, and internet searches), and no one data source predominating. The two most widely used resources were client data and third-party skip tracing, both of which were used by 23% of respondents.
Intriguingly, 63% of respondents ranked client data as the most important, with internal databases and third-party skip tracing languishing well behind at 17% and 12% respectively. Given that the collections process revolves heavily around reliable debtor data, this discrepancy between data sources’ perceived relative value on the one hand and the resources actually used on the other indicates a high-priority need for improved data sources.
Trend 3: Improved Strategic Management and Oversight of Data
That focus on data acquisition and data quality leads logically to our next trend. The active pursuit of higher-quality data must inevitably result in a correspondingly renewed focus on the tools, strategies, and methodologies used to oversee those data sources and measure their efficacy.
Here, there is some serious work to be done. At present, over 60% of respondents reported having no set schedule for reviewing their data management strategy, or did so “as needed.”
Trend 4: Increased Momentum for Digital Communications Options
When asked which channels they’re currently using, our respondents most often cited letters, phone calls, and email, in that order. Over 80% of respondents use those technologies, with interactive voice response (IVR) ranking as the only other technology used by at least 60% of responding agencies.
When asked which channels they project to be the most impactful over the coming year, the picture changes. Here, 53% see text messaging as the strongest area of growth, with 2-way texting ranking somewhat higher than 1-way texting. Email and AI-powered virtual agents also showed double-digit support, named by 17% and 13% of respondents, respectively.
Trend 5: A Growing Thirst for Improved Data and Data Sources
The success of a given firm’s collections strategy and attempts at maximizing ROI depend heavily on the quality of data provided to agents and staff. Unsurprisingly, respondents to our survey showed strong interest in emerging data sources and data technologies.
Roughly 1 in 4 of our respondents cited AI-powered data enrichment, real-time data validation, alternative data sources, or behavioral scoring models as tools they were evaluating for the upcoming 12- to 24-month operating period. The use of digital footprint analysis also attracted double-digit interest and was cited by 15% of respondents.
Implementation Challenges Facing the Collections Industry
While each of these trends holds significant potential to make operations more efficient and boost ROI, collections firms intending to implement new strategies or deploy new technologies face a number of challenges. Some, such as adapting to generational changes in consumer behavior, affect all aspects of the industry. Others are specific to one or more of the trends we’ve identified, so we’ll use that framework to address them briefly.
Payment Portals
As noted above, only 15% of respondents currently receive the majority of their payments through a payment portal. Of the remainder, 46% receive between 21% and 50% of their payments through a portal, and 39% receive 20% of their payments or less. Given that most respondents see this percentage increasing sharply in the near term, this gives rise to two immediate objectives:
- Ensuring that the payment portal is robust enough and scalable enough to cope with the increase in volume.
- Ensuring that the payment portal is thoroughly integrated with the rest of the data-management software stack. This is necessary not only for record keeping, but also for enabling the kind of analysis that will permit management to assess and quantify the success of their debtor communications efforts.
Those objectives face both technological and financial challenges. On the technological side, respondents overwhelmingly cited IT complexity and a lack of in-house expertise as their top issues, though vendor-side concerns (limited APIs, poor documentation, security, and compliance) were cumulatively cited by roughly 1 in 5 respondents. The financial side of the equation is also significant. When asked to rank these respective challenges in order of their importance, almost 1 in 3 respondents named budget constraints above IT complexity and lack of staff expertise.
Data Quality and Sources
The same fiscal and technological challenges we’ve just outlined are pertinent here as well, because they apply equally to the integration of new data sources and new methods of data validation. (In fact, they can be considered as fundamental across all five trends we’ve discussed here.)
As indicated above, our respondents reported using six different data sources in varying combinations, with no one dominant data source. This represents not just the technological issues inherent in integrating data from multiple sources, but also a cost. Approximately 4 out of 5 respondents reported using two or more data vendors, and paying $1000 per month or more for the privilege (82% and 80% respectively). By far the largest cohort of respondents, at 39%, reported spending $5000 or more.
These figures are all the more striking, given that they collectively paint a picture of an unsatisfactory situation for the industry. Collections firms find themselves in the position of spending heavily on disparate data sources, then spending again to integrate them and overcome the vendor-side concerns cited in the previous section. Unsurprisingly, respondents cited data accuracy and cost as the two leading challenges they face with data providers. Interestingly, however, they also cited accuracy and compliance as more important than cost when choosing a new vendor.
Improved Strategic Oversight
A longstanding management aphorism holds that “If you can’t measure it, you can’t manage it.” While some argue about its accuracy or universality, it remains a good operating principle.
As stated above, most respondents do not currently review their data management strategy on a consistent or frequent basis. Further, there was no clear consensus among our respondents regarding which performance indicators served as the best proxy or indicator for ROI: right party contacts (RPC), collection success rates, cost per dollar collected, skip-tracing hit rates, and payment arrangement conversion rates all showed double-digit support.
Reluctance to address this kind of oversight is understandable. Such reviews represent both a cost in themselves and an investment in time and attention by upper management, who may already be overextended. Yet establishing such a strategy, and settling on a consistent and meaningful set of KPIs, is the most effective way to assess, adapt, and budget for both current operations and any projected initiatives. (If you’re looking for ideas on how to do just that, we’ve got some in this article.)
Digital Communications Options
It is telling that, while letters and phone calls retain an important role in most respondents’ current operations, digital channels are seen as an increasingly important means of connecting with debtors. Email is the best-established and most-used of these options, and at Spokeo, we believe it is still a viable communications channel despite increasing levels of “inbox fatigue” among consumers.
Respondents to our survey are bullish on the potential for text messages as a communications channel, and we have also argued that they may be the best option in the near-to-intermediate term. Interactive chat, either human or in the form of AI-driven virtual agents, had lower but still meaningful support among respondents. Communication through social media DMs, which became an option in the wake of changes to Regulation F, appears to have little mindshare at present but may gain importance as familiarity and consumer fatigue erode the current effectiveness of email and text messaging.
Aside from the already acknowledged financial and technological issues involved in integrating these communications methods into your software stack, it is crucial to secure data sources that can reliably provide the necessary contact information.
Improved Data and Data Sources
Data is foundational to the debt collection industry as a whole, and the need for accurate, up-to-date debtor information has become more acute in recent years, due to the societal and regulatory changes cited in the introduction. The need for data sources that can evolve and adapt alongside the industry is similarly acute.
Legacy data sources derived from consumer credit headers are no longer adequate as a single source, as our respondents’ use of multiple data sources attests. Vendors with inadequate application programming interfaces (APIs) and documentation bring their own bottlenecks to implementation efforts, raising the cost and difficulty of integrating the data they offer. Similarly, vendor-side compliance and security issues increase the need for in-house expertise and expenditures, while further slowing implementation.
Firms assessing potential data vendors, then, can future-proof their operations and streamline implementation by seeking out vendors that can demonstrate:
- Data acquisition from the widest possible range of sources. If a data vendor already integrates both regulated and unregulated data, from open-source, private, and public sources, this reduces the client’s IT burden and time to implementation.
- Accuracy and completeness of their data. Again, if the vendor is performing data enrichment and data validation at its end, in real-time or something very close to it, this reduces the burden on the client’s resources.
- Powerful, well-documented APIs and appropriate levels of vendor support during the onboarding process. Full-featured APIs make it relatively straightforward to integrate a new data source into your existing hardware stack and allow for easy exchange of data with modern analysis tools that provide high-value scoring models, digital footprint analysis, and other cutting-edge insights.
Seizing the Advantage
In any industry, times of rapid change represent both a threat and an opportunity. Those who fail to adapt will falter, while those who successfully anticipate and adjust to changing conditions will survive, thrive, and expand.
For the collections industry, navigating the current moment hinges on the ability to acquire higher-quality, up-to-date data and to make intelligent use of it. Doing so successfully not only improves ROI — and through it, profitability — but also affords companies a competitive advantage in a crowded field. It is especially crucial for small agencies seeking an edge against larger, better-resourced rivals.
Responses to our survey show a keen awareness of this compelling need. Firms of all sizes find themselves in search of new data partners who can facilitate this kind of technological upgrade and mitigate the challenges inherent in its implementation. Spokeo for Business is exactly that kind of solution, with its far-flung net of data sources, commitment to timeliness and data enrichment/validation, and powerful, versatile API. For further information, to see a demonstration, or to arrange a hands-on trial with your own collections and IT teams, please contact us using the information found on our Collections and Skip Tracing page.
Sources
W Edwards Deming Institute: Myth: If You Can’t Measure It, You Can’t Manage It
Harvard Business Review: Investing in Growth Through Uncertainty