In today’s competitive lending landscape, the collections process is a key differentiator in customer experience. How a financial institution handles delinquent accounts and engages with borrowers during collections often determines customer satisfaction, reputation, and long-term success. A report by McKinsey & Company highlights that institutions with a customer-centric collections approach see up to a 15% increase in recovery rates, alongside significant improvements in customer loyalty.

However, collections have traditionally been viewed as a cost center rather than a value generator, overlooking the pivotal role it can play in fostering borrower relationships and enhancing overall business performance. The time has come for a paradigm shift in how collections are perceived – not as an expense, but as an opportunity to improve outcomes fornboth lenders and customers.

The Evolving Role of Collections

Collections can no longer remain a back-office function. It needs to become an integral part of the customer journey – an opportunity to build trust and loyalty even when customers are struggling to pay.

There have been concerning instances of unethical collection practices by recovery agents, as highlighted by cases like female agents threatening a Mumbai cop’s family over missed installments, agents harassing a man’s family for a relative’s debt that HDFC later probed, and a man tragically taking his own life due to harassment by agents over a loan he never took out. These cases underscore the need for greater oversight and training to prevent intimidation tactics and protect consumer dignity.

The largely informal debt collection system in India has resulted in tragic consequences – from harassment leading people to take extreme steps to loss of dignity. While regulations aim to safeguard borrowers, many agencies engaged by banks perpetuate intimidation tactics in their quest for recovery. This ends up pushing distressed customers back into the vicious informal lending cycle.

However, some progressive banks have taken proactive steps towards creating ethical, borrower-centric collections infrastructure. Initiatives like training programs focused on soft skills and emotional intelligence, incentives linked to consumer feedback, and integrating checks against unfair practices are helping.

Additionally, leveraging fintech partners like Spocto, which have compliance, consumer protection, and fair conduct embedded in their solutions, will help enable this shift. Our use of analytics for targeted outreach, AI chatbots for personalized communication in local languages, attempts at flexible restructuring before write-offs, and extensive agent oversight is unique. This twin focus – transforming internal cultures alongside smart adoption of new-age digital collections platforms, is providing the right infrastructure to make borrower journeys more dignified. The aim is to uphold both efficiency and ethics so that delinquent accounts can be managed transparently without further alienating struggling customers.

Strategies for a Better Borrower Experience

Here are some strategies lenders can adopt to make collections a differentiating CX:

1. Omnichannel engagement – Provide multiple convenient channels for borrowers to connect and resolve dues. Offer options like self-service platforms, IVR, chatbots, and mobile apps alongside human collections agents.
2. Transparent communication – Proactively inform customers of dues and repayment options like settlement, closure, restructuring, etc., and educate them on the potential impacts of further delinquency.
3. Empathetic agents – Train agents to be courteous, understanding, and solution-oriented. Avoid intimidation or high-pressure tactics. Instead, leverage emotional intelligence.
4. Localized communication – Language barriers often inadvertently lead customers into delinquency. Hyperlocal outreach in native languages through human agents or AI chatbots can improve engagement.
5. Customized solutions – Offer flexible repayment plans tailored to the borrower’s situation. Reward on-time payments within these plans.
6. Digital self-service – Enable convenient payments, account access, and resolution tracking via digital channels.
7. Proactive nudges – Send polite payment reminders across channels and make it easy to pay.
8. Post-resolution care – Follow up with customers even after resolution to check satisfaction and rebuild loyalty.
9. Humanizing AI – While AI promises efficiency gains, it may still lack the natural empathy and negotiation skills that human agents specialize in. Hence, striking an optimal balance between automation and human-centric approaches is vital for positive borrower experiences and outcomes.

A borrower-centric collections approach can transform perceptions, reduce delinquencies, and strengthen customer loyalty. As lending becomes more competitive, focusing on collections, CX provides an opportunity for clear differentiation. This highlights the power of combining balanced AI automation with deep investments in agent training and borrower dignity protection – together enabling the flexibility and transparency needed. The lenders who reimagine collections as a customer-focused experience will gain a sustainable competitive advantage.

Sources:

https://www.mckinsey.com/capabilities/risk-and-resilience/our-insights/holistic-customer-assistance-through-digital-first-collections

https://timesofindia.indiatimes.com/city/mumbai/cop-defaults-on-loan-recovery-agents-target-his-colleagues/articleshow/105887736.cms

https://www.hindustantimes.com/trending/mumbai-man-claims-hdfc-loan-recovery-agents-harassed-him-over-relative-s-debt-bank-responds-101703744181504.html

https://www.hindustantimes.com/cities/mumbai-news/recovery-agents-drive-man-to-suicide-for-loan-he-never-availed-101651811706432.html