Digital transformation and innovations in the fintech space are continuously reforming the financial services industry as we know it. Research suggests that India is among the fastest growing fintech markets globally – home to 6,636 Fintech startups. The industry has disrupted the overall finance ecosystem and is estimated to reach $ 150 billion by 2025. Innovations in the fintech space such as the introduction of credit cards led to an increase in cashless transactions, leading to new innovations in the space such as Buy Now Pay Later (BNPL), API-driven banking, and cloud enablement. These innovations have become increasingly popular amongst brands across sectors because of their hassle-free and flexible nature. Another disruptive solution that has occurred out of digital transformation is digital debt collection.
Fintech startups have made the debt collection process less obtrusive and added a humanistic approach, enhancing the overall customer experience and improving recovery rates. A technology-driven, omnichannel approach provides more options for a consumer that’s already plugged in. Fintech startups work with collections at their core making the process collaborative and transparent, offering customers every opportunity to find a solution. Amongst these, there are several reasons why fintech startups have rewritten the future of digital debt collections.
Catering to the needs of the customer
Fintech companies today ensure constant and genuine communication with customers during the debt collection process. With the use of innovative and disruptive technologies such as AI and ML, startups in the fintech space are able to gather insights into the needs of their customers along with their preferences. Research from McKinsey & Co shows that contacting customers through preferred digital channels improves effectiveness, especially in the 30-plus days past-due segment. This becomes especially crucial to pick the right time, channel, and frequency to reach out to them. Further, another report by McKinsey pointed to the strategic and operational reasons to modernize customer assistance, which can lead to significant bottom-line value noted that some digital debt collections have resulted in reductions in NPAs of 20-25 per cent, alongside lower conduct risk. , and more than a 25 per cent boost to customer engagement. This personalized and customer-centric approach is key to transforming the future of digital collections.
Companies in the fintech field understand and formulate their communications strategy for various channels in order to connect better with their customers. This results in the same level of service regardless of the communication channel used. Digital omnichannel communication serves as a “virtual agent” that guides the customer through simple self-service which results in increased account resolutions. Research shows that strong omnichannel customer engagement retains 89% of their customers, compared to 33% for companies with weak omnichannel engagement. Thus, an omnichannel approach is critical in the debt collections process where customers would want to be reached out to over certain channels more than others.
Standard and regulatory compliance
Regulators expect debt collectors to be empathetic to customers’ needs in terms of the channels and content strategy used. This is also critical to increase privacy and borrower protection rights. With a surge in regulatory concerts, fintech companies have ensured that the use of data and AI-led methods help meet the debt collection regulatory requirements. Through the simple process of following standardized procedures, fintech organizations ensure compliance with guidelines, resulting in fewer defaults and an increase in customers. Furthermore, introductions such as RBI’s regulatory sandbox allow fintech firms to be more agile and absorb the disruption taking place. The sandboxes have given regulators the ability to work with fintech innovators in order to mitigate potential risks and develop evidence based policy while allowing fintech companies to test new products, services and business models.
Thus, highlighting that these regulators are instrumental in creating compliant communication designed to meet the requirements of debt collection laws and regulation.
Ensuring operational coherence
With the data collected by fintech companies, it is easy to access previous customer interactions, and credit and financial information to gather insights while handling challenges. These insights accelerate the overall debt collection process and make it more goal focused. With the use of these insights, debt collections are also at a reduced risk and at a point of improved cash flow. In a country like India, where absolute debt numbers are on the rise with the surging population, it is vital to adopt advanced analytics-enabled collection models to ensure operational efficiency. Working in a digital landscape will ensure debt collectors as well as lenders allow operational efficiency and coherence.
In today’s digital era, customers are still at the core of driving business success. Fintech startups have found the balance between the use of digital innovations and customer-centric practices to reach their business goals. They have been instrumental in improving the overall customer experience and disrupting the debt collections space. With the support of government bodies and the overall ecosystem, fintech companies are at the forefront of digital disruption and this is only the beginning.
Views expressed above are the author’s own.
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