How fintech startups are rewriting the future of collections

Digital transformation and innovations in the fintech area are continuously reforming the financial 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 financial 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, which led to new innovations in the space such as Buy Now, Pay Later ( BNPL), API powered banking and cloud enablement. These innovations have become increasingly popular with brands across sectors due to their seamless and flexible nature. Another disruptive solution that has emerged from digital transformation is digital debt collection.

Fintech startups have made the debt collection process less intrusive and added a humanistic approach, improving the overall customer experience and improving recovery rates. A technology-driven, omnichannel approach provides more options for an already connected consumer. Fintech startups work with collections at their core, which makes the process collaborative and transparent, and gives customers every opportunity to find a solution. Among these, there are several reasons why fintech startups have rewritten the future of digital debt collection.

Meeting the customer’s needs

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 efficiency, especially in the more than 30 days past due segment. This becomes particularly important for choosing the right time, channel and frequency to reach them. Another McKinsey report further pointed to the strategic and operational reasons for modernizing customer assistance, which can lead to significant bottom-line value, noting that some digital debt collections have resulted in reductions in NPAs of 20-25 percent, along with lower behavioral risk. and more than a 25 percent increase in customer engagement. This personalized and customer-centric approach is key to transforming the future of digital collections.

Multi-channel communication

Companies in the fintech field understand and formulate their communication strategy for different channels to better connect with their customers. This results in the same level of service regardless of which communication channel is used. Digital omnichannel communication acts as a “virtual agent” that guides the customer through simple self-service that results in increased account resolutions. Research shows that strong omnichannel’s customer engagement retains 89% of their customers, compared to 33% for companies with weak omnichannel engagement. Therefore, an omnichannel approach is critical in the collection process where customers want to be reached via certain channels more than others.

Compliance with standards and regulations

Regulators expect debt collectors to be empathetic to customers’ needs in terms of the channels and content strategy used. This is also crucial for increasing the privacy and protection rights of borrowers. With an increase in regulatory gigs, fintech companies have ensured that the use of data and AI-led methods help to meet regulatory requirements for debt collection. Through the simple process of following standardized procedures, fintech organizations ensure policy compliance, resulting in fewer defaults and an increase in customers. Furthermore, introductions like the RBI’s regulatory sandbox allow fintech firms to be more agile and absorb the disruptions that take place. The sandboxes have given regulators the opportunity to work with fintech innovators to reduce 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 communications designed to meet the requirements of debt collection laws and regulations.

Ensure operational coherence

With the data collected by fintech companies, it’s easy to access past customer interactions, and credit and financial information to gather insights while dealing with challenges. This insight accelerates the overall collection process and makes it more goal-focused. Using this insight, debt collection has also reduced risk and to some extent improved cash flow. In a country like India, where absolute debt figures are increasing with the growing population, it is important 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 for operational efficiency and coherence.

In today’s digital era, customers are still at the heart of driving success. Fintech startups have found the balance between using digital innovations and customer-centric practices to achieve their business goals. They have been instrumental in improving the overall customer experience and disrupting the collection space. With support from government bodies and the overall ecosystem, fintech companies are at the forefront of digital disruption, and this is just the beginning.

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