India’s Digital Transformation – How it’s Changing the Country’s Consumer Debt Collection

This article was featured on Entrepreneur.

Digital Transformation is the new normal in India. According to a recent joint study by IDC and Microsoft, digital transformation will add USD 154 billion to India’s GDP by 2021 and increase the country’s growth rate by 1% annually. Business leaders in India expect to see big gains in productivity, customer advocacy as well as profit margins as digital transformation efforts gather steam. Within the ambit of India’s digital transformation, the Fintech revolution is propelling a paradigm shift as emerging technologies enable improved transparency and regulatory compliance. It is particularly changing the country’s consumer debt collection landscape by leveraging data analytics and improved internet and mobile connectivity to drive transformative outcomes.

Here are three ways in which digital technologies are helping reinvent the consumer debt collection landscape:

1. Increasing accuracy of credit risk prediction and preventing default

Increasing the accuracy of credit risk models can translate into crores of rupees in savings through loss mitigation. Artificial Intelligence (AI) makes this possible by analyzing rich data sources beyond traditional ones and increasing the accuracy of prediction models using machine learning (ML) algorithms.

Leveraging ML and Natural Language Processing (NLP) technologies, Fintechs are analyzing unconventional data sources such as customers’ transactional data, payment information, social data, and online activities to derive meaningful insights about their financial behaviour. Imagine this: a customer falls behind on his/her utility and rent payments and social media data corroborates this by indicating job loss. Fintechs can aggregate all this data and proactively reach out to such a customer with alternative debt repayment options and credit counselling in order to mitigate their loss as well as prevent the customer from becoming delinquent. Standard Chartered Bank applies ML algorithms on its internal as well as external data, gathered from over 30 public sources, to identify borrower behaviour and improve its debt collection.

2. Deploying customised payment plans

Mass personalisation in debt collection is now possible, thanks to digital and mobile technologies. Traditionally, most collection efforts revolve around standardized debt payment plans offered through paper-based mail, calls or emails to collect payments. Innovative collectors are now leveraging customers’ behavioural, social, historical, and online-offline data to roll out personalised payment plans through their preferred channels. A customised outreach and collection strategy can help collectors recoup their losses (some, if not all), while also helping customers pay off more of their debt. In essence, personalisation of debt collection strategy results in significant benefits – less outstanding debt, higher customer satisfaction and stronger relationships.

3. Enabling cost-effective debt recovery

The era of employing muscle men and call centre agents to recover the debt is fast being replaced by intelligent bot agents that can communicate with customers on their preferred channel, at a time convenient to them. Intelligent bots mine data from various sources such as social media, financial history, insurance records, smartphone activity, IoT devices, and more to create an accurate customer profile. Based on the profile, bots are able to push relevant debt repayment options to customers, and even answer queries (through videos/online content/conversations), recommend plans and give advice where necessary. Once the customer accepts a particular payment option, it is processed and applied to customer’s debit account – all without the need for underwriters, calling agents or verification experts. A lot of lending firms that provide instant loans to online shoppers leverages AI-powered engine to determine who’s most likely to default, what’s the best time to call them, what debt recovery approach should be taken, etc.

Digital transformation is the answer to India’s ‘bad debt’ crisis

Outstanding consumer loans grew by almost 18% in India in March 2018 as compared to the previous year. The trend is likely to continue as individual borrowers increasingly default on payments given the country’s weak job market. While the Indian government is actively working to mitigate the crisis, it is also betting heavily on the digitisation of the financial ecosystem to better manage consumer debt. Leading public sector lenders like SBI, Bank of Baroda, Canara Bank and Syndicate Bank are transforming their people and process strategies for the digital age to battle bad debts and regain competitiveness. Clearly, the era of intelligent debt collection has arrived.