Not that long ago I wrote The Future of Debt Relief is Artificial Intelligence and Job Loss and talked about future changes in the debt relief space.
Today we have some feedback from Mike Morency of Peregrin Services who actually holds patents in the field of debt relief processes and artificial intelligence (AI) processing.
Mike’s Point of View
As one of our teammates here says, the opportunity for automation in the debt relief space is boundless! The opportunity for monetization, unfortunately, may not be as boundless, and the success of any approach is limited not only by that, but also by regulatory issues and bank operational issues.
There is no doubt that consumers will benefit from more control over their finances in the palm of their hand. Some examples:
- Debt settlement: Debt settlement is based on rules. No need for a person to be in the middle of it. There is a number that works well enough for both the debtor and the creditor, and a machine can get to that number quickly. The toughest part is making the connection with the debtor, but once that happens, it is more accurate and likely safer legally to cut a deal talking to an app. The process is faster too. Add in the ability to take a payment online via the app, and the consumer will be more quickly and firmly engaged, and more likely to get back into the credit stream successfully.
- Collections: Especially with new prohibitions on calling, once outreach is accomplished, an app is much more likely to be legally compliant and potentially much less confrontational for the consumer than a collector. Giving the consumer quasi-control over their commitment and performance of repayment may help improve success. The consumer may also benefit from the reduced cost, which may be passed along in part as a willingness to forego some fees that might otherwise be incurred.
Nothing is stopping these applications. Both are actively underway in a variety of circumstances. The journey of a thousand steps is already taking place step by step by some intrepid market testers.
In the next year or two we will see significant percentages of debt being collected and/or settled this way. The only thing holding these back from wide scale adoption, and subsequent fine-tuning or evolution, is the need for banks to do testing.
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Banks cannot widely adopt a strategy until it consistently outperforms their existing strategies, and it takes time to prove that. Even if the new approach saves money, lost collections and increased losses will be a much higher number, so you don’t want to make a wrong bet in this space if you are a bank.
Debt Management and Credit Counseling face another hurdle: financing. Most banks openly deal with non-profit CCAs, and their very nature impedes the potential for an investor to reap rewards from investment of seed capital.
The fragmented, unstandardized nature of the industry also impedes widespread adoption of process improvements (arguably perpetuated by associations that have to ensure all of their members can comply with any new technique) Last, consumers do not choose a CCA based on their service level – all of them can fix the problem the same way, and none have a strongly differentiating competitive advantage, at least to the typical consumer.
Traditional CCAs have been challenged to be able demonstrate their effectiveness with any but the most-self-motivated individuals, and so banks are wary of investing in this channel versus traditional collections for any type of debt – no demonstration of better performance across a spectrum. The traditional CCA industry is kind of in a catch-22: they cannot modify their model without risking loss of funding from banks, and they cannot generate investment funding while their old-style model is unable to generate growth.
Having said that, there are enormous opportunities for consumer and bank engagement via CCAs and technology, and the entire ecosystem of DMPs is wide open for efficiency improvements in both time, reduced cost, and improved customer experience through greater availability of data, if used as a performance encouragement tool.
Improvement in the Debt Management space will likely only happen if a) banks are willing to invest in improving the process both in-house and industry-wide, b) CCAs step up and invest in consumer research, testing, metrics, and process improvement (which will likely only happen with major industry consolidation), and c) enough efficiencies are demonstrated to make the voluntary, structured repayment/settlement of overburdened debt attractive in this channel to make it worth investing in by either banks, agencies, or other third-parties.
In the years ahead, there will be significant and rapid change in the interaction between consumers and banks/collection entities for the collection and settlement of debt via apps, in-home IoT solutions, payment services, and more. There will always be some kind of consequence for not paying back your debt in full, but the options and tools for managing that repayment will become dramatically easier, reachable in the palm of your hand on your smartphone, and engaged and integrated with you as part of your daily routine.