The Digital Disruption of the Debt Collection Industry
Most people recognize debt collection is one of the oldest professions, and by all reports it’s not going anywhere anytime soon. That said few industries have overcome more challenges than the collection industry, particularly as we’ve had to evolve from relatively dubious origins. It should come as no surprise then that today it is one of the most regulated industries in the world.
We have also witnessed the transformation of the industry in recent time, with things like…
- The proliferation of industry bodies, associations, alliances and networks.
- Consolidation through mergers and acquisitions (particularly over the past 20 years).
- Increasing complexity and cost of managing governance, risk and compliance (GRC).
- Advances in technology that have democratized expensive and sophisticated software to businesses of all sizes.
There has been much written about the statutory, regulatory and strategic comings and goings of our industry, but seemingly very little written on the modern technologies and disruptive impact they are having on the traditional credit and collection industries of the world.
If your not familiar with the term ‘digital disruption’ I suggest you pay attention.
Disruption comes in many forms, perhaps best summarized by the following image and in greater detail here… 10 Hyper-Disruptive Business Models.
Ever wonder what happened to Kodak, the global giant in photo processing that disappeared seemingly overnight? The short answer… digital disruption. Other popular examples are how Apple changed the way we listen to and buy music, what ebay and amazon did for shopping, how Netflix changed the way we watch TV, and just ask a taxi driver what they think about Uber.
I’m certainly no expert on the subject, but I do pay attention.
The collection industry has benefited tremendously from technology, through collaboration with agencies, industry bodies and developers to innovate and build sophisticated technologies. Advanced and autonomous collection systems, predictive diallers, call recording capabilities and so on… all designed to empower an agency to maximize efficiency, improve liquidity rates and ultimately drive profitability.
Changing behaviors and evolving expectation
Away from the collection industry, and times they are a changing fast. Today people, and the businesses they run are getting smarter. Mobile tech is sweeping the world and businesses of all sizes have a plethora of apps, tools, plug-ins and add-ons to improve all areas of business, including receivables management. They can raise quotes, issue invoices, receipt payments, schedule reminders, issue demand letters and engage collection agencies with the click of a button or swipe of a finger.
Businesses today (aka: our clients) are using new technologies to manage their operations in an on-demand, real-time and more effective way. In doing so they are reducing DSO, customer defaults, delinquent debtors and in many cases the dependency on traditional outsourced debt collection services.
Whether we like it or not there are many powerful forces working to disrupt traditional markets, and they have their eyes firmly fixed on our industry. You only need to look at what’s already in the market to begin to understand the impact technology is already having on our industry in 2016.
Start-ups, incubators, integrators and collaborators. Cloud accounting, add-on central, analytics and machine learning… or is that AI (artificial intelligence)? Net promoter scores, influencers, affiliates, communities, trolls and bloggers, and on and on it goes.
Here’s just a few of the new providers directly impacting the traditional collection industry…
- Quickbooks App Center – Accounting / Receivables
- Xero Add Ons – Accounting / Debtor Tracking
- Invoice Care – Automated Receivables
- Anytime Collect – Automated Receivables
- True Accord – Automated Receivables
- Ezy Collect – Automated Receivables
- Debtor Daddy – Automated Receivables
- Invoice 2 Go – Automated Invoicing
- Cashflow Guard – Automation and Prediction
So what does this mean for traditional collection agencies?
Truth be told, no one really knows. The modern tech boom could bust, innovation grind to a halt and we’re all worried about nothing. On the flipside the robots take over, we’re all out of a job and the apocalypse is nigh. I wouldn’t bet on either.
Business owners are becoming increasingly aware the longer they wait to act, the less likely they are to be paid, and the value of early action. For instance the following image emphasizes the statistical difficulty in being paid on time, and how quickly the chances of recovery diminish over time.
This information wasn’t readily available to the public 20 years ago, but it certainly is now and businesses are getting smarter.
An obvious conclusion to draw from this may be that it negatively impacts (particularly) commercial collection placements, increasing competition for premium accounts and driving commission rates further down.
On face value, things don’t look so challenging for B2C collections. Consumers will continue to consume, credit cards will do their thing and demand for collection agencies will remain high for the foreseeable future.
Liquidity rates and profitability models however may come under pressure, particularly with escalating statutory and regulatory compliance requirements.
We are yet to fully understand the impact the equally forceful disruption of personal finance, banking and mobile money is likely to have on the our industry. Technologies like M Pesaand Coins.ph in emerging regions Africa and Asia continue to evolve, and bring new hope to millions of people in need.
So what now?
Open your eyes to whats happening around you.
The good news is there are so many amazing sources of information and guidance out there for you to learn from. You just have to know where to look. The 7 strategies to respond to digital disruption is a good place to start, so too are social media sites Linkedin, Twitter and YouTube.
Ultimately it depends on your business model, target audience, commitment to content and appetite for knowledge that will determine how you respond to disruption, and how you define your own digital vision and strategy.
Once you get past the fear of disruption, you can embrace the wave of opportunities that come with it. Soon you will realize the same technologies available to and created by these disruptors to drive innovation, are also available to people like you and me. If your mind is open to embrace change, there are so many new and innovative ways to modernize existing and successful business models.
Understand trends and customer behaviors
Are you well informed and prepared to understand the trends and behaviors disrupting our industry? Do you have someone in your business who asks the questions “What are our competitors, and the innovators around us doing to disrupt our business model, and what can we do to stay ahead of the curve?”
As a small business with a global footprint and 40 years in the international collection industry, we are a perfect case in point. We respect the past with an eye on the future, and choose to embrace technology to evolve our standards (compliance and performance). We took a long hard look at our business model, studied the trends and industry influences impacting our business now and into the future, and reassessed our goals and objectives.
The challenge for all businesses is to define what makes them unique, or as Simon Sinek put it “Start with Why”. Once you understand your ‘unique selling proposition’, or ‘differentiating value proposition’ you can set out to identify a problem in the market that only you can solve. Then all you need is the motivation and intestinal fortitude to find the solution, and tell people about it.
It doesn’t take a rocket scientist to ask the question. Innovation starts by just asking ‘Why?’.
Adam Wood | CEO @ GCS Credit