Collections Industry Sees Significant Split Between Large and Small Firms’ Investments in Customer Contact Channels

CHICAGO, Ill. -- More than one in three (37%) collections firms are now using text/SMS messaging — a modest increase from last year when 31% were utilizing this communications channel with consumers. A different story emerges when broken out by large firms (100k or more accounts) and small firms (fewer than 100k accounts).  While more than half (56%) of large firms now utilize text/SMS messaging, only 17% of small firms have adopted the channel.

The findings were revealed today in the fourth annual industry report by TransUnion and Aite-Novarica, “Charting the Course and Steering Towards Success: The Collections Industry in 2022,” The report examines overall collections industry trends, challenges and opportunities and is informed by a survey of 140 third-party debt collection professionals conducted in Q2 and Q3 2022.

The report found that large firms continue to invest in solutions that create efficiencies within their compliance efforts for the Consumer Financial Protection Bureau’s Regulation F requirements. Meanwhile, small firms, likely constrained by budgets, are lagging this trend.

“The slow adoption of texting and SMS messaging was somewhat surprising, given the limitations Reg F placed on outbound calling and American consumers’ clear preference for text as a communications channel,” said Jason Klotch, vice president of third-party collections in TransUnion’s diversified markets business. “In general, the success of companies in this space will be dependent upon their adoption of digital solutions that create efficiencies and cost savings.”

Despite slower momentum in adoption of digital solutions, the industry appears to recognize the importance of utilizing new solutions and approaches. Overall, 34% of companies plan to add text/SMS messaging—among other tools—to their communications channels within the next two years. Again, this looks different when broken out by firm sizes. Larger firms appear poised to accommodate consumers’ preferences for communications channels, as well as their desire for on-demand, self-service capabilities.

Machine-learning on the horizon

Further down the list of priorities are machine-learning technologies. Currently, 31% of large firms are using an in-house or outsourced machine-learning solution, while 45% are considering one or the other. This tool will likely grow in popularity as the supply of data scientists improves, the technology is further developed, and regulation surrounding its use is shored up.

The primary reasons companies want these solutions are the ability to predict the communication channel most likely to get a consumer’s response; evaluate an account’s past activities to prescribe a next course of action; and to answer inbounds and take the consumer as far as possible.

“Right now less than a quarter of the collections industry is using some type of machine-learning solution, which makes sense because it’s a considerable investment,” said Klotch. “However, given this technology’s ability to help firms maximize efficiency and increase revenue, we’ll likely see it become an essential tool in the near future.”

A changing workforce

In line with this focus on new technology and solutions, collections firms indicate resources will shift accordingly. The survey found 55% agree or strongly agree that they plan to invest in agentless contact strategies, such as chatbots and text messaging. Relatedly, 53% agree or strongly agree that consolidation and technology innovation will lead to fewer jobs in the collections industry over the next year.

While the cause is not clear, nearly 80% of respondents agreed or strongly agreed that hiring is much harder than it was two years ago. A small silver lining: slightly less (67%) agreed or strongly agreed that retention is much harder than it was two years ago.

“This report really demonstrates a sea change as the industry evolves to meet regulators’ demands and consumers’ preferences. Larger firms will be able to more broadly leverage emerging technologies that reduce their reliance on direct contact by collections agents, while smaller firms will need to judiciously choose solutions that best augment their strengths for right-party contacts,” concluded Klotch.

About the report

Insights on the challenges, trends, and innovations occurring in the third-party collections industry are informed by a quantitative survey of 140 third-party debt collection professionals conducted late Q2 and early Q3 2022. Survey results are representative of the market at a 95% confidence interval with an 8-point margin of error. Any differences noted between survey respondents, such as breakouts by company size, collection footprint, or changes in year-over-year survey results, are significant at an 85% confidence interval. This is the fourth annual survey of the third-party collections industry conducted by TransUnion and Aite-Novarica Group. The full report is available here.

About Aite-Novarica Group

Aite-Novarica Group is an advisory firm providing mission-critical insights on technology, regulations, strategy, and operations to hundreds of banks, insurers, payments providers, and investment firms—as well as the technology and service providers that support them. Comprising former senior technology, strategy, and operations executives as well as experienced researchers and consultants, our experts provide actionable advice to our client base, leveraging deep insights developed via our extensive network of clients and other industry contacts. Visit us on the web and connect with us on Twitter and LinkedIn.

About TransUnion (NYSE: TRU)

TransUnion is a global information and insights company that makes trust possible in the modern economy. We do this by providing an actionable picture of each person so they can be reliably represented in the marketplace. As a result, businesses and consumers can transact with confidence and achieve great things. We call this Information for Good®.

A leading presence in more than 30 countries across five continents, TransUnion provides solutions that help create economic opportunity, great experiences and personal empowerment for hundreds of millions of people.

http://www.transunion.com/business