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

New report from TransUnion and Aite-Novarica Group finds overall collections industry slow to adopt new communications and other solutions

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 (NYSE: TRU) and Aite-Novarica, “Charting the Course and Steering Toward 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.”

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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.

Top Communications Investments Over The Next Two Years
  Text/SMS
Messaging
Automated
Communications Using
Artificial Intelligence
Chatbot or Digital
Assistant
Large Firms
(100k+ Accounts)
34% 44% 34%
Small Firms
(<100k Accounts)
40% 7% 12%

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.

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“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.

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