Debt Collection Services Procurement Intelligence Report, 2023 - 2030 (Revenue Forecast, Supplier Ranking & Matrix, Emerging Technologies, Pricing Models, Cost Structure, Engagement & Operating Model, Competitive Landscape)

Debt Collection Services Category Overview

The debt collection services category is anticipated to grow at a CAGR of 9.9% from 2023 to 2030. Customers nowadays are becoming more and more conscious about their finance. Rising financial stress due to inflation rate hikes, and supply chain issues are resulting in increasing consumer debt, which in turn is driving the demand for category. According to the Consumer Credit report by the Federal Reserve, outstanding consumer credit was valued at USD 4.7 trillion at the end of October 2022. Additionally, the adoption of automation in gathering and payment follow-ups, and the rising multi-channels of communication with customers are the trends in this category.

During 2021, significant discussions revolved around the necessity for debt collection agencies to establish a comprehensive omnichannel footprint. Due to the implementation of Regulation F, which imposes constraints on the frequency of borrower contact by agencies and enforces communication through the chosen channel, this requirement has grown even more crucial. Each endeavor made by collectors to reach out to the borrower gains heightened importance. Consequently, there should be a focus on acquiring precise information. This entails a rise in superior interactions and a larger pool of data for evaluation. This, in turn, intensifies the need for omnichannel intelligence.

The emergence of modern technologies like data analytics, artificial intelligence, and machine learning has made it feasible to customize gathering and recovery strategies on a large scale. By utilizing historical, social, and behavioral data about customers, it is now achievable to offer individualized repayment arrangements tailored to each customer's preferences and through their favored communication channel. Additionally, self-service alternatives have demonstrated their efficacy in yielding favorable outcomes, not only during the initial collection phase but also in the subsequent recovery after charges have been written off. This consequently releases human collectors’ burden to allocate additional time towards assisting customers who are in forbearance circumstances, necessitating empathy and guidance.

In January 2023, KapitalKontroll, a pioneering Norwegian firm specializing in debt management and collection solutions, collaborated with Neonomics to introduce a completely automated debt collection system. This system seamlessly handles all transactions via the Neonomics open banking platform, enhancing efficiency and bolstering security for its diverse clientele. This client base encompasses a wide array of Norwegian municipalities, as well as both small and large businesses spanning the nation.

Buyers in the debt collection category are typically the companies or creditors seeking to recover debts. The number of available debt collection agencies and their ability to negotiate terms might influence their bargaining power. However, if the debt collection agencies provide specialized services and demonstrate value, buyer bargaining power might be lower.

Collection agencies determine the percentages they apply for their charges using various factors, one of which is the level of risk they undertake when they assume responsibility for collecting debt. Consequently, a recent debt of lesser value would incur a lower fee compared to the collection agency's charge for an older debt of higher value. Debt collection agencies usually follow two pricing models i.e., contingency fee, and flat fee model. Contingency fee is also known as “No payment, No Fees” which means fees will only be collected after successfully collecting debt. Similarly, under the flat fee model collection agencies charge a fixed one-time fee between 25% - 50% of the amount collected.

With customer payments becoming delayed and accumulating, businesses often struggle to allocate time for payment follow-ups, often realizing the urgency when it is already past due. Furthermore, this situation can divert their focus from primary business objectives and lead to avoidable expenditure of both time and finances. Opting to outsource the service, however, can effectively boost business efficiency. This approach aids in managing customers teetering on the edge of default while enabling them to maintain a stronger emphasis on their core pursuits. Outsourcing the collection service can offer various benefits such as saving collection time, lesser collection costs, and increased collection rate.

Furthermore, a changing factor in consumer behavior is the increasing focus on data privacy. Individuals obtaining loans prefer to prevent their private information from being exchanged among collection agents. As worries about data security and privacy rise, lenders will give more importance to adopting strong measures for safeguarding borrowers' personal details. Regulatory authorities are recognizing the hazards associated with storing, utilizing, and disseminating borrower data. Consequently, lending institutions will need to align with these concerns to establish credibility with their customers.

Debt Collection Services Procurement Intelligence Report Scope