Rise of Digital payments and its impact on Loan Collection

October 11, 2022

The Impact of Digital Payments on Debt Collection - Moving Towards Digital Debt Collection

Loan delinquency was an issue globally even before the COVID-19 pandemic and has only been exacerbated since. This is not only limited to certain countries but is a global issue:

  1. The global debt value increased over 9% from the first quarter of 2020 to the last, from 258 trillion U.S. dollars to 281.5 trillion U.S. dollars. The value of global debt in the fourth quarter of 2020 was more than three times the value of global GDP. (Statista)
  2. In the U.S., consumer debt increased by over 5%, from $14.08 trillion U.S. dollars in 2019 to $14.88 trillion U.S. dollars in 2020. (Experian)
  3. The national debt of India increased from 1.9 trillion U.S. dollars in 2019 to 2.35 trillion U.S. dollars in 2020. (Statista)
  4. The overall debt in the U.K. increased from 2.29 trillion U.S. dollars at the end of October 2020 to 2.38 trillion U.S. dollars at the end of November 2021. The average debt per household at the end of 2021 was £63,112. (The Money Charity)
  5. The biggest challenge to debt collection around the globe is the use of outdated debt collection methods. Banks and lenders are using outdated channels rather than modern digital channels that lead to better outcomes - a flaw that has magnified the failure of debt collection since the pandemic, ensuing lockdowns across the globe

The Impact of Digital Banking and Payments

India alone has experienced massive growth in digital finance, with close to 1 billion digital cards and over 2 billion PPIs (prepaid payment instruments) like digital wallets, online banking accounts, and digital payment modes, as of 2021 (MoneyControl). India’s Unified Payment Interface (UPI) saw transactions of Rs 421 crore (nearly US 55.90 million dollars) in October of 2021 alone.

The COVID pandemic accelerated the adoption of cashless transactions. Digital banking is now the norm, and since debt collection involves financial transactions, it is evident that digitization is having an impact on banks and debt collection agencies.

Adapting To Changing Consumer Habits For Better Results - Going Digital

McKinsey conducted a survey that included banks, lenders, and credit card users who had recently faced the brunt of delinquency. The purpose was to understand which channels banks were using to contact customers, what the outcome was per channel, and to understand what channels customers preferred to be contacted on. The results of this survey showed that:

Banking channels that lead to best customer outcomes

Online banking as a communication channel was used by only 2% of lenders even though the use of smartphones and digital banking was widespread. The results that banks and lenders got through these channels were a higher percentage of debts were recovered through digital channels like online banking, mobile app pop-ups, and push notifications, while non-digital methods got the least positive results.

The Issues In Debt Collection

  1. Most banks and lenders are not using digital solutions when it comes to debt collection processes. Debt collection processes like user profiling, risk analysis, tracking loan delinquents, etc., can be digitized to reduce the chances of defaulters well in advance.
  2. There is a lack of digitization on the front end as well. Lenders are still using archaic methods of communication like letters instead of digital channels for contacting customers.
  3. Government policies are becoming stricter and outdated methods like phone calls, and in-person loan collection are becoming a challenge. There are federal rules in place that prohibit calling a customer before and after a certain time of the day. There are rules against issuing threats or doing bodily harm, etc.
  4. Rising economic issues and the pandemic have increased the number of debtors, and consequently, delinquents. Banks and lenders are finding themselves short-staffed and unable to meet their goals using manual processes.

Improving Debt Collection Rates Through Digital Debt Collection

Digitizing debt collection is not just optional anymore; it is absolutely necessary. Consumers today are largely available on digital channels because of the widespread penetration of smartphones and the ease of access to the internet. Banks and lenders have to adapt to this and transition to digital methods.

Through digital debt collection, lenders can greatly increase customer experience and satisfaction, increase compliance levels, and achieve business targets. Here are the benefits banks are experiencing through digital debt collection:

1. AI-based analytics solutions are helping identify trends, anomalies, and opportunities in debt collection. Predictive modeling studies user data to identify potential defaulters and at-risk customers early. This enables banks to take proactive action like credit counseling and creating manageable repayment plans specific to the customer resulting in higher collections.

2. A centralized view of customer data, their spending behavior, preferred communication channels, etc., are helping banks create relevant and personalized repayment plans and communicate these plans over customers' preferred communication channels.

3. Data collection and tracking happen in accordance with governmental rules and regulations. Banks can also communicate through digital channels adhering to compliance and regulatory requirements of debt collection. This helps lenders stay within the boundaries of regulatory laws.

4. Consumers prefer digital channels because it allows them to address repayment in their own time. In order to give consumers this freedom but also maintain regular touchpoints, banks need to establish an omnichannel presence. This allows banks to contact debtors via different channels without being overbearing, and it also allows debtors to contact the bank via the channel they prefer.

5. Digital communication eases the debtor's anxiety which is generally followed after a debt collection call. It allows them to maintain privacy and control while choosing the timing and frequency of communication. This has a big effect on debt collection.

6. Automation allows debt collection agents to prioritize their efforts and focus on cases that are high-risk or have the highest chances of repayment. Repetitive communication tasks can be automated, and emails, chats, push notifications, etc., can be set to trigger automatically at regular intervals freeing agents to take on more important tasks. This is helping banks operate with a lean workforce and cope with the shortage of personnel.

Implementing Digital Debt Collection

Broadly speaking, banks have to implement digital solutions across three segments:


Using technology during the acquisition phase to study the consumer's persona, credit history, past interactions, and spending habits to create a highly accurate risk analysis report.


Digitally monitoring customers and their spending habits to have real-time insights into their ability to repay a loan. Also, the use of AI-based analytics to understand a user's situation to create customized repayment plans.


Ensuring banks collect as much as possible while maintaining customer satisfaction levels for repetitive business by using digital solutions.

Digitizing debt collection processes is not a difficult task today. FinTech is a booming industry, and there are plug-and-play solutions (as well as customized ones) that banks can implement to adopt digital debt collection.

Episode 09
How an Automated Loan Management System Can Maximize your Efficiency

Episode 09
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