Study examines the ‘next normal’ in collections

A new report by TransUnion and Aite-Novarica Group explored how significantly the collections industry is changing.

The report found that the collections industry is boosting hiring and technology investments as it transitions into a “next normal” stage. Approximately seven in 10 collections professionals (69%) said technology solution spending will modestly or significantly increase in the next two years.

About two-thirds of collections professionals (67%) said employee compensation will increase in the same time period.

The report titled, “A Transition to the Next Normal: The Collections Industry in 2021,” looked to provide the latest annual look at the trends, challenges and opportunities in the U.S. third-party collections industry. The report is based on a survey of 151 third-party debt collection professionals and interviews with 12 industry thought leaders conducted during the second and third quarter of this year.

TransUnion and Aite-Novarica Group explained the ramp up in tech and employee investments is occurring against a backdrop of a growing collections employment market.

Experts said the number of collections employees is expected to increase to 137,928 in 2021 compared to 134,347 in 2020, though it remains below the 2018 level. which was 139,273.

TransUnion and Aite-Novarica Group pointed out that the collections industry is experiencing modest employee growth even as industry activity slowed in recent years.

According to the report, 77.6 million consumers had at least one collection tradeline in Q3 2021, collectively totaling $188 billion in outstanding balances, representing a 1% and 3% decline, respectively, from the end of 2020.

“After a better than expected pivot to remote work and surprisingly good collection rates in 2020, 2021 has brought greater uncertainty for the collections industry,” said Jason Klotch, vice president of third-party collections in TransUnion’s diversified markets business.

“While collections performance continues to be a bright spot, particularly for larger companies, reduced account volumes, a changing regulatory environment and shifts in the consumer credit market are among the challenges the industry is facing today,” Klotch continued in a news release. “Companies, though, expect more accounts to be placed in collections in the coming year and investing in new technologies and employees is critical for the anticipated volume increase.”

Technological advancements key for future of industry

While letters and phone calls continue to be nearly universal approaches for collectors communicating with consumers, TransUnion and Aite-Novarica Group highlighted the use of text messaging has become more common.

More than three in 10 respondents (31%) reported that their company uses this channel today, compared to 22% in 2020 and 16% in 2019.

The report also found that use of technologies such as online payment portals has multiple benefits, including:

— They may be preferable to certain customers who do not want to have a human interaction and want to deal with their debt at a time of their choosing

— This service is beneficial due to the limitation on outbound telephone calls that will take effect with the implementation of new regulatory requirements.

While certain technological tools have been adopted somewhat uniformly across the industry, TransUnion and Aite-Novarica Group mentioned other solution are far more likely to be in use at larger companies.

TransUnion and Aite-Novarica Group added that medium and large companies have similar adoption rates for online payment portals and predictive scoring tools and at generally much higher rates than smaller companies.

Larger Collections Agencies More Apt Use New or Recent Technologies

Source: TransUnion

Employees will be a major differentiator

Advancements in technology have also allowed more employees in the collections industry to work from home, according to TransUnion and Aite-Novarica Group.

More importantly, TransUnion and Aite-Novarica Group said this practice could help companies retain more of their top employees.

Since the onset of the pandemic, 87% of larger companies represented in the survey had collection agents shift to remote work compared to 43% for smaller companies.

The survey noted that companies that shifted to a remote working environment in response to the pandemic largely expect to continue to offer at least some degree of remote work in the future. This most often takes the form of a hybrid arrangement, rather than never going in to the office.

As one interviewee in the report noted, “Unless there’s a regulatory or client-driven requirement to be in the office, most companies appear to be okay with some sort of hybrid model.”

Nearly two-thirds (64%) of companies are either considering or already offering remote work arrangements for new hires, according to the survey. This consideration of remote work is distributed among a variety of roles, including collection agents.

TransUnion and Aite-Novarica Group discovered the main reason companies are considering remote working arrangements is approximately 71% say it is to attract better applicants and 62% say it is to increase employee retention. One-third (33%) said it was to reduce costs.

“The last two years have proven how resilient the collections industry can be, and as account activity increases it is clear that the agencies that are investing in technology and talent will be best prepared when the market shifts,” Klotch said.

To download the full report, go to this website.