TransUnion and Datos Insights took an extensive look into third-party collections on all fronts, uncovering the depth professionals are trying to communicate with debtors nowadays.

Researchers found nearly all third-party collections companies (98%) use letters to reach consumers. However, TransUnion and Datos Insights discovered just 40% have adopted text or SMS messaging to consumers — compared to 37% that were using text in 2022.

Furthermore, researchers noted that last year 34% of collections companies indicated they would start using text messaging within the coming two years, suggesting economic headwinds have stalled planned investments in communications technologies.

The findings were revealed on Wednesday in the fifth annual industry report by TransUnion and Datos Insights titled, Seizing the Opportunity in Uncertain Times: The Third-Party Collections Industry in 2023.

The report examined overall collections industry trends, challenges and opportunities and is informed by a survey of third-party debt collection professionals.

“The survey reaffirms our current market indicators, that leveraging customer contact intelligence and the ability to offer a digital experience will be key to the future of the collections market space,” said Eric Foulk, third party collections market leader with TransUnion.

The report showed that the willingness and ability of third-party collections companies to invest in new communications channels is largely determined by the size of the firm.

Larger firms, with higher budgets and more sophisticated operations, are more likely to adopt new technologies, according to TransUnion and Datos Insights.

Top Communications Investments Over The Next Two Years, by Company Size

Text/SMS Messaging Chatbot or Digital
Assistant		 Email
Large Companies
(20 or more full-time
employees)		 31% 43% 17%
Small Companies
(19 or fewer full-time
employees)		 31% 16% 18%

Source: TransUnion and Datos Insights

In line with communications investments, the report found 60% of companies are somewhere on the path to adopting tools that leverage artificial intelligence (AI) and machine learning (ML) technologies. That includes 11% of companies that already use third-party solutions, 40% that are considering buying or developing AI and ML solutions and 8% that are in the process of deploying these technologies.

Researchers noticed companies’ applications of AI and ML span internal and external functions.

TransUnion and Datos Insights said some use cases will help assess a customer’s willingness to pay. They added other applications include enhancing customer experiences by identifying the right time and channel through which the consumer prefers to be contacted.

Top Ways Companies Use or Plan to Use AI/ML-based Technologies

Predict
Payment
Outcomes		 Segment and
Profile
Customers		 Augment
Self-Service
Platforms		 Recommend
Communications
Methods		 Analyze
Account
Lifecycle
Workflows		 Anticipate
Consumer
Behavior
58% 56% 53% 47% 47% 46%

Source: TransUnion and Datos Insights

The challenge for growth

TransUnion and Datos Insights acknowledged broader macroeconomic trends have kept consumers generally resilient, tamping down the need for third-party collections activity.

“Companies recognize the need to gain accounts and expand into new areas of business in order to grow,” TransUnion and Datos Insights said.

The report found that 58% are between moderately and extremely concerned about growing their businesses.

Moreover, 64% agree or strongly agree that third-party debt collection firms must diversify their business (e.g., collect different types of debt, expand into other geographic regions) if they are to succeed, thrive, or survive in the long term.

TransUnion and Datos Insights said some of this growth may come from breaking into new verticals, like auto finance or medical debt collection.

TransUnion and Datos Insights added that another approach is to offer business process outsourcing (BPO) services in which a third-party collections firm helps with processes similar to debt collection, like claims and billing, for businesses within a vertical it already serves.

Both types of expansion were represented in the top two options for growth strategies highlighted in the report.

Within the next 12 months, 17% of third-party collections companies plan to expand into the fintech/unsecured consumer lending market, while 12% plan to offer BPO services.

Generally, 45% of companies have plans to enter into other types of businesses in the next 12 months.

For full details, including findings related to industry challenges and liquidation rates, go to this website to find the entire report.