During these challenging economic times, South African consumers are facing unprecedented pressure, resorting to borrowing to cover living expenses. The Q2 2023 Consumer Default Index (CDIx) by Experian reveals that the country’s 25 million credit-active consumers hold over R2 trillion in outstanding debt. The Index, tracking the rise in consumer first payment default, has consistently increased over the past six quarters across all affluence levels.
As lenders respond to the economic downturn by tightening loan affordability criteria, challenges arise due to increasing default rates among existing borrowers. Efficient debt collection processes become crucial for financial stability and profitability.
Debt collection challenges include maintaining sustainable collection costs, especially for high volumes of small debts. It is an expensive, admin-intensive, and time-consuming process, exacerbated by the increasing difficulty of collecting aged debts, which may become prescribed and uncollectible.
To address these challenges, lenders are turning to artificial intelligence (AI) and machine learning (ML) to streamline collection processes, enhance success rates, and complement human credit collection teams.
6 ways AI aids debt collection:
1. AI-powered algorithms analyze large datasets to identify patterns and trends in debtor behavior, allowing tailored strategies for each group, and increasing debt recovery chances.
2. AI predicts the likelihood of debt repayment based on historical data, credit scores, and debtor behavior, prioritizing high-value debts from cooperative debtors.
3. AI flags accounts showing early signs of delinquency, enabling timely intervention and flexible approaches based on risk profiles.
4. ML-powered chatbots handle routine communications, saving time for human collectors and ensuring consistent engagement.
5. AI optimizes contact strategies by analyzing historical data to determine the best times and channels for contacting debtors.
6. ML models scrutinize debtor financial data to recommend personalized payment plans, increasing the likelihood of successful repayment.
AI and ML systems continuously learn from past collection efforts, refining predictions over time. This iterative learning process enables banks to improve decisions and strategies for effective and profitable debt collection.
By Bryan McLachlan, Managing Director: Africa at CyborgIntell