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Cost of Living Crisis Drives Debt Collection Innovation

Paul Sweeney

The looming cost of living crisis is forcing businesses to reassess their debt collection approach and those that switch to conversational customer engagement solutions are reaping the benefits. 

At every turn, we hear the bad news about the cost of living – rampant fuel costs, interest rates rising, escalating food prices, and incomes falling in real terms. Debt charities are warning that people on low incomes are under severe financial pressure.  

It is against this backdrop that the debt collection industry is preparing to face what could be its biggest challenge.  Debt collection teams — working for companies like telcos, utilities, financial services and retailers — will be engaging with at-risk customers experiencing unprecedented financial difficulties. 

Cost of living crisis is hitting where it hurts 

In recent years, several factors have contributed to our present situation. These include: Covid, the war in Ukraine, severe weather effects, environmental pressure for greener fuels, and the cost effects of food production, among others. 

Areas hit the hardest (at time of writing) 

  • Inflation in UK: 10.1% and EU: 8.6% 
     
  • Food inflation in UK: 12.6% and EU: 11% 
     
  • Housing inflation in UK: 20% and EU: 9.8% 
     
  • Energy inflation in UK: 54% and EU: 38.3% 
     
  • Real earnings growth for regular pay in UK: -3% 

New strategies required to manage customer relationships 

During the Covid pandemic, companies had to rapidly step in to avert a total financial disaster. They evaluated their clients’ positions and put strategies in place to help them, and now they need to do it again. However, this time they can use what they learnt during Covid to manage their customer relationships. 

And that means dealing well with customers, keeping a good reputation and keeping their collection rates high. 

Changing the way businesses approach debt collection is covered in detail in a new report — Customer Connections: The new conversation rules for credit, collections and payments — which is written for those operating in credit and collections. 

How should we engage customers about their debt 

People need to talk about their debt in a non-threatening space where they feel supported and not judged. 

Why do people not like to talk about debt? 

Embarrassment and fear are the main reasons people don’t talk about debt. They feel anxious and the stigma attached makes them feel judged for their perceived failure. 

In a survey of UK respondents conducted on behalf of Lowell it was found that: 

  • 69% of people in debt don’t talk about it to anyone, even to their closest family 
  • 39% don’t want people to think badly of them 

However, customers should be encouraged to talk about their debt, as: 

  • 82% felt better after talking about their debt 
  • 66% feel less worried after setting up a payment plan 
     

Empathetic customer engagement 

The stress from the rising cost of living makes people feel helpless, so the best way is to deal with vulnerable customers is with empathy – try to understand their specific personal circumstances. 

Besides, the old way of strong-arming and threatening does more harm than good. Not only does it damage a company’s reputation, but it may also be contravening debt collection regulations. Organisations such as the Financial Conduct Authority in the UK (FCA) give guidance on dealing with financially vulnerable people. 

Why Customers like Multichannel Messaging and Conversational AI 

Customers want to talk to companies on their own terms  

Two-way is better than one-way communication 

Nobody likes to be ordered to do something, and one-way communication, such as outbound SMS’s, feel like demands. On the other hand, people respond better when they have a chance to be heard, which is possible when using two-way conversational texting, like WhatsApp. 

Control is better than powerlessness 

The research from the Customer Connections report found that customers want to feel they have some sense of control over their finances in debt collection conversations. Using a customer engagement solution that sends messages using conversational AI allows people time to consider their responses and they then don’t feel overwhelmed.  

Communicating with AI chatbots makes people feel less judged 

More than half of the people surveyed in the report (54%) said they don’t mind dealing with chatbots if their enquiry can be escalated to a real person if required. While just under half (48%) said they were happy dealing with chatbots if they can resolve their issue. Interestingly, one of the reasons people are happy to hold conversations with a digital assistant is because they felt they were not being judged.   

Customers like to engage on the channels they feel at home on 

Businesses are starting to realise that people respond on different channels depending on the time of day and which one is the most convenient. And they found that using digital debt collection solutions as part of a blended chatbot-live agent approach improves the customer experience. 

By using the best digital debt collection technology available, i.e. automated debt collection, businesses can expect their agents to close more than 300 conversations a day compared with the 50-70 conversations without having smart automation. 

Conclusion 

Considering these unstable financial times, a blend of a friendly human voice and non-judgmental conversational messaging strikes the right chord with vulnerable customers. By ensuring the optimal strategy is in place – empathetic customer engagement using AI automation via multiple channels - collections teams can connect with customers, make difficult conversations easier, and positively impact both cashflow and brand reputation. 

DOWNLOAD the Customer Connections: The new conversation rules for credit, collections and payments report for a more in-depth look at conversational customer engagement and how customers feel about it. 

*Stats taken from Customer Connections: The new conversation rules for credit, collections and payments report.  
* Sources: https://commonslibrary.parliament.uk/research-briefings/cbp-9428/ | https://www.statista.com/topics/4120/inflation-and-price-indices-in-europe/#dossierKeyfigures | https://www.statista.com/topics/9121/cost-of-living-crisis-uk/#dossierKeyfigures | https://www.forbes.com/uk/advisor/energy/cost-of-living-crisis/
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