6 Debt Collection Industry Trends to Watch for in 2024

The start of a new year is always a chance to reflect and evaluate - a blank slate with an opportunity to enter 2024 with focus and new strategies.

Last year, increasing living costs swallowed up incomes, forcing numerous households into deeper financial strain. The rise in delinquencies will continue to impact collection efforts and create even more urgency to reassess collection strategies. 

As you set your priorities and metrics for your collections teams this year, let’s explore the key trends that should be on your radar to prepare for a successful 2024.

1. Emphasis on Stronger Member Relationships and Loyalty

The rise of online banking means younger Americans are less loyal to one financial institution. Younger generations demand convenient, personalized digital experiences and mobile banking options.

We will see a greater emphasis on programs and tools that strengthen relationships. Supporting and empowering members - especially when experiencing financial hardship is key to enhancing the member experience. 

Remember that a member late on a bill today may not always be late. When financial challenges arise, they will need your support and empathy to get back on track. Adopting an empathetic collections approach can turn these members into your biggest advocates to bring in new members.

2. Personalization through Data Analytics

Instead of sending out the same generic message to all members, leverage data analytics to segment profiles based on gathered data. Segmentation can help you group members based on demographics, contact preferences, and delinquency status, allowing you to tailor your message and ensure more personalized communication. 

Understanding the needs of members goes beyond surface-level interactions, delving into the nuances of their behavior and payment preferences. These insights will guide your collection efforts and help you make informed decisions based on accurate and up-to-date information.

3. Focus on Compliance and Regulations  

Compliance has always been a priority, but with the increased regulations around data privacy and consumer rights within the industry, its importance is set to intensify. The challenge for many credit unions is that the complex regulatory environment requires significant costs and resources in order to keep pace with changing regulations.

Especially with regulations like the Fair Debt Collection Practices Act (FDCPA), this requires strategic employee training to create a knowledgeable team equipped to navigate evolving legal landscapes. 

As costly as these processes can be, cutting corners in compliance is not an option. Adhering to regulations is essential for preserving your reputation and ensuring a positive member experience.

4. Increased Tech Spending

According to research reported by the Financial Brand, 79% of financial institutions plan to increase tech spending over the next two years. 

As financial services strive to be a digital-first industry, tech spending is expected to reach an estimated $978.9 billion by 2027.

Why does this matter? Two words - increased competition.

As more institutions allocate resources to technological advancements, the industry is filled with innovation and providing faster, more convenient digital services to meet consumer changing preferences. Credit unions must recognize that staying abreast of these technological investments isn’t just about keeping up; it’s about outpacing competitors. 

Institutions that leverage technology to enhance member experiences, streamline operations, and offer innovative products will not only survive but thrive in an environment where competition is the catalyst for progress and satisfaction.

5. Reduce the Cost of Payments and Scale Quickly

It’s no secret that 2023 was a year of soaring interest rates and market volatility. The challenge of managing liquidity and containing the escalating costs of payments will continue to be a challenge this year. To address these concerns, we’re going to see an increased focus on scalable solutions that not only support higher default rates, but also enhance operational resilience. 

A pivotal aspect of this strategy involves automating payment processes to minimize failed payments and mitigate fraud risks. 

Minimizing manual input, and manual payment processing will not only significantly reduce the likelihood of human error and duplications, but it will bring the cost of loan servicing down. This will ensure a robust response to the complexities of payment challenges but also positions credit unions for sustainable growth and efficiency in this financial climate.

6. Reduce Burnout and Empower Employees

Limited staffing, pressure to meet collection goals, emotionally complex interaction with members and countless other factors can contribute to excess stress, burnout and decreased productivity. 

Burnout is a very real problem that comes with the nature of collection functions and it is often hard to find qualified candidates who are ready to take on the demands of routine data entry, repetitive tasks, and uncomfortable interactions with delinquent accounts.

2024 is the year of turning to technology to alleviate burnout for your agents, reduce the high volume of calls and empower them with more efficient and effective workflows to boost morale and well-being.

Technology can also help them focus on what truly matters - delivering exceptional member experiences.

Preparing for 2024

2024 is going to be a pivotal year with the rise in tech spending, continued financial struggles and need for faster, more convenient payment processes that can scale quickly. If you want to see how Lexop can help set your collection departments up for success in 2024, check out our free demo so you can experience it for yourself.